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21-104MR Macquarie Securities pays $126,000 infringement notice
Macquarie Securities (Australia) Limited (‘MSAL’) has paid a penalty of $126,000 to comply with an infringement notice given by the Markets Disciplinary Panel (‘the MDP’).
The MDP has reasonable grounds to believe that MSAL contravened Rule 3.3.1(b) of the ASIC Market Integrity Rules (Securities Markets) 2017 (‘the Rules’) by entering into a market transaction that was not in accordance with the client’s instructions.
MSAL were engaged by an ASX-listed company to act as the broker to conduct, on behalf of the company, an on-market buy-back. An on-market buy-back is a buy-back of shares on a market in the ordinary course of trading. The MDP was satisfied that the client’s instructions included an overarching instruction for the buy-back to be conducted in the ordinary course of trading. The MDP considers that orders that are matched otherwise than in price / time priority are not in the ordinary course of trading.
MSAL conducted part of the buy-back on ASX Centre Point (ASXC), a ‘dark’ market operated by ASX. Participants may enter orders into the order book for ASXC, but they are not visible to the rest of the market before the orders are matched as trades. MSAL enabled a participant preferencing functionality in ASXC under which its orders will be satisfied before any existing unmatched orders of other participants, unless those unmatched orders have price priority.
Having as agent accepted the client’s instructions to conduct an on-market buyback for it, MSAL was obliged to ensure it executed orders as directed by the client in the ordinary course of trading. The MDP considers the use by MSAL of participant preferencing to execute buy-back orders without intervening measures was very likely to lead to the execution of orders other than in the ordinary course of trading. Intervening measures adopted by MSAL to avoid such circumstances were employed in relation to orders on ASXC, but due to a technical issue with the algorithm used by MSAL, the intervening measures failed in relation to one of MSAL’s orders.
The MDP was satisfied that the purchase of 1.2 million shares at $2.465 on 6 May 2019 on ASXC was not in the ordinary course of trading as MSAL‘s sell order, which traded with MSAL’s buy order, was preferenced ahead of two existing sell orders on ASXC that were submitted by another participant and which had time priority.
The MDP was not satisfied that MSAL’s conduct in relation to any of buy-back transactions on ASXC resulted in the market for the shares not being both fair and orderly. MSAL’s conduct did not affect the price of the shares and did not result in the other participant’s sell orders not being able to transact with MSAL’s buy orders.
This is the first matter considered by the MDP under the new penalty regime that applies to conduct occurring after 13 March 2019. The material uplift in the penalty is in recognition that the increased maximum penalty under the new penalty regime warrants an increase in the level of penalties from those imposed in prior MDP determinations, even at the lower end of the low range.
The MDP notes that MSAL has subsequently ceased using ASXC to effect buy-back trading.
The compliance with the infringement notice is not an admission of guilt or liability, and MSAL is not taken to have contravened subsection 798H(1) of the Corporations Act.