Wilsons Advisory and Stockbroking Ltd ACN 010 529 665 (Wilsons) has paid a penalty of $548,328 to comply with an infringement notice given by the Markets Disciplinary Panel (MDP).
ASIC contacted Wilsons in March 2022 after conducting a thematic review of Trade with Price Improvement (TWPI) reported by market participants. TWPI is one of the specified exceptions under Rule 6.1.1 of the ASIC Market Integrity Security Rules (Securities Markets) 2017 (the Rules) that otherwise require trades in equity market products to be matched on an order book of a market and have pre-trade transparency.
A TWPI is a transaction that is executed at a price step that is both higher than the best available bid price and lower than the best available offer price. A TWPI can also be a transaction that is executed at the mid-point of the best available bid price and the best available offer price.
Trades that arise from orders that are displayed on-market foster competition that promotes liquidity and price formation, which benefits all investors and supports listed companies to value their assets. TWPIs are a specified exception to this requirement because they provide a meaningfully better price for investors to trade than what is displayed on-market.
ASIC raised concerns with Wilsons that a significant number of transactions reported by Wilsons as TWPI from 1 March 2022 to 21 March 2022 did not appear to offer price improvement. Wilsons responded to ASIC on 8 April 2022 stating that it did not have a specific post-trade alert in place to identify this issue and that consequently, the issue had gone undetected.
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The MDP found that Wilsons executed 2,306 trades away from an order book and reported those trades as TWPI in circumstances where it was not permitted to do so as the trades did not provide price improvement over the best available bid price and the best available offer price. As a result, the MDP had reasonable grounds to believe that Wilsons contravened subsection 798H(1) of the Corporations Act 2001 by failing to comply with Rule 6.1.1 on 2,306 occasions during the period between 1 January 2020 and 31 March 2022.
The MDP characterised Wilsons conduct as serious, and at the high end of careless rather than as reckless or intentional. Wilsons was not aware of the issue, which had gone undetected for over two years until ASIC brought it to Wilsons’ attention. The MDP considered that the fact that the conduct went undetected for over two years was an aggravating factor.
The MDP considered that Wilsons was overly reliant on the knowledge of its designated trading representatives (DTRs) as a control and should have had more robust risk management systems in place either to prevent or detect the conduct in breach of Rule 6.1.1. Despite Wilsons having ongoing training for its DTRs, it did not sufficiently cover the relevant parts of Rule 6.1.1, such that several of the DTRs misunderstood the requirements.
Nonetheless, the MDP considered that Wilsons generally had a sound compliance culture. Wilsons took swift action to investigate the conduct after being made aware of it by ASIC, co-operated with ASIC and undertook a thorough review of its trading history to identify the breaches and submit a breach report to ASIC. Wilsons also took remedial steps to ensure that the conduct does not re-occur by exploring additional internal systems controls with its surveillance service provider,
retraining its DTRs and conducting individual training sessions with DTRs and sales traders about the pre-trade transparency requirement.
Although not directly at issue in the current matter, the MDP noted that it is important for market participants to have consequence management processes in place to deal with contraventions of the Rules.
Compliance with the infringement notice is not an admission of guilt or liability, and Wilsons is not taken to have contravened subsection 798H(1) of the Corporations Act.