MIU - Issue 149 - June 2023
- Are you prepared for a cyber attack?
- Be vigilant for account intrusions and identity theft
- On the lookout for EOFY ‘window dressing’
- First DDO stop order issued for failure to take reasonable steps in CFD distribution
- Morrison Securities pays $333,000 infringement notice
- Former CFO of Big Un Limited charged with insider trading
- Former Berndale directors charged over dishonest conduct, misuse of company funds
- Former fund manager banned for naked short selling
- ASX releases CHESS Special Report and Audit Report
- Proposed changes to OTC derivative trade repository rules
- Trading and conducting special crossings during takeovers and buybacks, and trades with price improvement
- FICC Markets Consultative Panel established
Do you want to know how resilient your organisation is to a cyber attack? Or how it compares to the rest of your industry? Then complete the ASIC Cyber Pulse Survey today.
With the new ASIC market integrity rules having come into effect in March 2023, now is a great time to check your organisation’s cyber pulse.
The ASIC Cyber Pulse Survey is one of the largest conducted into Australia’s cyber resilience, and will measure entities’ current cyber security and controls, governance arrangements, and incident preparedness.
Participation in the survey is voluntary, with all responses anonymised. The survey has been designed to help an entity assess its ability to:
- govern and manage organisation-wide cyber risks
- identify and protect information assets that support critical business services
- detect, respond to and recover from cyber security incidents.
Don’t miss out on the chance to receive an individual report on your organisation’s cyber resilience. Act now, time is running out.
To access the survey, log into the ASIC Regulatory Portal or open the link in the email from your ASIC relationship manager.
- Read the media release
International market regulators have reported a spike in the incidence of account intrusions, resulting in anomalous trading in listed equities and derivatives markets. Market intermediaries should be extra vigilant in protecting their clients’ accounts.
The account intrusions often follow identity theft, where parties use digital identification documents stolen from clients to open new accounts and engage in unlawful trading activity. Market intermediaries should ensure that all account opening procedures minimise the risk of opening fraudulent accounts.
Our intelligence also identified that many fraudulent accounts remained dormant for several months before parties commenced their unlawful trading activity. Market intermediaries should be alert to:
- new accounts that seemingly trade very profitably soon after being opened
- trades that don’t appear to have a clear commercial rationale
- trading activity in illiquid ‘out of the money’ options where price changes over a short period are extreme.
As we near the end of the financial year (EOFY), we remind market intermediaries to be on the lookout for any unusual trading that may affect share price valuations and EOFY performance figures. This activity is known as ‘window dressing’.
Window dressing is a form of market manipulation by parties who have a financial incentive to influence share prices around key reporting dates. These parties include directors, large shareholders and fund managers who periodically report to clients about investment performance.
We encourage you to take active steps to identify possible misconduct through system controls and pre-trade filters, as well as through post-trade reviews of any abnormal trading behaviour. Notify ASIC if you identify or suspect ‘window dressing’. This can be done through the ASIC Regulatory Portal or by email to firstname.lastname@example.org (also see Report suspicious activity).
We’ll continue to monitor unusual price movements that may indicate market manipulation. If we identify any trading that we believe should have been reported to ASIC, but wasn’t, we’ll contact you for an explanation.
See Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets and Regulatory Guide 266 Guidance on ASIC market integrity rules for participants of futures markets for more information about suspicious activity reports.
We issued an interim stop order on 2 June 2023, preventing Mitrade Global Pty Ltd (Mitrade) from opening trading accounts or dealing in contracts for difference (CFDs) or margin foreign exchange contracts (margin FX) to retail investors. The stop order remains in place while Mitrade reviews its processes.
This action was our first use of our stop order powers in response to a contravention of the reasonable steps obligations regarding a financial product since the design and distribution obligations (DDO) took effect in October 2021.
Our action was in response to concerns that Mitrade failed to take reasonable steps likely to result in distribution conduct being consistent with its target market determination (TMD).
We were concerned that Mitrade relied on a retail investor questionnaire with significant flaws as a key step for compliance with its obligations. When applying for a trading account, Mitrade’s questionnaire gave prompts to a prospective retail investor to review any ‘unacceptable answer’ that would indicate that the investor was not likely to be in the target market for the products. Further, Mitrade allowed retail investors unlimited attempts to pass the questionnaire.
