Instinet Australia Pty Limited Pays $50,000 Infringement Notice Penalty

Instinet Australia Pty Limited ("Instinet") has paid a penalty of $50,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel ("MDP"). The penalty was for the entry of an erroneous order which resulted in the market for Renison Consolidated Mines NL March 2012 convertible notes not being both fair and orderly.

Background and circumstances

1. On 23 March 2012 at 10:26:28, on behalf of a client of Instinet ("Client"), an Instinet Designated Trading Representative ("DTR") entered an Order into the ASX Trading Platform to sell 250,000 Renison Consolidated Mines NL March 2012 convertible notes, having ASX code ("RSNG"), at a limit price of $0.10 ("Initial Order").
2. The Initial Order immediately traded in part, resulting in a Market Transaction for 50,000 RSNG at $0.10.
3. The Client then requested that the DTR move the residual part of the Initial Order, being an Order to sell 200,000 RSNG at $0.10 ("Relevant Order"), to the Client for the purposes of Direct Market Access ("DMA"). To this end, at 10:27:42, the Instinet DTR deleted the Relevant Order.
4. The Instinet DTR next intended to move the Relevant Order to the Client, however at 10:27:50, the DTR instead entered the Relevant Order back into the ASX Trading Platform – incorrectly keying in the price as 'at-market' instead of at $0.10. Immediately prior to the entry of the Relevant Order, the last traded price for RSNG was $0.10.
5. The Relevant Order immediately traded in part resulting in a Market Transaction for 20,000 RSNG at $0.02 ("Relevant Transaction"). At 10:27:53, on realising his error, the DTR deleted the residual part of the Relevant Order.
6. The entry into the ASX Trading Platform of the Relevant Order, resulting in the Relevant Transaction, caused the price of RSNG to fall from $0.10 to $0.02, being an $0.08 or 80% decrease in the price of RSNG.
7. At 11:35:00, Instinet informed ASIC of the Relevant Transaction, and then at 12:10:00, contacted the ASX to request its cancellation. The ASX advised Instinet that it would not cancel the Relevant Transaction as it was outside the 10 minute cancellation window, for cancellations that fell within the Qualifying Cancellation Range, as set out in procedure 3200 of the ASX Operating Rules Procedures.

By reason of Instinet's entry of the Relevant Order 'at-market' into the ASX Trading Platform on 23 March 2012, the MDP had reasonable grounds to believe that Instinet contravened MIR 5.9.1, and thereby contravened subsection 798H(1) of the Corporations Act 2001 ("Act") which requires compliance with the market integrity rules. The MDP issued Instinet with an infringement notice specifying a total penalty of $50,000.

In deciding this matter, the MDP noted the following:

• MIR 5.9.1 is aimed at promoting confidence in the integrity of the market. Imposing a strict obligation on Market Participants not to do anything which results in a market for a Product not being both fair and orderly, is critical in maintaining the integrity of the market;
• The misconduct had the potential to damage the reputation and integrity of the market, as the entry of the Relevant Order into the ASX Trading Platform at an 'at-market' price, caused the price of RSNG to decrease from the last traded price of $0.10 to $0.02, being an 80% decrease;
• The misconduct was inadvertent on the part of Instinet as the DTR failed to properly exercise his functions to the requisite high standard when he entered the Relevant Order back into the ASX Trading Platform (incorrectly keying in the price as 'at-market' instead of at $0.10), instead of moving the Relevant Order to the Client as intended;
• The MDP noted in this matter that the DTR after keying in the Relevant Order 'at-market', did not receive any internal price variation warning messages or alerts prior to the Relevant Order entering into the ASX Trading Platform. Notwithstanding this, the MDP reiterated that an important aspect of the role of the DTR is to pay proper attention and diligence to prevent the entry of Orders into the Trading Platform that could result in a market that is not both fair and orderly. This is a critical measure in maintaining the integrity of a market;
• Instinet did not derive any actual or potential benefit from the breach;
• Instinet’s DTR immediately became aware of the breach after the 'at-market' Relevant Order had entered into the ASX Trading Platform and resulted in the Relevant Transaction. Approximately 100 minutes later, Instinet requested the ASX cancel the Relevant Transaction. The ASX advised that it would not cancel the Relevant Transaction as it was outside the 10 minute cancellation window, as set out in procedure 3200 of the ASX Operating Rules Procedures;
• Instinet took the following remedial measures to prevent recurrence of the breach:
  • Immediately instructed DTRs not to use the 'at market' functionality; and
  • From 29 March 2012, removed DTRs' ability to place orders 'at market' from Instinet's Automated Order Processing system.
• Instinet had recently been sanctioned by the MDP regarding a contravention of Rule 5.6.1(a) of the ASIC Market Integrity Rules (ASX Market) 2010 (MDP Infringement Notice No. MDP06/13, dated 8 August 2013). The MDP confirmed its position that repeat contraventions in similar or comparable matters would not be viewed favourably;
• Instinet co-operated with ASIC throughout its investigation and did not dispute any material facts; and
• Instinet agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended.

The Markets Disciplinary Panel