The Australian Securities Exchange Disciplinary Tribunal has fined Perth's oldest stockbroking firm, DJ Carmichael, $25,000 after an advisor ran a discretionary account for a client and made 21 transactions without the client's approval.
The Australian Securities Exchange Disciplinary Tribunal has fined Perth's oldest stockbroking firm, DJ Carmichael, $25,000 after an advisor ran a discretionary account for a client and made 21 transactions without the client's approval.
In a statement, the tribunal said in December 2008 a client of DJ Carmichael had requested that the advisor execute trades on a discretionary basis until March 2010.
DJ Carmichael is not licenced to operate a managed discretional accounts.
The stockbroker's its internal procedures prohibit the creation of such accounts and it did not give the authority to set up the account.
However the advisor, who was aware of the restrictions, went ahead with the agreement which came to the attention of DJ Carmichael in April 2010.
The stockbroker could not say which transactions were made with the clients prior instruction, but following an internal investigation found 21 transactions between January 12 and March 15 2010 which were not approved by the client.
The advisor was immediately dismissed following the investigation.
On April 29 2010, DJ Carmichael self-reported the matter to ASX Compliance.
The stockbroker also repaid the brokerage charged to the client on the Relevant Transactions.
"The Tribunal determined that this contravention was a Level 2 Serious Contravention, for which the applicable penalty range is $20,000 - $100,000 (plus GST)," the tribunal's statement said.
"Given the aggravating and mitigating circumstances in this matter the Tribunal determined that a fine of $25,000 (plus GST) is an appropriate sanction."
See statement from ASX Disciplinary tribunal below:
The ASX Disciplinary Tribunal (the 'Tribunal') has determined the following:
D.J. Carmichael Pty Limited ('DJC') contravened the following ASX Market Rule:
Contravention - ASX Market Rule 7.4.1(c)
An advisor at DJC (the 'Advisor') allocated approximately 21 Market Transactions to the account of a client where the Market Transactions were not allocated on the prior specific instructions of the client.
For this contravention the Tribunal imposed a penalty of $25,000 (plus GST).
DJC did not contest the matter before the Tribunal.
The circumstances of the matter are detailed as follows:
In around December 2008, a client of DJC requested that the Advisor execute trades on the client's account on a discretionary basis because the client was often noncontactable due to travel and work commitments. The arrangement between the Advisor and the client was in place between December 2008 and March 2010.
DJC is not licensed to operate a Managed Discretionary Account ('MDA') on behalf of its clients and did not authorise the Advisor to operate a discretionary account. DJC's internal procedures specifically prohibited the operation of discretionary accounts and the Advisor was well aware of this fact.
The Advisor's arrangement with the client came to DJC's attention in April 2010. DJC could not confirm which Market Transactions placed between December 2008 and March 2010 were unauthorised and which Market Transactions were made in accordance with the client's prior instructions. As a result of an internal investigation, DJC identified 21 specific Market Transactions entered into between 12 January 2010 and 15 March 2010 (the 'Relevant Transactions') as trades which DJC (through the actions of the Advisor) had not allocated on the prior specific instructions of the client.
Following the internal investigation, DJC immediately dismissed the Advisor. On 29 April 2010, DJC self-reported the matter to ASX Compliance. DJC also repaid the brokerage charged to the client on the Relevant Transactions.
In determining penalty, the Tribunal, among other things, took into account the following matters:
a) DJC self-reported the misconduct in a timely manner;
b) The misconduct was intentional on the part of the Advisor and had occurred pursuant to an arrangement that was in place over an extended period of time;
c) The conduct could damage, or had the potential to damage, the reputation and integrity of the ASX and the market and facilities it operates;
d) The unauthorised discretionary trading goes directly to the issue of client protection;
e) The disciplinary history of DJC, which has three prior findings against it. The Tribunal noted, however, that the two most recent matters involved conduct which occurred in 2003 and 2005 and that since that time DJC has revised its management structure and compliance functions;
f) DJC fully cooperated with ASX in relation to the conduct of its investigation into the contravention; 444/10
g) DJC agreed at an early stage not to contest the contravention thereby saving time and costs;
h) There is no evidence that this was a systemic failure on the part of DJC and no evidence of a pattern of noncompliance with this specific Market Rule;
i) DJC acted swiftly and decisively in terminating the Advisor's employment and returning the relevant brokerage fees to the client ensuring that the client suffered no loss and that DJC made no financial gain from the contravening conduct.
The Tribunal noted:
The Tribunal places significant emphasis on the importance of self-reporting. The Tribunal encourages other participants to self-report, particularly in regard to matters involving unauthorised discretionary trading where the misconduct is otherwise difficult to detect.
The importance of the strict obligation imposed on Market Participants by ASX Market Rule 7.4.1(c), which requires that Participants do not allocate a Market Transaction to a client's account unless the Market Transaction was entered into on the written instructions of the client.
The Tribunal considered that this contravention was serious as the relevant ASX Market Rule is intended to protect clients from unauthorised or illicit discretionary trading. The importance of protecting clients and maintaining the integrity of the markets is of paramount concern to the Tribunal, and should be to all Market Participants.
The Tribunal expects that Market Participants have in place systems and controls that closely monitor the trading activities of all advisors so discretionary trading is not permitted to occur. Compliance programs should be in place to detect unauthorised discretionary trading and to immediately shut it down.
Annexure A - Disciplinary Tribunal Sanction Guidelines
The Tribunal had regard to the Disciplinary Tribunal Sanction Guidelines contained in Annexure A to the Disciplinary Appeals and Processes Rulebook.
The Tribunal determined that this contravention was a Level 2 Serious Contravention, for which the applicable penalty range is $20,000 - $100,000 (plus GST). Given the aggravating and mitigating circumstances in this matter the Tribunal determined that a fine of $25,000 (plus GST) is an appropriate sanction.
An important function of the ASX and the ASX Market Rules is to maintain the reputation and integrity of the market. The Tribunal is satisfied that the imposition of this sanction appropriately serves the purposes of protecting the interests of ASX and its participating organisations, and of promoting confidence in the integrity of the markets. This sanction will serve as a deterrent to DJC and other participants from engaging in similar misconduct.
