Securities firm cops $20,000 fine
Macquarie Securities has been publicly ticked off and fined $20,000 for failing to discover that one of its clients with direct market access made more than 100 algorithmic trades over a 10-month period without a change of ownership.
The broking house and NZX settled last month after the stock market operator conducted an investigation in 2018 that found 102 trades had been made where Macquarie’s client was on both sides of the deal.
Listing rules require there to be a change of ownership to prevent a person from creating a false appearance of trading interest and undermining the market’s integrity.
The problem came up because the Macquarie client was using separate algorithmic trading strategies that made opposing decisions about a particular stock, the NZ Markets Disciplinary Tribunal said yesterday in approving the settlement.
Macquarie’s filters designed to prevent this kind of trading weren’t up to the task, and the tribunal found the brokerage house didn’t have the systems in place to catch trades below a certain volume threshold.
“The tribunal has stated that adequate systems are particularly important given the increase in automated trading, including through the use of algorithms,” it said.
However, the small size of the trading volumes was a mitigating factor in that they didn’t have the potential to impact the market, and the trades themselves didn’t distort prices.
While Macquarie wouldn’t have discovered the trading if the NZX hadn’t raised an issue, the tribunal said the broking firm took steps to put controls in place to prevent that type of trading from happening again and now has an underlying client identification system to stop trades where ownership doesn’t change.
“This fix is unique to MAQA [Macquarie] and makes it a leader in the industry,” the tribunal said.
The broking firm was also ordered to pay $5400 of NZX costs, and costs for the tribunal.
The censure comes after the tribunal penalised Craigs Investment Partners in October for failing to adequately monitor algorithmic trading by one of its customers with direct market access. That client also made a series of algorithmic-based trades where ownership didn’t change.
A greater volume of trading is now automated as algorithms dictate a higher frequency of transactions. NZX’s 2018 metrics showed a 60 per cent jump in the number of equity trades from a year earlier, even as the value shrank 13 per cent.