Morrison Securities Pty Ltd ACN 001 430 342 (Morrison) has paid a penalty of $333,000 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP).
The MDP had reasonable grounds to consider that Morrison contravened Rule 5.9.1 of the ASIC Market Integrity Rules (Securities Markets) 2017 (Rules) on six occasions on 27 October 2021 and on one occasion on 2 November 2021. Rule 5.9.1 requires a market participant not to do anything which results in a market for securities not being fair and orderly.
On 27 October 2021, a client of Morrison inadvertently directed six orders to buy or sell securities to the Chi-X market, instead of the ASX closing auction. The six orders were recognised by Morrison’s filters as aberrant orders and diverted to Morrison’s Designated Trading Representatives (DTR) for review. The DTRs approved the six orders to the Chi-X market which resulted in significant price variations in the relevant securities and, for five of the orders, set the closing price on the Chi-X market at a level that was materially different from the closing price on ASX.
Relevantly, on that day, five Morrison’s DTRs had been required to review 3,163 orders, of which 1,522 were orders for the relevant client. In addition, the magnitude of the client’s trading had caused significant slowness and queuing in the IRESS platform, which inhibited the DTRs’ ability to identify pricing issues and reject the client’s orders.
On 2 November 2021, another client of Morrison erroneously directed two orders to the Chi-X Market rather than the ASX opening auction. Both orders were recognised by Morrison’s filters as aberrant orders and diverted to a DTR for review. The DTR approved the first order to the Chi-X Market but rejected the second order. The first order resulted in a significant price variation in the relevant security.
The MDP considered that the authorisation of the orders by Morrison resulted in the market for the relevant securities not being fair and orderly, in contravention of the Rules. The orders caused significant price variations in the relevant securities that were unreasonable in the circumstances and were not caused by ordinary market events.
The Rules impose obligations on market operators dealing with Anomalous Order Thresholds (AOTs) and Extreme Trading Range (ETR) for securities. Although the relevant orders fell under the AOT and ETR ranges, the MDP did not consider that was determinative of whether the orders caused a disorderly market. Rather, the MDP considered the fair and orderly market obligation imposed on market participants under Rule 5.9.1 and the ETR and AOT obligations imposed on market operators to be distinct, but complementary, obligations that both promote the operation of an orderly market.
The MDP characterised Morrison’s conduct as at the high end of ‘careless’. It considered that human error by the DTRs, in conjunction with inadequate controls and systems, caused the relevant transactions to be made on the Chi-X Market instead of the ASX Market.
The MDP considered that the consequences of the conduct were aggravating because the conduct permanently affected the closing prices, intraday ranges and volatility of the relevant securities. This had the potential to undermine the perception of the market as orderly.
Although, the MDP did not consider that Morrison had a poor compliance culture overall, it noted that Morrison’s conduct indicated that speed of orders to the market was prioritised over taking due care to review aberrant orders. The MDP observed that having DTRs manually review such a large volume of trades per day is not best industry practice.
Compliance with the infringement notice is not an admission of guilt or liability, and Morrison is not taken to have contravened subsection 798H(1) of the Corporations Act.
