Hsbc's Brokers Get A Slap On The Wrist

The Age

Wednesday May 4, 2005

CHRISTOPHER WEBB

THE stock exchange's disciplinary tribunal has been busy lately, handing out fines to various market participants.

One of the latest was a thirty grand penalty extracted from HSBC Stockbroking (Australia) over orders it accepted that appeared to have no legitimate commercial purpose and exhibited some of the hallmarks of manipulative trading.

The exchange said HSBC had contravened the exchange's automated order processing requirements from September 23, 2003, to January 9, 2004.

The exchange noted that order processing requirements were a fundamental aspect of its regulation of participants to ensure the conduct of an orderly market and to prevent manipulative trading. It said failure to comply with the requirements had the potential to adversely affect the exchange's reputation and the integrity of the sharemarket.

The background to the matter was that an HSBC client placed 15 buying orders for shares in Q-Vis through Phonetrader, HSBC's touch-tone telephone facility.

Fourteen of the 15 orders caused an increase in the Q-Vis share price and each order was placed by the client at or after 3.57pm, minutes before the market closed.

The exchange said that all of the 14 late price increases by the client established a higher price at which Q-Vis closed for that day and 9 of the 14 late price increases by the client were caused by small buy orders with a value of less than the brokerage cost.

"The majority of these orders appeared to have no legitimate commercial purpose and exhibited some of the hallmarks of manipulative trading,"' the exchange said in a missive to industry folk.

None of HSBC's automated filters or exception reports were activated as a result of the orders and the exchange said some of the orders were entered into the market on consecutive days and appeared to be a series of orders.

The stock exchange said the tribunal took into account various factors when setting the fine.

These included that HSBC did not have the necessary organisational and technical resources, including automated filters, in place and that that had compromised its ability to discharge its obligations.

The exchange said that HSBC appeared to have been unaware that the orders caused a price increase, were placed late in the day and appeared to have no or limited commercial purpose.

"HSBC only became aware of the circumstances of the client's trading after ASX surveillance contacted HSBC," the exchange said.

It added that HSBC had closed the client's account after the matter was brought to its attention and that the stockbroking firm had introduced and was in the process of implementing a number of enhancements to its filters and other controls.