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Openmarkets cops record fine over renewed wash trades by problem client
Openmarkets Australia has paid $4.5 million for breaching market integrity rules in the largest-ever penalty issued by the Australian Securities and Investments Commission’s Markets Disciplinary Panel (MDP), while the company’s former head of trading was hit with a three-year ban.
ASIC announced on Thursday that the retail broker is participating in an enforceable undertaking over the breaches, saying Openmarket’s “history of compliance failures” was an aggravating factor in the panel’s decision. It’s the second time ASIC fined Openmarkets over its handling of so-called wash trades, but the company’s cooperation and agreement to the undertaking led to a reduced penalty, the regulator said.
“This outcome sends a clear message to market participants that breaches of market integrity rules will result in substantial penalties that should not be seen as a cost of doing business,” ASIC said in a statement.
ASIC began investigating Openmarkets after routine surveillance revealed a client of the company conducting “repeated suspicious trading”, placing bid and ask orders in the same security, at the same price, more than 2,000 times, according to the regulator. The same client, it said, was also behind suspicious trading that prompted ASIC to issue a $200,000 infringement notice against Openmarkets in 2017.
“Many of these suspicious orders formed part of an unusual series of orders involving the rapid cancellation or amendment away from priority of large volume orders,” ASIC said.
It found that Openmarkets contravened numerous market integrity rules over a several-year period and had reasonable grounds to suspect the client’s orders would artificially affect the security’s trading price. The company did not have a sufficient post-trade surveillance system, appropriate supervisory procedures or sufficient staff to properly respond to the manipulative trades.
Openmarkets also failed to use a filter meant to prevent wash trades, which the MDP considered a “serious” and “very reckless” compliance failure because the 2017 infringement notice had already called out that conduct. The regulator further faulted the broker for unprofessional conduct by its senior staff, a failure to submit suspicious-activity reports to ASIC and trust account deficiencies.
“The MDP considered the majority of alleged contraventions were interconnected, as they related to Openmarkets’ failure to have a compliance framework in place that could deal with suspicious trading,” ASIC said.
The enforceable undertaking calls for Openmarkets to appoint an independent expert to consider possible remedial actions relating to trade surveillance and other areas.
In addition to the infringement notice from the MDP, ASIC also banned Openmarkets’ former acting head of trading, Virginia Owczarek, from providing financial advice for three years, saying she was “not fit and proper to provide financial services or to participate as an officer in the financial services industry”.
According to the regulator Owczarek took a $2,000 client payment in exchange for stock tips, engaged in inappropriate and unprofessional communications, and used personal devices for client communications.
Following ASIC’s statement, Openmarkets in a media release said it has “undergone significant strategic and operational transformation” since the breaches were identified and “today is a very different business than it was in the period when the above conduct occurred”.
