MIU - Issue 148 - May 2023
- Gabriel Govinda sentenced and fined for market manipulation and finfluencer conduct
- Ord Minnett pays $888,000 infringement notice
- Market integrity rules penalty regime
- ASIC wins public service data award for insider trading detection project
- Vaughan Bowen indicted on insider trading charges
- Former fund manager banned for naked short selling
- Maintaining focus as LIBOR transition nears completion
- Changes to relief for OTC derivative transaction reporting
- Saxo Capital Markets amends TMDs following ASIC stop orders
- Assessing your organisation’s cyber capabilities
Gabriel Govinda (known online as ‘Fibonarchery’) has been sentenced to two and a half years imprisonment (to be released immediately on a five-year recognisance in the amount of $5,000) and fined $42,840 after pleading guilty to 23 charges of manipulation of ASX-listed shares and 19 charges of illegal dissemination of information relating to the manipulation.
The court considered Mr Govinda’s posts on HotCopper about his market manipulation activity to be a breach of section 1041D of the Corporations Act 2001 (the Act). This is the first time a person has been sentenced under this provision.
Between September 2014 to July 2015, Mr Govinda used 13 different share trading accounts, held in the names of friends and relatives, to manipulate the share price of 20 different listed stocks. Mr Govinda manipulated the market by:
- trading between the accounts he controlled (wash trading)
- using fake, ‘prop’, or ‘dummy’ bids to falsely increase the perceived demand, and ultimate price, for listed stocks.
Mr Govinda also illegally disseminated information about his wash trades and dummy bids on HotCopper. He was seeking to increase (or pump) the share price, then selling (or dumping) the listed stocks at a higher price.
Mr Govinda used a pump and dump approach to manipulate smaller, less expensive companies listed on the ASX which allowed him to influence, and therefore benefit most, from price increases.
- Read the media release
Ord Minnett Limited (Ord Minnett) has paid a penalty of $888,000 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP).
The MDP issued the infringements following Ord Minnett’s involvement in a buy-back on behalf of AWN Holdings Limited (AWN), during September 2021. The MDP had reasonable grounds to consider that Ord Minnett:
- twice contravened market integrity rules (MIRs) when conducting the buy-back
- breached the MIRs as the crossings resulted in the market for AWN shares not being fair and orderly (the penalty for this alleged contravention was $777,000 (3,500 penalty units))
- executed the buy-back contrary to the client’s instructions and the ASX Listing Rules (the penalty for this alleged contravention was $111,000 (500 penalty units)).
Compliance with the infringement notice is not an admission of guilt or liability, and Ord Minnett is not taken to have contravened subsection 798H(1) of the Corporations Act 2001.
Full details of the alleged contraventions are in the media release below.
- Read the media release
We remind market participants of the importance of complying with the market integrity rules (MIRs), including the new technical and operational resilience rules, and to be aware of the higher penalties that may apply to contraventions.
The maximum penalty by way of infringement notice is now 15,000 penalty units for conduct occurring wholly on or after 13 March 2019. The amount to be paid is based on the value of one penalty unit at the time the contravention occurred. On 1 January 2023, the value of one penalty unit was increased to $275. This means that the current maximum penalty that can be specified in an infringement notice for each alleged contravention of a rule is $4.125 million.
Under the previous regime, which applied to conduct that occurred before 13 March 2019, the maximum penalty for each alleged contravention was $600,000.
The legislative reforms to increase the penalties were introduced by the Government to provide an adequate deterrent for misconduct and ensure payments of penalties under infringement notices do not simply become a cost of doing business.
The decision to issue an infringement notice, and the penalties that apply, are determined by the Markets Disciplinary Panel (MDP). The MDP is a peer review panel that considers the conduct and submissions from both market participant and ASIC to reach its decision. More information about the disciplinary framework and the functions of the MDP can be found in Regulatory Guide 216 Markets Disciplinary Panel.
Refer to the MDP Outcomes Register for previous infringement notices, including the reasoning of the MDP.
We may elect to have more serious matters considered by the courts through civil penalty proceedings. In these cases, the maximum penalty for each contravention is the greater of 50,000 penalty units (currently $13.75 million) or 10% of company turnover, capped at 2.5 million penalty units.
ASIC has won the Australian Public Service Data Analytics and Visualisation Award 2023 for our development of a sophisticated insider trading surveillance and detection capability – called ‘Project ARTEMIS’.
ARTEMIS was developed by a team of our data, analytics, and markets surveillance specialists.
Project ARTEMIS took a regulatory-problem-driven and technology-enabled approach to innovation. It combines and uses advanced algorithms to analyse data from various sources including ASIC’s data, ASX, ATO and commercial vendors.
The new system automatically hunts for and detects suspected market misconduct, profitable and suspicious trading patterns, and identifies connections between traders and family members, colleagues, neighbours and directors of companies and suspicious traders.
The project directly supports our strategic priorities and enforcement priorities to bolster digital and data capabilities and identify harms more quickly and accurately, and to detect and deter misconduct damaging to market integrity, including insider trading.
Project ARTEMIS, together with our other regulatory and enforcement work in this space, is critical to maintaining market integrity, and confident and fair participation in the financial system by consumers and investors.
Vaughan Bowen appeared in the County Court of Victoria on 10 May 2023, via his legal representative, after being indicted on two counts of insider trading.
The Commonwealth Director of Public Prosecutions (CDPP) formally indicted Mr Bowen on 10 May 2023 after the charges had previously been discharged following a contested committal hearing at the Melbourne Magistrates’ Court in December 2022.
The CDPP may directly indict an accused after the Magistrates' Court declines to commit an accused for trial.
We allege that, in June 2019, Mr Bowen disposed of over five million Vocus shares while in possession of undisclosed information concerning the likely withdrawal of a proposal by EQT Infrastructure IV Fund to acquire Vocus.
