ICAP Futures Australia fined $50,000 by ASIC for execution transgressions

ICAP Futures (Australia) Pty Ltd (ICAP) which is a wholly owned subsidiary of ICAP plc (LON:IAP) has paid a total penalty of $50,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (MDP). The MDP  found it had reason to believe that ICAP had contravened section 798H(1) of the Corporations Act on three occasions by failing to comply with certain ASIC (ASX24) market integrity rules. The total penalty imposed was for:

• executing trades with the intent to exclude other participants or their representatives, on two separate occasions; and
• failing to make an enquiry through the message facility and wait the prescribed period prior to executing trades.

Background and circumstances

The MDP was satisfied that:

Relevent Day One:

1. On 19 March 2013, at approximately 10:22:19, an ICAP Employee (Employee 1) contacted an ICAP Client (Client 1) to enquire whether Client 1 was interested in buying June 2013 ASX 24 d-cypha NSW Base Load $300 Cap Electricity Futures Contracts (GNM3).  Client 1 expressed interest in buying GNM3.
2. At approximately 10:31:28, a second ICAP Employee (Employee 2) contacted a second ICAP Client (Client 2) and told Client 2 that ICAP had interest in GNM3 at $1.45.
3. At approximately 10:31:53, Client 2 placed an Order with Employee 2 to sell nine GNM3 at $1.45.
4. At approximately 10:32:26, Employee 1 told Client 1 that they could trade at $1.45.  Client 1 agreed.
5. At approximately 10:32:44, Employee 1 submitted an Order onto the Trading Platform to buy nine GNM3 at $1.20 on behalf of Client 1.
6. At approximately 10:33:08, Employee 1 submitted an Order onto the Trading Platform to sell nine GNM3 at $1.80 on behalf of Client 2.
7. At approximately 10:33:21, Employee 1 entered an inactive Order on ICAP’s order system to sell nine GNM3 at $1.45 on behalf of Client 2.
8. At approximately 10:33:33, Employee 1 entered an inactive Order on ICAP’s order system to buy nine GNM3 at $1.45 on behalf of Client 1.
9. At approximately 10:33:57, Employee 1 simultaneously activated these two Orders, sending them to the Trading Platform and resulting in a trade for nine GNM3 at $1.45 with ICAP acting as buyer on behalf of Client 1 and seller on behalf of Client 2 (Relevant Trade One).
10. ICAP did not make an enquiry through the message facility of the Trading Platform and wait the period set out in ASX 24 Operating Rule Procedure 4401.3 prior to entering the Orders which resulted in Relevant Trade One.
11. On 17 April 2013, ICAP notified ASIC Misconduct and Breach Reporting of its failure to comply with ASX 24 Operating Rule Procedure 4401.3 prior to Relevant Trade One.  ICAP’s notification did not make reference to a potential breach of Rule 3.1.11.

Relevent Day Two:

12. On 7 August 2013, at approximately 14:39:33, an ICAP Employee (Employee 3) contacted an ICAP Client (Client 3) to enquire whether Client 3 was interested in buying a call option.  Client 3 said that he would be interested in buying the call option with a delta hedge selling six Calendar 2015 ASX 24 Queensland Base Load Electricity Strip Futures Contracts (HQZ5) at $56.20.
13. At approximately 14:43:18, another ICAP employee (Employee 4) contacted another ICAP Client (Client 4) to enquire whether Client 4 was interested in selling the call option and buying six HQZ5 at $56.20 as a delta hedge.
14. At approximately 14:52:39, Client 4 informed Employee 4 that he would buy six HQZ5 at $55.75.  At approximately 15:08:00, Client 4 amended his instruction to give ICAP discretion, which amendment was at the request of Employee 4.
15. At approximately 15:08:47, Employee 3 contacted Client 3 to discuss the trade and disclosed the price at which Client 4 was willing to trade.
16. At approximately 15:08:57, Employee 4 placed an Order onto the Trading Platform to buy six HQZ5 at $55.25 on behalf of Client 4.
17. At approximately 15:12:06, Client 3 confirmed to Employee 3 that he would buy the call option and sell six HQZ5 at $55.75 as a delta hedge.  At Employee 3’s request, Client 3 made this an Order with discretion.
18. At approximately 15:13:41, Employee 3 entered an Order onto the Trading Platform to sell five HQZ5 at $57.10 on behalf of Client 3.
19. At approximately 15:14:39, Employee 3 entered an inactive Order on ICAP’s order system to sell six HQZ5 at $55.75 on behalf of Client 3.
20. At approximately 15:15:27, Employee 3 entered an inactive Order on ICAP’s order system to buy six HQZ5 at $55.75 on behalf of Client 4.
21. At approximately 15:16:31, Employee 3 simultaneously activated these two Orders, sending them to the Trading Platform and resulting in a trade for six HQZ5 at $55.75 with ICAP acting as buyer on behalf of Client 4 and seller on behalf of Client 3 (Relevant Trade Two).
22. ICAP did not make an enquiry through the message facility of the Trading Platform and wait the prescribed period as set out in Rule 3.3.1A(1) prior to entering the Orders which resulted in Relevant Trade Two.
23. At approximately 15:24:39, ICAP notified the Market of the block trade for the call option via the message facility.

By reason of ICAP’s:

• entry of inactive Orders and the simultaneous activation of those Orders with the intent to exclude other Market Participants or their Representatives on 19 March 2013, the MDP had reasonable grounds to believe that ICAP contravened MIR 3.1.11, and thereby contravened section 798H(1) of the Corporations Act;
• entry of inactive Orders, the simultaneous activation of those Orders with the intent to exclude other Market Participants or their Representatives and the failure to make an enquiry through the message facility and wait the prescribed period on 7 August 2013, the MDP had reasonable grounds to believe that ICAP contravened MIR 3.1.11 and MIR 3.3.1A(1), and thereby contravened section 798H(1) of the Corporations Act.

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