We were also concerned that Mitrade’s steps to reduce the likelihood of distribution conduct being inconsistent with the TMD included inadequate assessment of whether retail investors were likely to be in the target market for the CFDs, in the questionnaire or otherwise. We considered that Mitrade’s questionnaire:
- did not adequately enquire into the objectives and needs of retail investors to enable Mitrade to adequately assess whether the investors are likely to be in the target market described in its TMD for the complex, high-risk, leveraged CFDs and margin FX products
- lacked the degree of specificity required to adequately assess whether distribution to retail investors would likely be consistent with Mitrade’s target market criteria on knowledge and experience, in relation to CFD and margin FX trading.
- Read the media release
Morrison Securities Pty Limited (Morrison) has paid a penalty of $333,000 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP). The MDP had reasonable grounds to believe that Morrison contravened the ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules) in relation to fair and orderly markets.
The MDP was satisfied that on 27 October 2021, a client of Morrison inadvertently directed six orders to buy or sell securities to the Chi-X market (now known as Cboe), instead of the ASX closing auction. The six orders were recognised by Morrison’s filters as aberrant orders and diverted to Morrison’s Designated Trading Representatives (DTR) for review. The DTRs approved the six orders to the Chi-X market which resulted in significant price variations in the relevant securities and, for five of the orders, set the closing price on the Chi-X market at a level that was materially different from the closing price on ASX.
Relevantly, on that day, five Morrison’s DTRs had been required to review 3,163 orders which inhibited the DTRs’ ability to identify pricing issues and reject the client’s orders.
The MDP was further satisfied that on 2 November 2021, another client of Morrison erroneously directed two orders to the Chi-X Market rather than the ASX opening auction. Both orders were recognised by Morrison’s filters as aberrant orders and diverted to a DTR for review. The first order, which was approved by the DTR resulted in a significant price variation in the relevant security.
The MDP noted that the orders did not fall into an Extreme Trading Range (ETR) or Anomalous Order Threshold (AOT) of the market operator and didn’t consider that was determinative of whether the relevant orders caused a disorderly market. The fair and orderly market obligation imposed on market participants and the ETR and AOT obligations imposed on market operators are distinct, but complementary requirements that both promote the operation of an orderly market.
The MDP considered that the authorisation of the orders by Morrison resulted in the market for the relevant securities not being fair and orderly, in contravention of the Rules. The orders caused significant price variations in the relevant securities that were unreasonable in the circumstances and were not caused by ordinary market events.
Compliance with the infringement notice is not an admission of guilt or liability, and Morrison is not taken to have contravened subsection 798H(1) of the Corporations Act 2001.
- Read the media release
The former CFO of Big Un Limited, Mr Andrew Scott Corner, has appeared via his lawyer in the Downing Centre Local Court charged with insider trading.
We allege that Mr Corner was in possession of inside information in late 2017 when he procured two private companies to sell 1.7 million Big Un shares for a total value of more than $5 million.
The information that Mr Corner allegedly possessed related to a funding arrangement between Big Un’s subsidiary, Big Review TV Limited (Big Review TV) and Sydney-based financier, First Class Capital.
Big Un was one of the top performing shares listed on the ASX in 2017. Its shares were suspended from trading in February 2018 after information about Big Un’s funding arrangement with First Class Capital was released.
Big Un was placed into voluntary administration and delisted from the ASX in August 2018. It’s now in liquidation. Big Review TV is also in liquidation.
The matter has been listed for mention at the Downing Centre Local Court on 25 July 2023.
- Read the media release
Two former directors of collapsed retail over-the-counter derivatives provider Berndale Capital Securities Pty Ltd have been charged with dishonesty offences, including misusing over $1 million in company funds.
We allege that Stavro D’Amore and Daniel Kirby each unlawfully transferred Berndale company funds to benefit themselves and other associates and entities. Mr D’Amore is alleged to have used some Berndale company money to fund deposits for residential property purchases.
