Epoch Capital Pty Ltd pays $130,000 in infringement notice penalty


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Epoch Capital Pty Ltd has paid a penalty of $130,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel (the MDP), ASIC announced earlier today.

The ASIC Market Integrity Rules (ASX 24 Market) 2010 prohibit a market participant from offering to purchase, sell or deal in a futures contract as principal if that offer is likely to have the effect of creating a false or misleading appearance of active trading in any futures contract or with respect to the market for, or price of, any futures contract.

Ten year Commonwealth Treasury Bond futures contracts are traded on the ASX 24 Market.

In March and June 2015, Epoch traded in those futures contracts by dealing in ‘calendar spread contracts’ during a ‘roll period’ in the lead up to the expiration of the contracts.

The ‘roll period’ is a period occurring at the end of a quarter during which participants will typically close out open positions in expiring futures contracts and simultaneously create open positions in futures contracts for the next period.

Epoch had a system in place – known as a ‘depth of market stop loss’ function – to mitigate its exposure in the event that an unexpected market circumstance caused a significant reduction in expected liquidity of the futures contracts.

The MDP has reasonable grounds to believe that Epoch contravened the market integrity rules because, in both March and June 2015, unexpected market circumstances caused the stop loss to be triggered and which resulted in Epoch entering into trades with itself.

The trades resulted in dealings in futures contracts that were likely to have had the effect of creating a false or misleading appearance of active trading because the offer to purchase and sell did not result in taking a genuine, bona fide position in the contracts. As the trades resulted in no change in beneficial ownership, the trades misleadingly appeared to be genuine trades which had an effect on the trading volumes by giving an appearance of more active trading than was in fact the case.

The MDP considers that Epoch’s conduct had the potential to affect supply, demand and liquidity and ultimately the price or value of the futures contracts, and the potential to undermine the integrity of the ASX 24 Market.

At that time of the trades during the ‘roll’ in March 2015, Epoch did not have an appropriate tool to prevent it crossing with itself in the ASX 24 Market. By the time of the trades during the ‘roll’ in June 2015, Epoch had developed a cross-trading prevention tool but failed to implement it because Epoch left activation of the cross-trading prevention tool to the discretion of its individual traders.

The MDP notes that Epoch subsequently changed its systems to operate automatically rather manually so as to remove the discretion of its traders to implement the cross-trading prevention tool.

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Epoch Capital Pty Ltd pays $130,000 in infringement notice penalty

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