Credit Suisse Equities (Australia) Limited (Credit Suisse) has paid a penalty of $75,000 to comply with an infringement notice given by the Markets Disciplinary Panel (the MDP).
The MDP had reasonable grounds to believe that Credit Suisse contravened Rule 3.3.1(b) of the ASIC Market Integrity Rules (ASX Market) 2010 (ASX Rules) by failing to act in accordance with its clients’ instructions. The ASX Rules were superseded by the ASIC Market Integrity Rules (Securities Markets) 2017 on 7 May 2018.
Credit Suisse was engaged as a broker to conduct an on-market buy-back of shares on behalf of three clients. The MDP was satisfied that from 6 March 2017 to 8 November 2018, Credit Suisse entered into a number of trades by matching orders on behalf of both its buying and selling clients rather than by the matching of orders on an order book. Credit Suisse reported these trades to the ASX as ‘Trades with Price Improvement’ (NXXT Trades).
ASIC Regulatory Guide 223 Guidance on ASIC market integrity rules for competition in exchange markets (RG 223) and the superseding ASIC Regulatory Guide 265 Guidance on ASIC market integrity rules for participants of securities markets (RG 265) states that an NXXT Trade is not in the ordinary course of trading and is not a transaction permitted for an on-market buy-back. The MDP regards the guidance in RG 223 and RG 265 to correctly reflect the law and prevailing market practice. The MDP considered that Credit Suisse had failed to act in accordance with its clients’ instructions to conduct an on-market buy-back when it had entered the NXXT trades.
The MDP considered Credit Suisse’s conduct to be careless because its execution desk employees were inadequately trained in relation to on-market buy-backs and were therefore unaware that NXXT Trades were not permitted during an on-market buy-back. Additionally, Credit Suisse’s surveillance systems had also failed to prevent the NXXT Trades from being executed.
The MDP considers that all shareholders should be given a reasonable opportunity to participate in the buy-back of shares during an on-market buy-back. Market participants should be guided by this in the configuration of their trading systems when they conduct an on-market buy-back of shares on behalf of a listed company.
Credit Suisse reported the NXXT Trades to ASIC and took remedial measures by contacting its clients about the NXXT Trades, conducting further training for its execution desk employees, updating the reminder emails sent to execution desk employees not to execute NXXT Trades during an on-market buy-back, and implementing further processes to review certain trades (including NXXT Trades).
The MDP was satisfied that Credit Suisse did not appear to derive any benefit from the conduct beyond the brokerage fees and commissions, and that the conduct did not cause financial loss to its clients or third parties.
The compliance with the infringement notice is not an admission of guilt or liability, and Credit Suisse is not taken to have contravened subsection 798H(1) of the Corporations Act.