Stories from the beat
Published by the Stockbrockers Association of Australia in the Stockbrokers Monthly, April 2015.
ASIC receives markets intelligence from a variety of sources, including tip-offs from Market Participants and our own surveillance and risk assessment activities. We consider every report to determine whether it warrants a regulatory response. The majority of these matters are not publicised in the media but this does not diminish their importance. Cleaner markets benefit everyone.
Within ASIC's markets group, reports are analysed by a number of equally important teams, comprised of analysts, investigators and lawyers. These are their stories.
Ignorance is no excuse
Participant A failed to notify ASIC that one of its Responsible Executives had resigned from the business some months earlier. When ASIC contacted the Participant to inquire about this breach, we were told that they had notified the ASX and thought that notices lodged with the ASX were deemed to have been provided to ASIC.
ASIC requested that Participant A submit an updated Management Plan reflecting the change to its Responsible Executives. Participant A explained that it had interpreted this requirement not to apply as the individual in question did not undertake significant management responsibilities. However, searches of ASIC databases revealed that he had held a senior position within the business, including additional responsibilities as Responsible Manager.
ASIC considers that the Participant A's conduct demonstrates a lack of understanding of the relevant financial services laws. We are now planning to undertake a review of Participant A's policies and procedures to make certain that they are appropriate to ensure compliance.
Participant B's trade monitoring system generated multiple alerts on a security being traded through two separate accounts. Preliminary inquiries by the Participant revealed that one of its clients had bought shares with a significant price impact. Through the use of two accounts, the client had placed multiple buy orders in succession, pushing the share price up 10% over a period of ten minutes. Prior to market close, the client then placed several sell orders in an attempt to sell the recently acquired stock at the elevated price level.
Participant B formed the view that these transactions may have had the effect of creating a false or misleading appearance with respect to the market or price for a security. They promptly lodged a Suspicious Activity Report with ASIC via the markets in-box (firstname.lastname@example.org). This matter is now being assessed by ASIC's market surveillance team for possible enforcement action.
Head in the sand
Some compliance issues were identified and brought to the attention of Participant C during a risk assessment by ASIC. Participant C acknowledged ASIC's concerns and agreed to resolve them. After a reasonable period of time, ASIC contacted the Participant to inquire about the status of their remediation efforts. Participant C responded with words to the effect of 'We didn't think ASIC was interested in that anymore, so we shelved it.'
Concerned about Participant C's attitude to compliance, ASIC conducted a full review of its policies and procedures. As part of which, notices were issued to the Participant seeking access to its compliance records. A review of these documents revealed a number of other issues and a detailed letter of concerns was sent to Participant C. Participant C has since undertaken a rigorous remediation program which included an external audit of their policies and procedures.
Pump and dump
ASIC contacted Participant D after the Market Analysis and Intelligence (MAI) surveillance system detected uneconomical trading in a security by one of its clients. According to the Participant, the client had contacted them seeking to buy all of the shares on offer in the security. The client gave instructions that the buying be done in parcels to give the impression that a broker was behind the purchases. Participant D declined to execute the order in this manner on the basis that it may result in a disorderly market. Consequently, the order was only executed in part. This was nonetheless sufficient to trigger an alert in MAI.
ASIC conducted a surprise interview of the client who voluntarily disclosed that they frequently posted stock tips on a popular internet discussion site. A review of their posts revealed that they had attempted to promote interest in the security shortly after purchasing it for themselves.
ASIC delivered a verbal warning to the client, explaining that their conduct bore the hallmarks of a manipulative 'pump and dump'. The client (who was previously unknown to ASIC) was advised that they had been placed on a watch list and their future trading would be closely monitored. If at any point it raised issues of concern to ASIC, the current matter may be revisited and enforcement action taken.
If Participant D had executed the order in accordance with the client's instructions, it is likely that ASIC would have investigated the client for suspected market manipulation and the Participant for potentially breaching the ASIC market integrity rules.
[Note: The requirement to include a client identifier in order records has significantly improved ASIC's ability to monitor clients' ongoing activity.]