A high-frequency trader was allowed to make hundreds of potentially highly suspect trades for three weeks in late 2010, and the broker that facilitated those trades has now been fined $130,000. But the corporate regulator will not say who the high-frequency trader was, if it is still operating here, or if it will be facing disciplinary action.
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.