Market Integrity Update - Issue 76 - October 2016
- ASIC permanently bans former Deutsche Bank trader
- Former Sydney-based investment banker charged with insider trading
- Review of marketing practices in IPOs
- ASIC commences civil penalty proceedings against Vocation Limited (in liquidation)
- SSX-listed company pays penalty for alleged continuous disclosure breach
- Trading activity in exchange traded options
- Extension of relief for certain OTC derivative trade reporting requirements
- ASIC remakes and repeals 'sunsetting' class orders on markets and securities
We have permanently banned former Deutsche Bank foreign exchange options and futures trader, Andrew Donaldson, from providing financial services.
The banning follows an ASIC investigation into Mr Donaldson's conduct in 2013–14, after he entered a significant number of false entries into Deutsche Bank's records to temporarily offset his trading losses and artificially increase his reported trading profits.
The entries resulted in a temporary overstatement of Deutsche Bank's internal Australian management accounting revenue result by approximately 28 million euros. Mr Donaldson's conduct was detected by Deutsche Bank and reported to ASIC.
Mr Donaldson contravened financial services law by engaging in misleading and deceptive conduct in relation to a financial product. His conduct was extremely serious and we have reason to believe that Mr Donaldson is not of good fame and character.
ASIC Commissioner Cathie Armour said, 'The integrity of our financial markets is vitally important and ASIC will take action to remove anyone in the financial services industry who engages in conduct that undermines this integrity.
'This action is also a reminder to financial institutions to ensure that they have the right systems, people and processes in place to monitor trading conduct and detect and address trading discrepancies in a timely manner,' she said.
Former vice president of investment banking at Credit Suisse Management Australia (Credit Suisse) has pleaded not guilty to 11 separate charges of procuring insider trading.
ASIC alleges that on 11 separate occasions between 25 May 2008 and 3 June 2011, Mr Thompson procured a close friend, Mr Michael William Hull, to purchase the shares of seven Australian-listed companies while in possession of inside information about those companies that he had acquired as a result of his employment.
Mr Hull's profits from those trades (realised and unrealised) totalled approximately $492,000. On 3 June 2016, Mr Hull was sentenced to 17 months’ imprisonment after pleading guilty to insider trading charges following an ASIC investigation.
The matter was adjourned and will return to court on 15 November 2016.
We have reviewed the methods used by firms and issuers when marketing initial public offerings (IPOs) to retail and high net worth investors. In particular we wanted to assess whether, and how, firms and issuers were using more innovative methods (e.g. social media) to market IPOs to investors. We also assessed whether firms were targeting certain investor groups for specific types of IPOs (e.g. higher-risk IPOs, including for emerging market issuers).
The findings from our review have been published in Report 494 Marketing practices in initial public offerings of securities. Overall, we found most firms and issuers adopted good marketing practices, although we did identify some areas of concern where improvements could be made.
We observed that all firms used some form of 'traditional' marketing methods (e.g. telephone calls, emails, roadshow presentations, websites and advertising) to market IPOs. Some small to medium-sized firms have started to use more innovative techniques to market IPOs, including social media (e.g. Twitter, Facebook, LinkedIn, WeChat and YouTube), OnMarket BookBuilds, crowd-sourced funding sites, and other connecting platforms which link issuers directly with investors.
The report discusses the following areas of concern identified during our review, and provides recommendations on how these can be addressed by firms and issuers:
- Oversight weaknesses: There were some inadequacies in the monitoring of telephone and social media marketing, and in ensuring that marketing material is kept up to date.
- Misleading communication: There were instances of:
- undue prominence being given to forecasts in marketing messages, and
- misstated information (including of ASIC's regulatory role) in the marketing of emerging market issuers.
- Inadequate control of access to information: Access to institutional roadshows was not always limited to Australian financial services licensees, access to pathfinder prospectuses was not limited to sophisticated or professional investors, and key information about the IPO was sometimes disseminated to the public before a prospectus was lodged with ASIC.
We have commenced proceedings in the Federal Court of Australia against Vocation Limited (in liquidation) (Vocation) and the company's former executive managing director, Mr Mark Hutchinson; former non-executive chairman, Mr John Dawkins; and former company secretary and Chief Financial Officer, Mr Manvinder Gréwal.
ASIC alleges that Vocation:
- made representations about its securities that were misleading
- failed to notify ASX of information it was required to disclose, and
- provided ASX with a defective cleansing notice that was relied upon to raise approximately $72.5 million from institutional and sophisticated investors.
Sanhe Building Materials Technology Company Limited (Sanhe), a company listed on Sydney Stock Exchange Limited (SSX) (formerly Asia Pacific Stock Exchange Limited), has paid a penalty of $33,000 after we served an infringement notice on the company for allegedly failing to comply with its continuous disclosure obligations.
We issued the infringement notice because we had reasonable grounds to believe Sanhe breached its continuous disclosure obligations by failing to inform SSX that it was likely its operating financial result for the full year to 31 December 2015 would be materially lower than the operating result of the previous year.
'All companies looking to list on Australian markets must be aware of and comply with their disclosure obligations', ASIC Commissioner Cathie Armour said.
The Corporations Act 2001 (Corporations Act) provides that compliance with infringement notices is not an admission of guilt or liability.
Sanhe is not, by reason of its compliance with the notice, regarded as having contravened section 674(2) of the Corporations Act.
Over the past two years, retail market participants have been placing limits or closing down their exchange traded option (ETO) trading function because of capital constraints, increased margin funding, lower appetite for risk and ASX intervention. This has caused a migration of clients and advisers to market participants who allow advanced ETO trading (e.g. naked puts, deep in the money call and put spreads and rolling).
A number of market participants have benefited from this migration and have seen a substantial increase in activity levels in their ETO business. However, a review of ETO trading by ASIC’s Derivatives Market Surveillance team has identified potential issues with a number of market participants with excessive extreme trade range cancellations.
We would like to remind market participants of the requirement for filter management, appropriate order vetting procedures, and to ensure that designated trading representatives are suitably qualified to deal in the products and on the market for which they are authorised to do so.
We have recently extended relief that applies to some aspects of the over-the-counter (OTC) derivatives transaction reporting obligations for reporting entities. On 27 September, ASIC made the ASIC Corporations (Amendment) Instrument 2016/913, amending ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2015/844 to extend name information relief and foreign exchange security conversion transaction relief until 30 September 2018, and relief for foreign privacy restrictions until 31 December 2018.
We have also recently advised industry bodies, including the International Swaps and Derivatives Association, Inc., Australian Financial Markets Association and the Financial Services Council that we will consider revising the implementation of the Unique Transaction Identifiers (UTIs) ‘share-and-pair’ requirements to nine months after the publication of the UTI guidance by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (recently revised from mid-2016 to end-2016). If this delay is granted, the relief extended by ASIC Corporations (Amendment and Repeal) Instrument 2016/0043 will be further extended to 30 September 2017.
We have recently remade ten legislative instruments and repealed three that are due to expire ('sunset') in 2016 and 2017, following public consultation.
Consultation Paper 236 Remaking ASIC class orders on dematerialised securities and CHESS units of foreign securities and Consultation Paper 262 Remaking and repealing ASIC class orders on markets and securities sought feedback on ASIC’s proposals to exempt or preserve the relief in existing legislative instruments. This ensures that legislative instruments like class orders are kept up to date and only remain in force while they are fit for purpose and relevant.
ASIC has remade these instruments before they sunset. The new instruments will continue the substantive effects of the previous instruments with some minor amendments, which include simplifying the drafting to give greater clarity. A list of the remade instruments is available on our website (refer: 16-339MR).