Client’s Manipulative Orders Cost Interactive Brokers $250,000

The Australian Securities and Investments Commission (ASIC ASIC The Australian Securities and Investments Commission (ASIC) is the prime regulator in Australia for corporate, markets, financial services, and consumer credit. It is empowered under the financial service laws to facilitate, regulate, and enforce Australian financial laws. The Australian Commission was set up and is administered under the Australian Securities and Investment Commission Act of 2001. ASIC was initially the Australian Securities Commission based on the 1989 ASC Act. Initially, the The Australian Securities and Investments Commission (ASIC) is the prime regulator in Australia for corporate, markets, financial services, and consumer credit. It is empowered under the financial service laws to facilitate, regulate, and enforce Australian financial laws. The Australian Commission was set up and is administered under the Australian Securities and Investment Commission Act of 2001. ASIC was initially the Australian Securities Commission based on the 1989 ASC Act. Initially, the Read this Term) has penalized Interactive Brokers with a penalty of $250,000. The decision was taken by the watchdog’s Markets Disciplinary Panel (MDP).[gptAdvertisement]

The panel asserts that Interactive Brokers breached ASIC market integrity rules by preventing the detection of a set of manipulative practices that a client of the company engaged in. According to the MDP, Interactive Brokers failed to detect and prevent the manipulative behavior of its client, therefore breaching ASIC’s Market Integrity Rules for the Chi-X Australia Market.

Manipulative Trading

Under the regulations, brokers need to prevent market participants from bidding for shares on the accounts of others. The MDP outlines that this practice constitutes “a false or a misleading appearance” and purposefully manipulates share prices.

According to the regulator, Interactive Brokers didn’t have the adequate technical means to detect the practice and prevent the client from executing it.

The client indirectly held a significant stake in Altona Mining Limited. Back in November and December 2013, bids were placed via the automated order processing system of Interactive Brokers.

The bulk of the orders were in volume and increased the price of the shares of the company.

“The bids were timed to create a price impact at minimal cost. The bids seemed inconsistent with the actions of a genuine purchaser seeking to acquire the shares at the best possible price because the resulting trades consumed a very small proportion of the shares on offer at the bid prices. The client had an interest in supporting the share price of the company, given the client’s significant indirect holding.” the MDP said.

Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term and Restructuring of Operations

The brokerage did not detect the practice, but ASIC did, and presented the matter to the brokerage. According to the regulator, the systems which the brokerage had in place were not sophisticated enough.

The regulator measusred the systems of Interactive Brokers against other companies in the Australian brokerage space and determined them to be “inadequate”. The firm’s technology lacked pre-trade filters to detect a series of bids at very low value. Post-trade alerts also failed to identify the client’s manipulative behavior.

Since the detection, Interactive Brokers took substantive measures to improve its practices and it restructured its Australian business into a dedicated Australian subsidiary. The broker’s staff has been instructed on how to detect and escalate suspicious trading patterns. The firm has also greatly increased its Asia-Pacific compliance resources.