Merrill Lynch Australia fined for poor market trading processes
Merrill Lynch Equities (Australia) has been fined $120,000 by the Markets Disciplinary Panel (MDP) for not ensuring that it had in place organisational and technical resources for its system for the automated processing of orders.
The action by the Australian Securities and Investments Commission's (ASIC's) peer review body pertain to an order placed by Merrill Lynch Global Wealth and Investment Management (GWIM) through Merrill Lynch's system on 24 May 2011.
The order was to sell 50 million ordinary shares in Future Corporation Australia at a price of $0.002 on a deferred settlement basis.
According to ASIC, GWIM was not aware of 1:10 reconstruction of the shares and entered the order at $0.002 instead of $0.02. The order was then automatically routed to the Australian Securities Exchange (ASX) trading platform, despite being 86.7 per cent lower than the highest bid in the market.
The order resulted in 13 transactions — 11 of which were subsequently cancelled — at prices from $0.015 to $0.002, resulting in an 86.7 per cent decrease in the price of Future Corporation.
As a result of Merrill Lynch's failure to maintain processes to record any changes to its automated filters to enable automated orders to be submitted into ASX's trading facility between 1 August 2010 and 24 May 2011, the MDP had reasonable grounds to believe that the company contravened Rule 5.6.3(a) of the ASIC Market Integrity Rules 2010 and, thereby, contravened section 798H(1) of the Corporations Act 2001.
The MDP noted that the contravention occurred over an unacceptable period of time and that Merrill Lynch had previously failed to address a comparable contravention, referring to the ASX Disciplinary Tribunal's 2010 statement to the fund manager that it should ensure it had appropriated measures in place to prevent further market misconduct.
Following the latest infringement, ASIC stated that Merrill Lynch has taken further remedial action to prevent a recurrence of this incident, including ensuring changes to its system could only be made with its knowledge and authorisation, and that any unauthorised changes could be promptly detected, rectified and prevented.
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