Broker fined $130,000 over suspect high-speed trading
The Australian Securities and Investments Commission has fined Instinet Australia - an agency-only institutional broker - for allowing one of its high-speed trading clients to issue hundreds of "wash trades" to the market in late 2010 without stopping those trades or alerting authorities to them.
Wash trading is considered a form of stock manipulation in which an investor simultaneously buys and sells the same shares to artificially increase trading volume and the stock price.
The stocks traded - from late October to late November 2010 - were Kingsgate Consolidated, Dominion Mining and SPDR S&P/ASX200 Fund.
ASIC says Instinet was aware that it did not have an appropriate filter on its automated processing system to accommodate high-speed traders.
It also did not act on computer alerts that the trades were being made by its HFT client, nor did it enter those alerts into its compliance register.
Its high-speed client used Instinet's processing system to make hundreds of the crossings, ranging in value from $2.97 to $215,696.30.
ASIC's markets disciplinary tribunal has called Instinet's behaviour "careless and irresponsible" that constituted an "unacceptable serious lack of judgment".
"As a high-frequency trader and given its specific trading strategy, the client represented an increased risk of transacting accidental crossings in the market," the ASIC report said.
"In all the circumstances of the matter, Instinet's misconduct ... was careless and irresponsible in the context of its regulatory obligations. Instinet's misconduct constituted an unacceptable serious lack of judgment and proper reasonable regard to its mandatory obligation to have in place an appropriate filter."
The fine follows an ASIC report in March that found no evidence of widespread manipulation of Australia's stockmarket, despite the belief by brokers and fund managers the market was being gamed by high-frequency traders.
Instinet Australia is an agency-only institutional broker that places orders on the stock exchange on behalf of institutional clients. It has no "proprietary" trading desk, meaning Instinet only trades on behalf of a client.
It had no recorded history of non-compliance with the market integrity rules or ASX market rules before this incident.
Frequently Asked Questions about this Article…
ASIC found that a high-frequency trading client used Instinet Australia’s systems to make hundreds of suspect trades (wash trades) over about three weeks in late 2010, and Instinet failed to stop the trades or alert authorities. The corporate regulator fined Instinet AU $130,000 for its role.
Wash trading is when an investor simultaneously buys and sells the same shares to artificially boost trading volume or price. It’s considered a form of stock manipulation and can distort market prices and liquidity, which can mislead ordinary investors about true supply, demand and value.
The trades took place from late October to late November 2010 and involved Kingsgate Consolidated, Dominion Mining and the SPDR S&P/ASX200 Fund.
ASIC found Instinet had no appropriate filter on its automated processing system for high-speed traders, did not act on computer alerts showing the client’s activity, and failed to record those alerts in its compliance register — conduct the markets tribunal called a serious lack of judgment.
Instinet’s high-speed client made hundreds of crossings with values ranging from about $2.97 up to $215,696.30. ASIC fined Instinet Australia $130,000 for the compliance failures.
No. ASIC did not disclose the identity of the high-frequency trader and said it would not reveal whether the trader is still operating in Australia or whether it will face separate disciplinary action.
Not according to ASIC’s broader findings. A March ASIC report referenced in the case found no evidence of widespread manipulation of Australia’s stockmarket, despite concerns from some brokers and fund managers that high-frequency trading was being used to game the market.
The fine shows regulators monitor high-frequency trading and can penalise brokers that fail to have controls in place. For investors, it highlights the importance of market oversight and the need for brokers and trading systems to have appropriate filters and compliance processes to protect market integrity.
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