MIU – Issue 160 – June 2024
EOFY ‘window dressing’: Be alert to any unusual trading
As we reach the end of financial year (EOFY), market intermediaries should be on the look out for any unusual trading that may affect share prices and EOFY performance figures.
Known as ‘window dressing’ this activity 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/or 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.
If you identify or suspect ‘window dressing’, please notify ASIC through the ASIC Regulatory Portal or by email to markets@asic.gov.au (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 (RG 265) and Regulatory Guide 266 Guidance on ASIC market integrity rules for participants of futures markets (RG 266) for more information about suspicious activity reports.
Call for market intermediaries to strengthen supervision of business communications
ASIC is calling on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.
ASIC’s Information Sheet 283 Supervising your representatives’ business communications (INFO 283) responds to concerns that the use of unmonitored communication channels and encrypted communication applications in business communications can significantly increase the risk of misconduct going undetected.
INFO 283 gives practical guidance to market intermediaries (investment banks, participants of exchange and over-the-counter markets, securities dealers and corporate advisers) about managing these risks, embedding supervisory arrangements for business communications and reviewing their effectiveness in compliance with obligations under the Corporations Act 2001 and ASIC market integrity rules.
INFO 283 deals with common challenges and pitfalls for market intermediaries in effectively supervising their representatives’ business communications, including:
- the emergence of new and popular communication channels that are outside the scope of their surveillance systems
- weak or no controls to identify where data used in surveillance systems is incomplete or erroneous, and
- reliance on ‘out of the box’ settings of vendor-provided communication surveillance systems and a failure to routinely calibrate alert parameters.
ASIC Commissioner Simone Constant said, ‘Bankers, dealers and market participants have important roles as gatekeepers to Australia’s financial markets and stewards of market integrity. We expect them to maintain strong and effective supervisory arrangements to manage the risk of harm to clients and to market integrity.’
Read the media release.
Share sale fraud: Protect your business
If you’re an Australian financial services (AFS) licensee that deals in securities, you may be vulnerable to share sale fraud.
Share sale fraud occurs when a person who is not who they claim to be, sells shares that do not belong to them. Issuer-sponsored holdings are particularly vulnerable to share sale fraud.
Although it is often hard to detect, robust practices around account opening and customer due diligence can help prevent it. To help mitigate the risks to your clients and business, ASIC’s Information Sheet 237 provides guidance on:
- one-off share sales
- customer due diligence
- ongoing customer due diligence
- intermediary clients
- anti-money laundering and counter-terrorism financing (AML/CTF) training.
If you suspect that a person is not who they claim to be, you must provide a suspicious matter report to the Australian Transaction Reports and Analysis Centre within three business days after forming the suspicion, and within 24 hours if the suspicion relates to terrorism financing.
ASIC enforcement actions
Our 2024 enforcement priorities send a clear compliance and deterrence message to the entities we regulate. In the month of June, outcomes achieved include:
Court finds iSignthis breached disclosure laws and Nickolas Karantzis breached his directors’ duties
The Federal Court has found iSignthis Ltd, now known as Southern Cross Payments Ltd, breached its continuous disclosure obligations in 2018 and 2020 and engaged in misleading or deceptive conduct during an analyst briefing on 3 August 2018. Nickolas John Karantzis, its former managing director and chief executive officer, was also found to have breached the law by failing to ensure information given to ASX was not false or misleading as well as breaching his directors’ duties.
At the time of the contraventions, iSignthis was an ASX listed company providing remote identity verification, transactional banking, and payment processing services. It was delisted from ASX on 4 November 2022.
Read the media release.
MDP issues infringement notice to Ascot Securities for serious failures
The Markets Disciplinary Panel (MDP) issued an infringement notice to Ascot Securities Pty Ltd (Ascot) on 24 November 2023 for serious failures, requiring it to pay a penalty of $3.1 million and enter into an enforceable undertaking.
The date for compliance with the infringement notice was 21 December 2023. Ascot elected not to comply.
Ascot ceased operating as a market participant shortly after the infringement notice was issued. Ascot has surrendered its Australian financial services (AFS) licence and has informed ASIC it will be wound up.
The MDP had reasonable grounds to believe that Ascot had contravened section 798H(1) of the Corporations Act 2001 (Corporations Act) as a result of contravening the market integrity rules on numerous occasions by:
- not having the necessary policies and procedures and organisational and technical resources
- entering a client’s orders onto ASX where it should have suspected the orders were manipulative, and
- failing to report the client’s suspicious trading to ASIC.
The enforceable undertaking would have involved Ascot engaging an expert to review its supervisory policies and procedures and organisational and technical resources and make recommendations.
The giving of an infringement notice is only an allegation that the recipient has contravened section 798H(1) of the Corporations Act and the recipient is not taken to have contravened section 798H(1).
Read the media release.