Mr D’Amore and Mr Kirby are also alleged to have made a false statement or submitted false or misleading documents to ASIC and an auditor of Berndale about overseas bank accounts containing Berndale funds. Mr Kirby is also alleged to have fabricated evidence related to Berndale funds in overseas bank accounts in Federal Court proceedings.
Berndale’s Australian financial services licence required it to maintain a minimum level of net tangible assets and lodge audited financial reports. We allege the relevant overseas funds and accounts either did not exist or were grossly inaccurate.
Mr D’Amore and Mr Kirby are next due to appear before the Melbourne Magistrates’ Court on 25 August 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 if 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
Following ASX’s announcement to pause the CHESS Replacement Program in November 2022, we took action to ensure that all necessary steps are taken to support and maintain current CHESS until its replacement is successfully implemented.
On 15 December 2022, we issued notices to ASX Clear Pty Ltd (ASX Clear) and ASX Settlement Pty Ltd (ASX Settlement) under section 823B of the Corporations Act 2001 (the Act), which required ASX to produce a special report on current CHESS and to have that report audited by Ernst & Young.
We also issued a letter on this date that set out ASIC’s expectations, including requiring attestations from the Board of Directors that they reasonably believe that the information contained in the Special Report is accurate, and to provide a public version of the reports, which appropriately considers the confidentiality of certain commercial information and security (including cyber security).
We took further regulatory action in February 2023 to ensure that ASX adequately responds to the findings and recommendations of the ASX CHESS Replacement Application Delivery Review by Accenture (the External Review) and takes all the necessary steps to address identified gaps and deficiencies in relation to the ASX Group’s portfolio, program and project management frameworks.
The audited special reports will assist in our assessment of whether any further regulatory action is required. We’re prepared to bring to bear a range of regulatory options to ensure that the ASX Group licensees and, in particular, ASX Clear and ASX Settlement adhere to the regulators’ expectations and comply with their clearing and settlement facility licence obligations.
Our investigation into ASX Limited, ASX Clear and ASX Settlement and their directors/officers in relation to the oversight of the CHESS Replacement Program and statements and disclosures on the status of the program between October 2020 and March 2022 is ongoing.
- Read the media release
We’re consulting on our proposal to remake the ASIC Derivative Trade Repository Rules 2013 (2013 DTR Rules), which are due to sunset on 1 October 2023.
To continue the operation of the Australian trade reporting regime, Consultation Paper 370 Proposed remake of the ASIC Derivative Trade Repository Rules 2013 (CP 370) proposes to remake the 2013 DTR Rules in substantially the same form, except for two minor and targeted policy updates:
- a new ASIC direction provision to resolve erroneous derivative trade data in certain circumstances
- removing the geographic location of the underlier category from the weekly statistical data requirements in relation to public reporting.
Your feedback on the proposals in CP 370 is welcome. Email your submission to email@example.com by 6 July 2023.
For more information, visit our derivative trade repositories webpage.
Trading and conducting special crossings during takeovers and buybacks, and trades with price improvement
Market participants are reminded of their obligations under the ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules) and Corporations Act 2001 (the Act) when acting for bidders, issuers, and their associates, during a takeover bid or on-market buyback.
These clients will often be restricted from entering transactions that are not effected ‘on-market’ or ‘in the ordinary course of trading’. This includes special crossings or crossings that occur outside trading hours in the relevant securities.
These restrictions derive from the prohibition on collateral benefits during a takeover bid, the limits on the way a bidder can acquire more than 20% of a company, and rules that apply to on-market buybacks under the Act.
A special crossing is any type of crossing that meets the definition of a block trade or a large portfolio trade, and that is entered into other than by matching orders on an order book of a market operator, even if the crossing also meets the definition of a ‘trade with price improvement’ (Rule 6.2.3(1) of the Rules) and is reported as one to the market operator.
The FICC Markets Consultative Panel is a newly formed ASIC external panel that commenced in April 2023.
The Panel advises ASIC on its approach to its responsibilities for supervision and surveillance of Australian fixed income, currencies, and commodities markets, and on broader market developments.
The panel comprises senior members from the financial services industry who bring extensive experience and a range of perspectives. See FICC Markets Consultative Panel for more information about the panel and its members.