Openmarkets Australia Limited, one of Australia’s largest retail brokers, has paid A$4.5m ($3m) – the largest ever penalty imposed by the Markets Disciplinary Panel (MDP) – over “serious and very reckless” compliance failures, including findings of suspicious orders. The company has also entered into an enforceable undertaking to comply with an infringement notice issued by the MDP.  

ASIC started its investigation into Openmarkets after a routine ASIC surveillance found repeated suspicious trading by one of the company’s clients. The client was found placing simultaneous bid and ask orders in the same security and at the same price 2,011 times (Same Price Orders). The EMD also called the findings of some of the senior staff’s performances “highly unprofessional”.

Market integrity rules

The MDP is calling the failures serious and very reckless, especially with Openmarkets’ history of compliance failures in 2017 when 1,858 ‘wash trades’ were made, which occurred because Openmarkets:

• failed to activate an anti-wash trade filter in its Automatic Order Processing (AOP) system; and
• was not using a service offered by ASX Trade which prevents on-market self-executions. 

The MDP believes that Openmarkets contravened numerous market integrity rules over several years and that the company:

• had reasons to suspect that the Same Price Orders were likely to have the effect of creating an artificial trading price or a false or misleading appearance of active trading;
• had not properly calibrated its post-trade surveillance system which resulted in an unmanageable volume of alerts, where the majority weren’t reviewed;
• failed to have proper supervisory procedures to ensure compliance with requirements under the market integrity rules regarding suspicious trading; 
• failed to have staff with the right skills, knowledge and experience to carry out effective trade surveillance; 
• failed again to engage the anti-wash trade filter, and to conduct any sufficient review of the appropriateness of its AOP filter settings until many years later;
• failed to uphold professional conduct by its senior staff, which included a senior member warning a client in relation to SMARTS alerts, instead of taking the issue to compliance. The MDP found this to be “highly unprofessional and an aggravating factor”; 
• failed to report suspicious activity to ASIC; and 
• that a back-office system transition inadvertently resulted in trust account deficiencies of up to almost A$20,000,000 ($13,346,617) on 35 consecutive business days in 2021. 

It was noted that the same client that was making the suspicious trading was responsible for this outcome too. In 2017, the infringement notice was A$200,000 ($1,335). This would be higher today since the penalties for breaching market integrity rules have substantially increased after March 2019.

With the enforceable undertaking, Openmarkets is required to get an independent expert to assess and identify any necessary remedial actions connected to the company’s organisational and technical resources. Which also includes inspecting the design and operational effectiveness relating to trade surveillance, client on-boarding and client money.  

If Openmarkets had not entered into an enforceable undertaking, the A$4.5m penalty would have been higher.

Trader banned from working

Besides serving the MDP infringement notice, Virginia Owczarek, the former Acting Head of Trading and designated trading representative, has been banned from providing any financial service for three years.  

According to ASIC, Owczarek was not fit and proper to work as an officer or to provide financial services because of her actions, among other things, in using personal devices for client communications and trading instructions. She also accepted a A$2,000 ($1,3345) payment for giving a client stock tips, and engaged in “inappropriate and unprofessional communications” with a client regarding SMARTs alerts.

The MDP is calling the failures serious and very reckless, especially with Openmarkets’ history of compliance failures in 2017 when 1,858 ‘wash trades’ were made.

In a statement, Openmarkets says it has significantly overhauled its business, under the leadership of a new executive team. “Openmarkets today is a very different business than it was in the period when the above conduct occurred.”  

The company also says it has commissioned an independent review of the design of its trade surveillance systems in 2021, including hiring new trade surveillance experts within its compliance team.

Further, Openmarkets has uplifted its compliance controls and systems. Openmarkets also commissioned, of its own accord, an independent review of the design of its trade surveillance systems in 2021 and has hired new trade surveillance experts to work within its compliance team.