The matter is next due before court on 19 July 2023.
- Read the media release
We’ve banned former Gleneagle Securities fund manager and authorised representative Gregory Tolpigin from providing financial services for three years, after he was found to have engaged in naked short selling.
We found Mr Tolpigin engaged in the naked short selling of shares on 150 occasions totalling over $7 million from 19 January to 27 August 2021.
Mr Tolpigin sold shares on the ASX through accounts held with Gleneagle Securities and associated entities. Mr Tolpigin did not own or borrow the shares at the time he placed the orders to sell them.
Mr Tolpigin’s sales risked settlement failure in the event that he was unable to buy the shares back prior to settlement, for example if the shares had been suspended from trading.
The naked short selling also distorted the accuracy of the ASX gross short sales report, published daily. The accuracy of this information contributes to the integrity of Australia’s financial markets.
In addition to being banned from providing financial services, Mr Tolpigin is also banned from controlling a financial services business or performing any function involved in carrying on a financial services business as an officer.
We’re reviewing compliance by market participants with the short selling regime. We view the prohibition on naked short selling as an essential policy for the maintenance of financial market integrity. It reduces the risk of settlement failure, distortions to the operation of financial markets and abusive short selling that can artificially depress prices. It also improves the accuracy of information available to the market. We’ll continue to identify non-compliance and take enforcement action where necessary.
- Read the media release
With USD LIBOR tenors ending on 30 June 2023, we encourage all participants to maintain momentum and not lose focus in managing their remaining LIBOR exposure.
With most LIBOR tenors ceasing at the end of 2021, USD LIBOR constitutes the majority of LIBOR exposure in Australia.
Although participants have not reported any significant barriers to a successful transition, with the market appearing to have benefited from the non-USD LIBOR cessation in December 2021, we encourage participants to remain focused on their operational capabilities and to continue to make good progress on client transitions and contract amendments.
Exposure to synthetic LIBOR is also critically important. Last month, the FCA announced its decision to support synthetic LIBOR until the end of September 2024. We support the FCA’s position on the use of synthetic LIBOR, noting that synthetic LIBOR should not be used in new contracts. We expect participants to continue pursuing the active transition of synthetic LIBOR and remove their dependency as soon as possible to avoid contractual uncertainties or operational issues.
We also remind participants that contracts should reference robust benchmarks recommended by the relevant regulators and working groups.
We’ll continue to work with industry to ensure a successful transition.
We’ve made a range of changes to exemption instruments to consolidate and update transitional relief from the requirements of the ASIC Derivative Transaction Rules (Reporting) 2022 (the 2022 Rules).
From 21 April 2023, ASIC Corporations (Amendment and Repeal) Instrument 2023/36 amends and repeals other exemption instruments that provide transitional relief to reporting entities from the 2022 Rules to:
- extend certain exemptions to at least the commencement of the ASIC Derivative Transaction Rules (Reporting) 2024 (the 2024 Rules)
- repeal outdated relief
- repeal relief that is consolidated in the 2024 Rules from 21 October 2024
- broaden the jurisdictional scope of relief in relation to trade identifiers
- make administrative updates to refer to the 2022 Rules.
We made eight interim stop orders on 16 May 2023, preventing Saxo Capital Markets (Australia) Limited (Saxo) from issuing some new contracts for difference (CFDs) to retail clients because of deficiencies in their target market determinations (TMDs). The orders were revoked on 18 May 2023, after Saxo amended the TMDs to address ASIC’s concerns.
The interim orders prohibited Saxo from issuing eight types of derivatives to retail clients and opening trading accounts for new retail clients to trade. They were:
- Single Stock CFDs
- FX CFDs
- Exchange Traded Funds (ETFs) CFDs
- Index CFDs
- Commodity Futures CFDs
- Bond CFDs
- Index Option CFDs
- Cryptocurrency Derivatives.
We were concerned that the TMDs for Saxo’s derivative products inappropriately included in the target market:
- retail clients who intend to use CFDs as a ‘standalone or core component’ of their investment portfolio
- in some cases, retail clients who have an investment timeframe of up to one year or up to three years, where overnight financing fees charged for such periods may be significant in aggregate and affect the potential to profit from a CFD position, among other risks
- for Single Stock CFDs, ETF CFDs and Index CFDs retail clients seeking growth and income, whereas:
- commonly short-term trading in Single Stock CFDs, ETF CFDs and Index CFDs is inconsistent with a growth return profile objective of a retail client,
- retail clients will only earn income payments from Single Stock CFDs and ETF CFDs if they hold a long Single Stock CFD or long ETF CFD on the ex-dividend date, and
- a high proportion of CFD retail clients lose money trading CFDs.
- Read the media release
A cyber-attack can disrupt your organisation’s operations and result in financial, legal and reputational harm. With cyber-attacks becoming more frequent and complex, does your organisation have the cyber resilience to protect against and recover from an attack?
To see how your organisation’s cyber capabilities measure up to your peers, we’ll shortly invite you to complete the ASIC Cyber Pulse Survey.
The voluntary, multiple-choice survey is suitable for ASIC-regulated entities of all sizes and sectors and is designed to help your organisation assess its ability to:
- govern and manage organisational-wide cyber risks
- identify and protect information assets that support critical business services
- detect, respond to, and recover from cyber security incidents.
On completion of the survey, you can opt in to receive an individual report which will provide insights into how you assess your organisation’s current cyber resilience capability compared to your industry peers.
We’ll also publish a report with key findings from the survey, which will provide sectoral insights, areas for action and the better practices identified.
You’ll be able to access the survey by logging into the ASIC Regulatory Portal. All information collected will be anonymous and cannot be used against you in regulatory or enforcement action.