Interactive Brokers LLC (‘Interactive’) has paid a penalty of $250,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (‘the MDP’).
The MDP found it had reasonable grounds to believe that Interactive had breached the ASIC Market Integrity Rules (Chi-X Australia Market) 2011 which:
- prohibit a market participant from making bids for shares on account of another person, where taking into account the circumstances of the bids, a market participant ought reasonably suspect that the other person has placed the bids with the intention of creating a false or misleading appearance with respect to the price of shares; and
- require a market participant to have the necessary organisational and technical resources to ensure the participant complies at all times with the market integrity rules.
A client of Interactive indirectly held a significant stake in Altona Mining Limited. The client subsequently placed a series of bids for shares in that company in November and December 2013 through Interactive’s automated order processing system. The majority of these bids were of very low value and created increases in the price of the shares.
The MDP found that the bids seemed consistent with an intention to support the share price of the company because the bids were timed to create a price impact at minimal cost. The bids seemed inconsistent with the actions of a genuine purchaser seeking to acquire the shares at the best possible price because the resulting trades consumed a very small proportion of the shares on offer at the bid prices. The client had an interest in supporting the share price of the company, given the client’s significant indirect holding.
Interactive was unaware of the suspicious trading by the client until ASIC detected it and brought the matter to the attention of Interactive.
The MDP found that although Interactive had some systems in place that were intended to prevent or minimise manipulative trading, Interactive’s compliance framework lacked sophistication and its management lacked the required level of focus to ensure compliance with the market integrity rules.
Interactive’s systems, when benchmarked against those of its peers, were considered inadequate because the pre-trade filters failed to detect a series of bids of very low value and the post–trade alerts failed to identify the client’s trading that indicated a pattern of ‘marking the close’, creating disproportionate price increases to the volume purchased, and purchasing uneconomic quantities of the shares having regard to the brokerage charge per trade.
Aspects of the written procedures were ‘boilerplate’ documents, merely restating the law, and did not provide sufficient guidance to trading desk staff on how to analyse a client’s trading patterns against suspected manipulative trading. The written procedures also had not been sufficiently adapted for use when trading on Australian financial markets.
Interactive has subsequently undertaken significant steps to prevent recurrence of the conduct, including by restructuring its Australian business into a dedicated Australian subsidiary to service Australian market activity, implementing further training and guidance to its senior trading desk staff with a specific emphasis on detection and escalation of suspicious trading patterns, and increasing its Asia-Pacific compliance resources and providing greater levels of oversight and monitoring of its clients’ trading activities.
The compliance with the infringement notice is not an admission of guilt or liability, and Interactive is not taken to have contravened subsection 798H(1) of the Corporations Act.