ICAP Pinched with $50,000 Fine from ASIC for Compliance Failure

The broker executed trades for clients with the intention to exclude other participants taking orders for electricity futures contracts

The Australian futures broking arm of the largest inter-dealer broker, ICAP Futures (Australia) Pty Ltd, was fined by the local regulatory body $50,000 for compliance failure. The Australian Securities and Exchange Commission has determined that the brokerage intentionally executed trades to exclude other participants and failed to inquire through the message facility and wait out the prescribed period for executing the deals.

Back in March 2013, an ICAP employee contacted a client asking him whether he was interested in buying electricity futures contracts. As the client confirmed his interest another ICAP employee contacted a different client who was holding a position in the same instrument. After the second client placed his contracts on the market and the first client confirmed the price level of $1.45 the orders were matched by one of the ICAP employees on the electronic platform.

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ICAP failed to enquire through the message facility of the trading platform and wait the period set out in the operating rules tied to the contract before matching the trades.
About a month later the company notified ASIC Misconduct and Breach Reporting of its failure to comply with the contract’s operating rule procedure.

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In a similar occurrence, in August 2013 another pair of employees  executed a deal in a similar fashion on the electricity futures and options markets. After ICAP failed to make an enquiry through the message facility of the trading platform until hours later after the deal was closed.

The regulatory rules have been devised to prevent such events from occurring in order to ensure a fair functioning market place. Direct matching through an electronic trading platform with artificially created orders amounts to some form of spoofing.

According to the Australian regulator, the misconduct in both occurrences could potentially damage the reputation and integrity of the market, since it had an effect on the fair market mechanism. Other market participants were effectively booted out of the market in order for the trades to close as the ICAP employees used opposing orders.

While ASIC mentions that ICAP self-reported the misconduct, it also states that the action was neither timely nor did it address all potential breaches arising from the misconduct. In addition, the company did allow the same type of misconduct to arise on a second occasion, which prompted a more severe penalty to the first $15,000 for the March 2013 occurrence.

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