Finclear Execution Limited (Finclear) has paid a penalty of $70,000 to comply with an infringement notice given by the Markets Disciplinary Panel (the MDP).
The MDP had reasonable grounds to believe that Finclear contravened the market integrity rules in relation to a pre-arranged crossing in April 2018 for an on-market buy-back by a company listed on ASX. The crossing of 4.1 million shares represented approximately 87% of the remaining shares that the listed company was offering to buy back, and approximately 8% of that company’s issued capital.
Finclear originally executed and reported the trade as a special crossing to the market operator, Chi-X. A special crossing is a trade entered into other than by the matching of orders on a trading platform. A special crossing is not permitted for on-market buy-backs because it is not carried out in the ordinary course of trading. After the close of trading on the day, Finclear realised their error, informed ASIC and cancelled the special crossing. The shares were trading on a cum-dividend basis at that time.
The next day, the shares commenced trading on an ex-dividend basis. At Finclear’s request, the ASX established a special cum-dividend market for the shares. ASIC had indicated to Finclear that, to allow other participants an equal opportunity to sell into the buy-back, any proposed bid might need to be placed in the market for a prolonged period. In that cum-dividend market, Finclear entered a Bid for the same number of shares at the same price and, seven seconds later, entered an Ask at the same volume and price. The orders matched on the trading platform.
The MDP considered Finclear’s actions resulted in the market for the shares not being both fair and orderly, in contravention of the market integrity rules. The MDP found that the subsequent crossing was pre-arranged. The MDP said:
‘Finclear was also aware of ASIC’s expectations as conveyed in conversations between ASIC and Finclear in the lead up to the subsequent crossing that the offer be held in the market for a prolonged period of time. This would not have cured the pre-arranged nature of the transaction but if the offer had been made for an extensive period of time, it would have dispelled the proposition that there was any unfairness. Finclear was not obliged to meet ASIC’s expectations, but it voluntarily assumed the risk of not doing so.’
The MDP found that Finclear’s original execution of the trade as a special crossing was the result of a lack of knowledge of the persons occupying certain positions, who should have been aware of the restrictions on special crossings for on-market buy‑backs. However, as it was an isolated mistake – albeit a significant one in the context of the buy-back – the MDP considered it fell short of demonstrating that Finclear itself lacked organisational competency.
The MDP also noted that Finclear has no previous adverse disciplinary history before the MDP.
The compliance with the infringement notice is not an admission of guilt or liability, and Finclear is not taken to have contravened subsection 798H(1) of the Corporations Act.
Source: © Australian Securities & Investments Commission. Reproduced with permission