ASIC: Etrade Australia Securities Limited pays $65,000 

ASIC_regulator

Etrade Australia Securities Limited (Etrade) has paid a penalty of $65,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP).

The MDP found it had reason to believe that Etrade had contravened subsection 798H(1) of theCorporations Act 2001 (Corporations Act) by failing to comply with a ASIC market integrity rule (ASX Market) regarding the market for a Product not being both fair and orderly.

Background and circumstances

The MDP was satisfied that:

1. At 11:07:50 on 20 June 2014, Etrade received an Order from a Direct Market Access Client to buy 300 Orica Limited $18.50 put Options Market Contracts (ORIR78) at an erroneous price of $36.00 per Contract (Client Order);

2. The Client Order was automatically diverted to an Etrade Designated Trading Representative (DTR) for consideration;

3. At 11:08:01, after considering the Client Order, an Etrade DTR erroneously submitted the Order into the Trading Platform (Relevant Order);

4. At the time of submitting the Relevant Order into the ASX Trading Platform, the Etrade DTR was involved in a vendor demonstration at his desk. During the demonstration, the Etrade DTR noticed a number of Orders were experiencing delays in entering into the Market. To assist in alleviating these delays, the Etrade DTR actioned a number of Orders, including the Relevant Order;

5. In submitting the Relevant Order to the ASX Trading Platform, the Etrade DTR compared the price of the Client Order with the current market for ORIR78 being $0.34/$0.395/$0.355 (Bid/Ask/last traded price). The Etrade DTR misread the $36.00 price of the Client Order as $0.36;

6. Following its entry, the Relevant Order partially traded in five market transactions resulting in the market for ORIR78 being $36.00/no offer/$0.46 and leaving a residual Relevant Order for 50 ORIR78 at $36.00;

7. Etrade did not receive any internal warning messages prior to the Relevant Order’s release into the ASX Trading Platform;

8. At 11:08:02, shortly after the execution of the market transaction at $0.46, another Market Participant submitted an Offer which resulted in a market transaction for the remaining 50 ORIR78 at $36.00 (Relevant Trade);

9. As a result of the Relevant Order:

  • the price of ORIR78 increased $35.645, representing an increase of 10,041% from the last traded price, being the closing price of ORIR78 on 19 June 2014; and
  • at 11:33:13, at the request of Etrade, the ASX cancelled the Relevant Trade as it had been executed within the Extreme Trade Range (ETR).

By reason of Etrade’s entry of the Relevant Order into the ASX Trading Platform on 20 June 2014, the MDP has reasonable grounds to believe that Etrade has contravened Rule 5.9.1 of the ASIC Market Integrity Rules (ASX Market) 2010 (MIR 5.9.1) and thereby contravened subsection 798H(1) of the Corporations Act. The MDP issued Etrade with an infringement notice specifying a penalty of $65,000.

In deciding this matter, the MDP noted the following:

  • MIR 5.9.1 is aimed at promoting confidence in the integrity of the market. Imposing a strict obligation on Market Participants not to do anything which results in a market for a Product not being both fair and orderly, is critical in maintaining the integrity of the market;
  • the misconduct had the potential to damage the public confidence in the integrity of the market, as the submission of the Relevant Order into the ASX Trading Platform caused the price of ORIR78 to increase from the last traded price of $0.355 to $36.00, representing a $35.645 or 10,041% increase;
  • the misconduct was negligent on the part of Etrade as the functions of a DTR were not exercised to the requisite high standard in that the Etrade DTR did not take due care in assessing the Client Order, before submitting the Relevant Order into the ASX Trading Platform;
  • Etrade was unaware of the disorderly market resulting from the Relevant Trade until being made aware by the Client;
  • Etrade did not self – report the breach to ASIC under section 912D of the Corporations Act as required.  In the Panel’s view such obligation remained regardless of whether ASIC was aware of the breach.
  • there was one breach of MIR 5.9.1;
  • the misconduct was an isolated incident;
  • no or minimal actual benefit was derived by Etrade as a result of the misconduct;
  • Etrade took steps to prevent recurrence of the breach including:
    • all Etrade DTRs attended formal refresher training sessions held on MIR 5.9.1 breaches;
    • Etrade implemented post-trade alerts for derivatives which have been designed to identify potentially erroneous options trades; and
    • the specific DTR involved received counselling to ensure that the DTR understood the importance of paying due care and attention when reviewing and releasing Orders.
  • Etrade had one previous contravention found against it by the MDP regarding non-compliance with the market integrity rules, specifically MIR 5.9.1 for which Etrade paid a pecuniary penalty of $55,000 (MDP13/14);
  • Etrade had previously been sanctioned by the ASX Disciplinary Tribunal on eight separate occasions since 2004 – one regarding the predecessor rule to MIR 5.9.1 that involved DTR error (ASX Circular 365/09 dated 30 October 2009); and
  • Etrade co-operated with ASIC throughout its investigation and did not dispute any material facts and agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended.

Source: ASIC

Leave a Comment


Broker Cyprus TopFX