Epoch Capital pays $130,000 penalty

Epoch Capital pays $130,000 penalty

Epoch Capital has paid $130,000 to comply with an ASIC infringement notice after the international trading company was found to have entered into trades with itself.

According to a statement by ASIC, the Markets Disciplinary Panel considered Epoch’s conduct between March and June 2015 to potentially undermine the integrity of the ASX 24 market.

During this period, Epoch traded 10-year Commonwealth Treasury Bond futures contracts “by dealing in 'calendar spread contracts' during a 'roll period' in the lead up to the expiration of the contracts”.

“The 'roll period' is a period occurring at the end of a quarter during which participants will typically close out open positions in expiring futures contracts and simultaneously create open positions in futures contracts for the next period,” the statement read.

“Epoch had a system in place – known as a 'depth of market stop loss' function – to mitigate its exposure in the event that an unexpected market circumstance caused a significant reduction in expected liquidity of the futures contracts.”

The panel had cause to believe Epoch had contravened market integrity rules as “unexpected market circumstances” had triggered a stop loss with Epoch entering into trades with itself as a result.

“The trades resulted in dealings in futures contracts that were likely to have had the effect of creating a false or misleading appearance of active trading because the offer to purchase and sell did not result in taking a genuine, bona fide position in the contracts,” the statement said.

“As the trades resulted in no change in beneficial ownership, the trades misleadingly appeared to be genuine trades which had an effect on the trading volumes by giving an appearance of more active trading than was in fact the case.”

During the ‘roll’ in March 2015, Epoch did not have a tool to prevent it crossing with itself on the ASX 24 Market, and by June 2015 Epoch had developed but failed to implement a cross-trading prevention tool as the firm had “left activation of the cross-trading prevention tool to the discretion of its individual traders”.

The panel acknowledged that Epoch then went on to change its systems so it operated automatically instead of manually in order to remove trader’s discretion on whether to implement the tool.

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