Commonwealth Bank of Australia (CBA) has been forced to pay a $50,000 fine to ASIC over an infringement issue involving its broking platform, Commonwealth Securities (CommSec).
CommSec was issued with the penalty notice after allegedly contravening section 798H(1) of the Corporations Act 2001, specifically market integrity rule 5.5.2 of the ASIC Market Integrity Rules (ASX Market) 2010 (MIR 5.5.2), the Markets Disciplinary Panel (MDP) said in a statement released yesterday.
"Between 4 August 2010 and 20 January 2011, CommSec, on account of its client, executed 48 crossings in the fully paid ordinary shares of OAK (ACN 113 972 366)," it said.
"During the relevant period, the client placed 96 orders in OAK, 48 on an account in the name of the client and 48 on an account in the name of the client and the client's wife (the 48 crossings).
"The 48 crossings involved no change in beneficial ownership (NCBO) and falsely represented 11.88 per cent on bona fide volume in OAK, creating the misleading appearance of active trading.
"This is inconsistent with the efficiency and integrity of the market as participants are likely to assume that the transactions reflect genuine supply and demand and act accordingly."
While the MDP said CommSec did have "filters and reviews in place" to identify and prevent NCBO orders from entering the market during the relevant period, "the filters and reviews were not designed to filter NCBO transactions from accounts that were connected, but had different account numbers".
"Three of the 48 crossings, which did trigger unrelated filters, were reviewed and approved by CommSec designated trading representatives (DTRs)," it said.
"By reason of CommSec not having and maintaining the necessary organisational and technical resources to ensure that the trading messages that resulted in the 48 crossings were not submitted to the trading platform, the Markets Disciplinary Panel has reason to believe that CommSec has contravened MIR 5.5.2 and thereby contravened subsection 798H(1) of the Corporations Act."
The MDP, a peer review body that exercises ASIC's power, said it took into account "all relevant guidance in ASIC Regulatory Guide 216" when reaching its determination.
As part of its verdict, it noted the conduct on the part of CommSec "appears to have been reckless".
"Three of the orders triggered filter alerts, and although this was not for NCBO reasons, the orders were diverted to the relevant DTR for review who reviewed and approved them, despite the orders being NCBO transactions," it said.
"CommSec did have filters and reviews in place regarding NCBO orders. However, the filters and reviews were inadequate as they were designed only to identify and filter NCBO transactions in which the account number was the same on both sides. The filters and reviews were not designed to filter NCBO transactions from accounts that were connected, but had different account numbers."
The panel also noted CommSec's cooperation with ASIC and its attempts to address concerns arising from the investigation by way of engagement with the regulator.
It also found CommSec did not self-report the alleged breach to ASIC, but did report the matter to another regulator, and closed the client account on 11 February 2011.
"One relevant action has been taken against CommSec in relation to the market integrity rules, and CommSec has been sanctioned by the ASX Disciplinary Tribunal on seven occasions since 2002," it said.
The fine is the second amount the CBA has been ordered to pay that has involved ASIC in the same month.
Earlier this month, the bank and ASIC reached a settlement on behalf of Storm Financial clients, resulting in the banking group agreeing to pay an extra $136 million on top of a previously agreed figure of $132 million.
The additional amount takes CBA's total financial compensation regarding Storm claims to $268 million.
