Market Integrity Update - Issue 124 - March 2021
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Civil penalty proceedings commence against CommSec and AUSIEX
- Phishing scam warning reminder
- Former CFO’s court appearance following guilty plea
Civil penalty proceedings commence against CommSec and AUSIEX
We’ve commenced civil penalty proceedings against Commonwealth Securities Limited (CommSec) and Australian Investment Exchange Limited (AUSIEX) for alleged breaches of the market integrity rules (MIRs), Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 (CommSec only), relating to systemic compliance failures in the delivery of financial services.
Some of the alleged breaches occurred over a significant period and involved failures across multiple systems and business areas. Both companies cooperated with our investigation and entered into a Statement of Agreed Facts and Contraventions (SOAFAC).
It’s our view that the number of times the conduct occurred, and the breadth and duration of the conduct, are significant and indicate the entities did not have adequate systems and processes in place to ensure compliance with relevant obligations under their Australian financial services licence and under the MIRs.
The conduct, as set out in the SOAFAC, relates to issues in respect of client money reconciliations, trade confirmation requirements, best execution requirements and regulatory data requirements and, for CommSec only, issues in respect of incorrect brokerage, automated order processing filters and warrant agreement requirements.
Generally, we pursue breaches of the MIRs through the Markets Disciplinary Panel (MDP). However, in this instance we’ve decided to pursue civil penalty proceedings given the systemic compliance failures involved.
CommSec has been before the MDP for contraventions of the MIRs on seven previous occasions since 2012, receiving fines totalling $1,055,000. It has also been subject to a court enforceable undertaking in 2013 for client money and trust account failings.
CommSec and AUSIEX have agreed to enter into a compliance program requiring a review from an independent expert.
- Read the media release
Immunity policy for market misconduct offences
We’ve released an immunity policy for certain contraventions of the Corporations Act 2001 (the Act), which include serious offences such as market manipulation, insider trading and dishonest conduct.
Under the new policy, an individual who’s engaged with others to manipulate the market, commit insider trading or engage in dishonest conduct when operating a financial services business (Part 7.10 of the Act) can, in certain circumstances, seek immunity from both civil penalty and criminal proceedings. Applications for immunity are only available to individuals, not corporations.
The policy will help to identify and take enforcement action against specific markets and financial services breaches of the law and strengthen our enforcement toolkit.
We’re responsible for granting civil immunity, while the Commonwealth Director of Public Prosecutions (CDPP) is responsible for granting criminal immunity. We’ll work with and provide input to the CDPP on applications for criminal immunity.
An application for immunity can be made by either:
- completing our online form
- contacting the ASIC Immunity Policy Hotline on +612 9911 5008
- emailing immunity@asic.gov.au
Under the policy, immunity will only be available to the first individual who satisfies the immunity criteria and reports the misconduct before an investigation into the conduct commences.
Individuals who do not meet the criteria for immunity are still encouraged to cooperate and will be given due credit for any cooperation received (see Information Sheet 172 Cooperating with ASIC). We won’t provide immunity from any administrative or compensation actions. Any cooperation provided by an individual will be considered in determining whether to take administrative action against the individual.
Individuals found to have contravened prohibitions in Part 7.10 of the Act can:
- face up to 15 years in prison
- be fined almost $1,000,000 or, if the court can determine the benefit derived from the contravention, three times the benefit’s value.
- Read the media release
Gatekeeper obligations for market participants
We remind all market participants (participants) of the important role they play as gatekeepers in maintaining the integrity of our markets, particularly considering increased trading activity in recent months which has resulted in greater share price volatility.
Participants should take active steps to identify and stop potential market misconduct, both through pre-trade filters and post-trade reviews of trading.
Participants must ensure that their pre- and post-trade controls continue to be appropriate in the current environment and consistent with their risk appetite. Designated trading representatives and compliance staff need to be vigilant and agile, and alerts and exception reports should be reviewed in a timely manner.
As always, participants should consider the circumstances of all orders as required under Rule 5.7.2 of the ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules), and be aware of:
- coordinated trading by clients (timing, location and IP addresses) in volatile stocks
- possible misinformation, ‘pump and dump’ activity or layering of the order book
- clients who aggressively cross the spread and ignite momentum
- clients wanting to trade stocks that are running on no news.
It’s important in a fast-moving market that participants quickly engage with clients and address anomalous trading activity once it’s identified. We request that participants respond quickly to our inquiries.
We also remind participants of their obligation to report suspicious activity to ASIC under Rule 5.11 of the Rules.
For more information, contact Market Surveillance at markets@asic.gov.au or your ASIC Relationship Manager.
Phishing scam warning reminder
We remind market intermediaries and their clients to take precautions against online scams to protect their privacy and commercial interests.
We’ll never send you a message to confirm, update or disclose personal information or login details. This applies to all our online portals, including the:
Phishing messages are designed to look genuine and often copy the format used by the organisation the scammer is pretending to represent, including their branding and logo. Phishing scams could be fake emails, SMS messages, social media posts or websites. They’ll typically take you to a fake website that looks legitimate but has a slightly different URL.
If you believe you’ve received a potential phishing message, do not open it or click on any links.
Warning signs the message is not from ASIC
A message is probably a scam and not from ASIC if it asks you to:
- log in to an ASIC portal to change your password or login details
- make a payment over the phone
- make a payment to receive a refund
- provide your credit card or bank details directly by email or phone.
What else can you do to keep safe
- Don’t forget to log out of the portal as soon as you are finished or shut down all your browser windows.
- Keep your antivirus protection current.
- Be wary of suspicious attachments.
For more information about known scams or to report a scam, visit ACCC Scamwatch.
Former CFO’s court appearance following guilty plea
Mr Zhonghan Wu, also known as John Wu, former chief financial officer of Traditional Therapy Clinics Limited (TTC), appeared before the District Court of NSW on 19 February 2021, after previously entering a plea of guilty to market manipulation and fraud offences.
We allege that between 8 September 2015 and 30 November 2015, Mr Wu carried out multiple share transactions, using four separate share trading accounts, in order to create an artificial price for TTC shares on the Australian Securities Exchange (ASX).
Mr Wu’s trading occurred immediately after TTC’s listing on the ASX, following an initial public offering in August 2015 that raised approximately $15 million through the issuance of 30 million TTC shares at $0.50 cents a share.
We further allege Mr Wu carried out the transactions in order to maintain the share price above the IPO issue price of $0.50 per share.
In 2012 and 2015, Mr Wu obtained loans for mortgages to purchase various properties from the Commonwealth Bank of Australia (CBA). We allege that Mr Wu provided false and misleading documents to the CBA in support of these loan applications. The loan applications resulted in Mr Wu receiving funds totalling $390,000 in 2012 and $260,000 in 2015.
Mr Wu’s sentencing hearing is scheduled for 6 May 2021 at the Downing Centre District Court.
- Read the media release