Openmarkets Australia, a retail broker and wealthtech developer, has paid a record $4.5 million fine to ASIC – the largest ever penalty imposed by the regulator’s Markets Disciplinary Panel (MDP) – after multiple breaches of trading, compliance reporting, and corporate conduct rules.

The fine relates to a “history of compliance failures” by the company, with the MDP – a peer review panel drawn from current and former members of the broking and investment banking industry – finding Openmarkets had “contravened numerous market integrity rules over a period of several years”.

ASIC noted in its statement that the MDP “would have imposed a significantly higher penalty” were it not for several mitigating factors, including Openmarkets entering into an enforceable undertaking and not contesting the alleged contraventions.

Among the multiple contraventions – some deemed by ASIC “serious” and “very reckless” – identified by the MDP included:

• instances of enabling artificial trading prices or the false or misleading appearance of active trading;
• failures in its post-trade surveillance system which led to “an unmanageable volume of alerts, most of which were not reviewed”;
• insufficient supervisory procedures to ensure compliance with market integrity rules dealing with suspicious trading;
• insufficient staff with the appropriate skills, knowledge and experience to carry out effective trade surveillance;
• failures to engage an anti-wash trade (a form of market manipulation) filter;
• unprofessional conduct by senior Openmarkets staff, including tip-offs to clients about their suspected suspicious activities;
• and, failures to submit mandatory suspicious activity reports to ASIC relating to suspicious trading activity.

The MDP also identified a back-office system transition that “inadvertently resulted in trust account deficiencies of up to approximately $20,000,000 on 35 consecutive business days from 18 August to 5 October 2021”.

Openmarkets stated that it self-reported this back-office fault, adding that has worked closely with the corporate regulator to resolve issues with its trust reconciliation processes.

ASIC’s investigation into the breaches was triggered by a routine surveillance operation which identified repeated suspicious trading by an Openmarkets client.

“The client had placed [a] simultaneous bid and ask orders in the same security and at the same price on 2,011 occasions (Same Price Orders),” ASIC said. “Many of these suspicious orders formed part of an unusual series of orders involving the rapid cancellation or amendment away from priority of large volume orders.”

“Notably, the same Openmarkets client was responsible for suspicious trading resulting in the 2017 infringement notice and the present outcome.”

In 2017 Openmarkets received an infringement notice of $200,000 after the ASIC identified it enabled 1,858 ‘wash trades’.

Openmarkets has also separately agreed to an enforceable undertaking (EU), involving the appointment of an independent expert to assess, report on and identify any necessary remedial actions relevant to the adequacy of Openmarkets’ organisational and technical resources, as well as the design and operational effectiveness of its arrangements, relating to trade surveillance, client on-boarding and client money.

ASIC has also banned Openmarkets’ former Acting Head of Trading and designated trading representative (DTR), Virginia Owczarek from providing any financial service for three years.

Openmarkets said it has provisioned for the $4.5 million fine, with the payment having “no impact on Openmarkets’ day-to-day operations”.

‘A very different business today’

In response to ASIC’s statement on the record fine, Openmarkets issued its own statement declaring the business has made substantial changes to its operations and senior leadership, noting today that it “is a very different business than it was in the period when the above conduct occurred”.

“Since these matters were identified, Openmarkets has significantly overhauled its business, under the leadership of a new executive team. Further, Openmarkets has uplifted its compliance controls and systems,” the company wrote.

“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.”