Interactive Brokers Australia has paid a $832,500 penalty to comply with an infringement note issued by the Market Disciplinary Panel (MDP) after the brokerage firm’s response and follow up to suspicious trading by one of its clients was found to be inadequate.
The MDP found that Interactive Brokers was “negligent” for failing to identify the client’s suspicious trading and “reckless” for continuing to allow further suspicious trading even after concerns were raised by the Australian Securities and Investments Commission (ASIC).
Additionally, the MDP determined that Interactive Brokers did not maintain the necessary organisational and technical resources to comply with the law.
“Market participants play an important gatekeeper role in detecting and preventing suspicious trading,” ASIC said in a statement on Wednesday.
“They must have effective controls and adequate resources to efficiently identify and disrupt potential market misconduct, and they need to respond quickly to concerns raised by ASIC.”
ASIC explained that its concerns arose from certain closing single price auction (CSPA) orders placed by the client on the ASX between 10 March and 5 November 2021.
The client actively traded in shares of regenerative medicine company Orthocell and was known to Interactive Brokers as an experienced trader who had been employed in the industry.
According to the MDP, Interactive Brokers should reasonably have suspected that the client’s orders were suspicious for a number of reasons, including:
- that they were entered or amended late in the CSPA
- they were for a very small volume and value
- they returned or held the price for OCC to or at the high of the day
- they were inconsistent with the client’s previous trading during the relevant day
“The MDP found that Interactive Brokers allowed its client to place certain orders when it ought reasonably to have suspected the client was placing those orders with the intention of increasing the closing price of OCC, thereby creating a false or misleading appearance with respect to the price of OCC,” ASIC said.
ASIC noted that it contacted Interactive Brokers on 14 October 2021 to advise the firm that the client’s trading had triggered ASIC alerts. However, Interactive Brokers allowed the client to continue trading and place further suspicious orders.
The MDP considered that Interactive Broker’s response and follow up to the suspicious activity was inadequate for a number of reasons including:
- alerts taking too long to be closed
- the absence of meaningful notes in Interactive Brokers’ reviews of the alerts
- a lack of action to address the trading conduct of the client
- not lodging a suspicious activity report to ASIC until 5 November 2021
“The MDP considered that these circumstances demonstrated that Interactive Brokers did not have sufficient staff with the necessary skills, knowledge or experience to properly assess the alerts or those staff were not adequately supervised to ensure they were doing their job,” ASIC said.
The regulator noted that compliance with the infringement notice is not an admission of guilt or liability, and by doing so, Interactive Brokers is not taken to have contravened subsection 798H(1) of the Corporations Act.
Interactive Brokers was also subject to two interim stop orders earlier this year after ASIC identified deficiencies in the target market determination and product disclosure statement of its Stock Yield Enhancement Program.
