The Australian Securities and Investments Commission (ASIC) has received payment of a $25,000 penalty from Susquehanna Pacific, a Sydney-based investment company specialising in index arbitrage, following an infringement notice issued by the watchdog’s Markets Disciplinary Panel.
The arbitrageur was found to have infringed the requirement set out under the Corporations Act to have an appropriate price filter within an automated order processing (AOP) system for exchange-traded funds (ETFs).
In addition, it was found the company did not take measures to ensure its system did not interfere with the integrity of the market, in contravention of both the Act and the ASIC Market Integrity Rules (ASX Market) 2010.
Specifically, the panel found that on 17 November 2011, Susquehanna’s IT department disabled a price filter for its AOP system relating to ETFs.
“As a result of the disabling of a filter in its AOP system for ETF trading on 17 November 2011, which subsequently resulted in a 99.76 per cent price decrease caused by the Relevant Order on 21 November 2011, the MDP had reasonable grounds to believe that Susquehanna contravened MIR 5.6.1 and thereby contravened section 798H (1) of the Corporations Act,” said ASIC in a statement confirming payment of the infringement penalty.
However, the panel also made clear its finding that “the conduct was inadvertent on the part of Susquehanna, rather than deliberate or reckless” and that the “alleged breach was an isolated incident that resulted from the ETF price filter being inadvertently disabled,” the statement said.
The infringement follows an investigation by ASIC into Susquehanna’s trading activity in 2001, which resulted in certain restrictions being placed on the arbitrageur’s dealing licence.
ASIC alleged that the arbitrageur had conducted trading in June 2001 that increased volatility in the market and “contributed to an unexpected increase in the price of a number of stocks that comprise the ASX S&P 200 Index.”
