The cases are real, the people are real: ASIC's 'Stories from the beat'
Published by the Stockbrockers Association of Australia in the Stockbrokers Monthly, October 2016.
One year ago, we described some of the everyday matters ASIC markets analysts review and investigate in the 'Stockbrokers Monthly'. We received such positive comments about this article that we decided to serialise it. Since August 2015, 'Stories from the beat' has been a regular feature in the Market Integrity Update. Each story is based on true events and reflects actual regulatory outcomes.
We think these stories make great learning tools. It seems you agree. We recently heard of a compliance officer who incorporates them into their in-house training! Here are three of the most popular from previous issues of the Market Integrity Update.
Broker acts to protect market integrity
The client of a market participant attempted to place several buy orders in a highly illiquid stock. The orders were small in size and a large percentage away from the last traded price. Before being executed, the trades were rejected by a designated trading representative.
The participant subsequently discovered that the orders were placed through the account of the wife of the listed company's Chief Executive Officer (CEO). The participant locked the account and sent a suspicious activity report (SAR) to ASIC.
We conducted inquiries into the matter. Using our Market Analysis & Intelligence surveillance system, we analysed all orders that were submitted in the stock in the period leading up to and following the day in question.
Because the orders were successfully rejected, we responded by contacting the CEO to discuss his conduct. We reminded him of his obligations under the Corporations Act 2001 and drew his attention to the market manipulation provisions (including penalties). We also warned him that any repeat of this conduct could trigger a formal ASIC investigation. The stock has been placed on a watch list and is being continually monitored by ASIC.
New hire not up to the job
A participant notified their ASIC Relationship Manager that they had appointed a new responsible executive (RE). The Relationship Manager requested that they provide additional information about the individual's qualifications, work history and experience. The participant confirmed that the individual had successfully completed an RE examination while working for a previous employer and emailed us a copy of his resume. The resume revealed that the individual had not worked for a participant for over 12 months and had not satisfied the Compliance Education Requirements necessary to maintain their qualification as an RE.
The participant had not undertaken the necessary checks to ensure that the individual was appropriate to act as an RE. This raised some concerns about the participants understanding of the obligations relating to the appointment of REs.
On discussing this information to the attention of the participant, the notification was promptly withdrawn. Although action was not taken against the participant in this instance, a file note was created for future reference.
Whose money is it anyway?
An ASIC analyst reviewed bank account statements provided by a participant as part our review of client money handling. The analyst observed that the participant's client trust account was not designated as such, but instead named 'Settlement clearing account'.
Appropriate designation is an important safeguard to protect the interests of investors. It is also a legislative requirement! An inaccurate designation may result in the funds not being identified as client money and dealt with as required by law. This risks the funds not being protected in the event of the licensee becoming insolvent or ceasing to be licensed. We consider that the name of the client trust account should contain the words ‘client trust account’ or wording to that effect.
The analyst wrote to the participant requesting the trust account be renamed using an appropriate designation. This change was promptly made.