MIU – Issue 155 – December 2023
This Market Integrity Update contains the following articles:
Intervening to protect retail investors from high-risk offers and business practices
We’ve intervened to improve retail investor outcomes, disrupting potentially harmful offers of financial products and services by online trading providers.
During the COVID-19 pandemic, there was a significant increase in retail investor participation in financial markets, with one in five Australian investors starting to invest in exchange traded products (ASX Australian Investor Study 2023). In response to this growth, the range of online trading providers offering trading in regulated investment products expanded. Collectively, these online trading providers have over one million retail clients and hold billions of dollars in client money and assets.
Report 778 Review of online trading providers (REP 778) highlights our observations from our surveillance of online trading providers in 2022–23 and clarifies our regulatory expectations. The report identifies a range of regulatory interventions we’ve made, including court actions, stop orders and infringement notices, in relation to:
- high-risk offers
- inadequate supervision of representatives
- misleading or deceptive statements
- use of digital engagement practices, such as gamification and influencer marketing
- holding client assets and money.
Online trading providers are encouraged to assess their own arrangements and consider how the observations and areas for improvement outlined in the report apply to their business.
Our regulatory actions in relation to the practices referred to in the report are ongoing, including some matters that are currently before the courts.
- Read the media release
ANZ to pay $900,000 penalty for continuous disclosure failure
The Federal Court has ordered Australia and New Zealand Banking Group Limited (ANZ) pay a penalty of $900,000 for breaching its continuous disclosure obligation during a $2.5 billion institutional share placement in 2015.
The Court declared that ANZ contravened section 674(2) of the Corporations Act 2001 by failing to notify ASX that ANZ shares, with a value of between approximately $754 million and $790 million representing a significant portion of the $2.5 billion of ANZ shares offered in an Institutional Placement, were to be acquired by its underwriters.
When delivering his reasons, Justice Moshinsky stated that the contravention is very serious, and a very large penalty is required to ensure that ANZ and other market participants comply with their continuous disclosure obligations.
We’ll continue to enforce the continuous disclosure regime to ensure investors are provided material information to make informed investment decisions. Continuous disclosure is key to maintaining market integrity.
On 14 December 2023, ANZ appealed the Court’s decision. A date for the hearing of the appeal is yet to be listed.
- Read the media release
Instinet pays $670,500 penalty over ‘set and forget’ compliance culture
Instinet Australia Pty Ltd (Instinet) has paid a penalty of $670,500 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP).
The infringement notice related to market integrity rules requiring Instinet to:
- provide meaningful price improvement for client transactions conducted off-market
- disclose all necessary information to its clients about its crossing system
- accurately report regulatory data about the execution venue of transactions.
Instinet operated a crossing system or ‘dark pool’, called BLX Australia, from 1 April 2011 until it was suspended from operation by Instinet on 11 October 2022.
The MDP believed that Instinet contravened Rule 6.1.1 as, between 1 January 2021 and 11 October 2022, the BLX crossing system was incorrectly referencing the ASX best bid and offer, rather than the national best bid and offer (NBBO). During this period, 3,093 trades matched off-market by Instinet and reported as trades with price improvement, did not provide meaningful price improvement over the NBBO for clients.
The MDP believed that Instinet contravened Rule 5A.2.2 by failing to disclose all required information about the operation of the BLX crossing system.
Additionally, the MDP believed that Instinet contravened Rule 7.4.2 as, between 1 January 2021 and 31 January 2023, Instinet incorrectly reported the BLX crossing system as the execution venue for 940 transactions where these transactions were executed off-market but not on the BLX crossing system.
Compliance with the infringement notice is not an admission of guilt or liability and by doing so, Instinet is not taken to have contravened section 798H(1) of the Corporation Act 2001.
- Read the infringement notice
Henry Eng Chye Heng pleads guilty to market manipulation
Henry Eng Chye Heng has pleaded guilty to one count of market manipulation and one count of creating a false or misleading appearance of active trading.
Mr Heng is the founder, executive chair and managing director of the ASX listed company, Eneco Refresh Ltd (ASX:ERG) (Eneco).
We allege that on 24 occasions between 18 December 2020 and 15 December 2021, Mr Heng used share trading accounts held in the names of his family to manipulate the share price of Eneco.
We further allege that on 30 April 2021 and 30 November 2021, Mr Heng used share trading accounts held in the names of his family to conduct trades that created a false or misleading appearance of active trading in Eneco.
On 1 December 2023, Mr Heng pleaded guilty to these charges at a hearing in the Perth Magistrates Court and is due to appear in Perth District Court on 2 February 2024 for sentence mention.
At the same hearing, Mr Heng was also charged with nine counts of failing as a director to notify the market operator of a change in his relevant interests contrary to section 205G(10) of the Corporations Act 2001 (Corporations Act).
We allege that on nine occasions between 30 December 2020 and 30 November 2021, Mr Heng used share trading accounts held in the names of his family to conduct trades in Eneco and, being a director of Eneco, failed to notify ASX within 14 days of a change in his relevant interests in those securities.
Mr Heng was not required to enter a plea to the section 205G(10) Corporations Act charges. Those matters have been adjourned to 9 February 2024 for further mention in the Perth Magistrates Court.
This matter is being prosecuted by the Commonwealth Director of Public Prosecutions following a referral from ASIC.
- Read the media release
On the lookout for EOCY ‘window dressing’
As we near the end of the calendar year (EOCY), we’d like to remind you to be on the lookout for any unusual trading that may affect securities price valuations and EOCY performance figures. This activity is known as 'window dressing'.
Window dressing can be a form of market manipulation by parties who have a financial incentive to influence securities prices around key reporting dates. These parties include directors, large shareholders and fund managers who periodically report to clients about investment performance.
We encourage market intermediaries 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. You must notify ASIC if you identify or suspect ‘window dressing’. This can be done through the ASIC Regulatory Portal or by email to markets@asic.gov.au.
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, 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.
Derivative trade repositories update
We’ve granted KOR Reporting Inc. (KOR) an Australian derivative trade repository (ADTR) licence.
ADTRs serve as intermediaries between entities with over-the-counter derivative transaction reporting obligations under the ASIC Derivative Transaction Rules (Reporting) 2022 (ASIC Rules) and ASIC as the primary recipient of the aggregate reported data. ADTRs are important financial market infrastructures and as such require licensing and supervision under Part 7.5A of the Corporations Act 2001 and the ASIC Derivative Trade Repository Rules 2023.
On 9 November 2023, KOR became the second presently licensed ADTR in addition to DTCC Data Repository (Singapore) Pte Ltd (DDRS) which has been licensed since 15 September 2014.
We granted KOR an ADTR licence to operate a derivative trade repository in respect of commodity, credit, equity, foreign exchange and interest rate derivatives. The ADTR licence and exemption instruments granted to DDRS and KOR are available on our licensed ADTRs webpage.
The entrance of KOR as a licensed ADTR provides competition and choice for ASIC reporting entities to meet their obligations under the ASIC Rules.
For more information about derivative trade repositories, see our updated derivative trade repositories webpage.