Macquarie Securities pays $120k fine after regulatory breach

Macquarie Securities has paid a $120k fine after breaching ASIC's Market Integrity Rules in 2011. Macquarie had not implemented appropriate automated filters, leading to the Automated Order Processing system interfering with the Chi-X Market, destabilising its efficiency and integrity and incurring a $60,000 penalty. Further, the firm suffered a $30k penalty for each alleged contravention of narrow filter parameters submitted during the open session state of the Australian Securities Exchange (ASX) market.

Macquarie Securities has paid a $120,000 fine to adhere to an infringement notice after it was found to have breached the Australian Securities and Investments Commission's (ASIC's) Market Integrity Rules (Chi-X Australia Market) 2011.

The payment followed an infringement notice given to Macquarie Securities by the Markets Disciplinary Panel, a forum that takes disciplinary action against market operators for breaches of market integrity rules.

Macquarie Securities was found to have contravened subsection 798H (1) of the Corporations Act 2001, by way of contravening rules 5.6.1 and 5.9.1 of the Market Integrity Rules.

In relation to alleged contraventions of Rule 5.9.1, the firm had set the filter parameters for its automated order processing system so that the parameters used to filter orders submitted during the open session state of the Australian Securities Exchange (ASX) market were narrower than those used during the pre-open and pre-closing single price auction session states of that market.

During the pre-open and pre-closing single price auction session states of the ASX Market, orders were vetted against the wider filter parameters, even where the Chi-X Market was in an open session state, ASIC said.

Two orders related to different classes of illiquid shares were submitted when the Chi-X Market was in an open session state. Under the wider filter parameters, prices increased by 567 per cent for both classes of shares on both the Chi-X and ASX Markets.

Had the narrower filter parameters been in place at that time, the automated order processing system would have rejected the orders, ASIC said.

The MDP specified a penalty of $30,000 for each alleged contravention.

In relation to Rule 5.6.1, orders were submitted when the ASX market was in a pre-closing single price auction session state but the Chi-X Market was in an open session state, which resulted in transaction of shares on the Chi-X Market in Telstra and Santos respectively.

Due to wider filter parameters that were in place at that time, the orders resulted in prices on the Chi-X Market that were more than seven per cent away from the prevailing market prices of shares in Telstra and Santos. If the filter parameters had been narrower, the automated order processing system would have triggered a filter alert.

The MDP had reasonable grounds to believe that Macquarie Securities did not have in place appropriate automated filters to take account of a multi-market structure of competing exchange markets so as to ensure that use of the Automated Order Processing system did not interfere with efficiency and integrity of the Chi-X Market, ASIC said.

This contravention resulted in a $60,000 penalty.

However, compliance with an infringement notice is not an admission of guilt or liability and it does not necessarily mean Macquarie Securities contravened subsection of 798H (1) of the Corporations Act.