Openmarkets Australia has paid the largest ever penalty imposed by the Markets Disciplinary Panel for breaching market integrity rules and entered into an enforceable undertaking.
It has paid a record $4.5 million, a penalty that would have been significantly higher if they had contested the alleged contraventions and not entered into an enforceable undertaking.
Openmarkets’ former acting head of trading, Virginia Owczarek, has also been banned for three years after ASIC found her “not fit and proper to provide financial services or to participate as an officer in the financial services industry.” Among other things, she is believed to have accepted a $2,000 payment from a client for stock tips, engaged in inappropriate and unprofessional communications with a client regarding SMARTs alerts, and used personal devices for client communications, including trading instructions.
An ASIC investigation into Openmarkets commenced after routine surveillance identified repeated suspicious trading by an Openmarkets’ client. The client had placed simultaneous bid and ask orders in the same security and at the same price on over 2,000 occasions, and 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.
Notably, the same client was responsible for suspicious trading that resulted in a $200,000 MDP infringement notice to Openmarkets in 2017 for contravening market integrity rules relating to organisational and technical resources and AOP systems.
In the latest matter, the MDP had reasonable grounds to believe Openmarkets had contravened numerous market integrity rules over a period of several years and was satisfied as to the following matters:
- Openmarkets had reasonable grounds to suspect that the Same Price Orders were likely to have the effect of creating an artificial trading price or a false or misleading appearance of active trading;
- Openmarkets had not appropriately calibrated its post-trade surveillance system (the Nasdaq SMARTS system). This resulted in an unmanageable volume of alerts, most of which were not reviewed;
- Openmarkets did not have appropriate supervisory procedures to ensure compliance with requirements under the market integrity rules dealing with suspicious trading;
- Openmarkets had insufficient staff with the appropriate skills, knowledge and experience to carry out effective trade surveillance;
- Openmarkets had again failed to engage the anti-wash trade filter. The MDP considered this was ‘serious’ and ‘very reckless’, because such a failure was also one of the findings of the abovementioned 2017 infringement notice (see below for details of this notice). Further, Openmarkets failed to conduct any sufficient review of the appropriateness of its Automatic Order Processing (AOP) filter settings until several years after they were established;
- Openmarkets failed to prevent unprofessional conduct by senior staff. This included a senior staff member warning a client in relation to SMARTS alerts that they triggered, instead of escalating the matter to compliance. The MDP considered this was ‘highly unprofessional and an aggravating factor’;
- Openmarkets failed to submit suspicious activity reports to ASIC in relation to further clients engaging in suspicious trading; and
- A back-office system transition inadvertently resulted in trust account deficiencies of up to approximately $20,000,000 on 35 consecutive business days from 18 August to 5 October 2021.
The MDP considered the majority of alleged contraventions interconnected, relating to Openmarkets’ failure to have a compliance framework in place that could deal with suspicious trading.
With the enforceable undertaking, Openmarkets will be required to appoint an independent expert to assess, report on, and identify any necessary remedial actions relevant to the adequacy of its organisational and technical resources and the design and operational effectiveness of its arrangements, relating to trade surveillance, client on-boarding and client money.
ASIC notes that compliance with the infringement notice is not an admission of guilt or liability, and Openmarkets is not taken to have contravened subsection 798H(1) of the Corporations Act.
In a statement, Openmarkets said the business today is “very different” than it was when the above conduct occurred.
“Since these matters were identified, Openmarkets has significantly overhauled its business under the leadership of a new executive team,” it stated.
“Further, Openmarkets has uplifted its compliance controls and systems. Openmarkets also commissioned, of its own accord, an independent review of the design of its trade surveillance systems in 2021 and has hired new trade surveillance experts to work within its compliance team.”
