The New South Wales Supreme Court has ordered Macquarie Securities (Australia) Limited (MSAL) to pay a $35 million penalty for multiple systems-related failures that caused the misreporting of tens of millions of short sales over several years.
The Court also found that MSAL engaged in misleading conduct in relation to its misreporting.
MSAL failed to correctly report at least 73 million short sales between 11 December 2009 and 14 February 2024. It is estimated that between 298 million and 1.5 billion short sales were misreported during that period.
Short sale data plays a critical role in informing investors, regulators and governments about market sentiment and potential investment risks.
Accurate reporting underpins trust and confidence in Australia's financial markets.
The inaccurate reporting was due to serious deficiencies in MSAL's systems, processes and controls, many of which remained undetected for more than a decade, despite a number of internal reviews.
ASIC Chair Joe Longo said the case was a stark reminder that when firms ignore red flags and allow risks to go unchecked, the consequences of systemic failures can escalate over time.
'Regulators and investors rely heavily on short sale data to understand market conditions and identify emerging risks, particularly at times of market volatility and uncertainty.
'As one of the country's largest financial services groups with significant reporting obligations, Macquarie should be setting the standard.'
In closing ASIC's first short-sale reporting case, His Honour Justice Nixon declared that MSAL:
- Engaged in misleading or deceptive conduct in relation to the misreporting
- Failed to have in place adequate risk management systems
- Failed to have appropriate supervisory policies and procedures
- Failed to have and maintain necessary organisational and technical resources, and
- Failed to provide accurate regulatory data to the market operator.
In addition to the pecuniary penalty, the Court ordered MSAL to engage an independent expert to assess its short sale and regulatory reporting systems and processes, and to pay ASIC's costs.
'What we saw in this case was simply not good enough. These are critical systems and controls that market participants need to be closely watching,' Mr Longo said.
In delivering His Honour's reasons, Justice Nixon said, 'MSAL acknowledged that its contravening conduct did result in harm, insofar as it may have impacted both the effective operation of the ASX and the Cboe Australia market, given the various ways in which Short Sale Reports may be used, and the potential for traders, investors, companies, regulators and the general public to be misled by inaccurate data; and ASIC's market surveillance activities.
'I am satisfied that a pecuniary penalty in the total amount of $35 million will provide the necessary sting or burden to achieve the objects of specific deterrence and general deterrence.'
ASIC expects market participants to ensure their systems, controls and governance arrangements are robust and fit for purpose to comply with their regulatory obligations.
