Openmarkets Australia Limited (ACN 090 472 012) (Openmarkets) has paid the largest ever penalty imposed by the Markets Disciplinary Panel (MDP) of $4.5 million and entered into an enforceable undertaking in order to comply with an infringement notice issued by the MDP.
Openmarkets has a history of compliance failures (including a 2017 MDP infringement notice) which the MDP described as being ‘very poor’ and an aggravating factor affecting the outcome.
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.
The MDP would have imposed a significantly higher penalty, however reduced the total amount due to factors that included Openmarkets entering into an enforceable undertaking and not contesting the alleged contraventions.
ASIC’s investigation commenced when routine ASIC 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 2,011 occasions (Same Price Orders). 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 Openmarkets’ client was responsible for suspicious trading resulting in the 2017 infringement notice and the present outcome.
The MDP had reasonable grounds to believe that 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 were interconnected, as they related to Openmarkets’ failure to have a compliance framework in place that could deal with suspicious trading.
The MDP noted that the fact the alleged contraventions occurred across a wide range of rules and over several years highlights the fundamental importance of a market participant:
having the foundations of a strong compliance framework and culture in place before it commences a new type of business or materially expands its business;
continuing to monitor its compliance framework and updating it as necessary to consider changes to its business and applicable regulatory requirements;
ensuring that its charging structure for clients, and its financial resources generally, are adequate to support its compliance framework; and
responding appropriately to increased business volumes and adequately resourcing its operations at all times.
The enforceable undertaking requires Openmarkets to appoint an independent expert to assess, report on and identify any necessary remedial actions relevant to the adequacy of Openmarkets’ organisational and technical resources and the design and operational effectiveness of its arrangements, relating to trade surveillance, client on-boarding and client money.
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 addition to the above MDP infringement notice, ASIC has also banned Openmarkets’ former Acting Head of Trading and designated trading representative (DTR), Virginia Owczarek, of Gisborne, Victoria, from providing any financial service for three years.
ASIC found that Ms Owczarek is not fit and proper to provide financial services or to participate as an officer in the financial services industry. ASIC found Ms Owczarek, among other things, accepted a $2,000 payment from a client for stock tips and engaged in inappropriate and unprofessional communications with a client regarding SMARTs alerts. ASIC also found Ms Owczarek used personal devices for client communications, including trading instructions.
