E*Trade fined $65,000 in Australia for order handling infringement

The Australian Securities & Investments Commission (ASIC) has imposed a monetary penalty on Etrade Australia Securities Limited (Etrade), a subsidiary of E*TRADE Financial Corp (NASDAQ:ETFC), over an order handling infringement.

The company has paid a penalty of $65,000 to comply with an infringement notice issued by the Markets Disciplinary Panel (MDP).

The infringement refers to events dating back to June 2014.

  • 1. At 11:07:50 on 20 June 2014, Etrade received an Order from a Direct Market Access Client to buy 300 Orica Limited $18.50 put Options Market Contracts (ORIR78) at an erroneous price of $36.00 per Contract (Client Order);
  • 2. The Client Order was automatically diverted to an Etrade Designated Trading Representative (DTR) for consideration;
  • 3. At 11:08:01, after considering the Client Order, an Etrade DTR erroneously submitted the Order into the Trading Platform (Relevant Order);
  • 4. At the time of submitting the Relevant Order into the ASX Trading Platform, the Etrade DTR was involved in a vendor demonstration at his desk. During the demonstration, the Etrade DTR noticed a number of Orders were experiencing delays in entering into the Market. To assist in alleviating these delays, the Etrade DTR actioned a number of Orders, including the Relevant Order;
  • 5. In submitting the Relevant Order to the ASX Trading Platform, the Etrade DTR compared the price of the Client Order with the current market for ORIR78 being $0.34/$0.395/$0.355 (Bid/Ask/last traded price). The Etrade DTR misread the $36.00 price of the Client Order as $0.36;
  • 6. Following its entry, the Relevant Order partially traded in five market transactions resulting in the market for ORIR78 being $36.00/no offer/$0.46 and leaving a residual Relevant Order for 50 ORIR78 at $36.00;
  • 7. Etrade did not receive any internal warning messages prior to the Relevant Order’s release into the ASX Trading Platform;
  • 8. At 11:08:02, shortly after the execution of the market transaction at $0.46, another Market Participant submitted an Offer which resulted in a market transaction for the remaining 50 ORIR78 at $36.00 (Relevant Trade);
  • 9. As a result of the Relevant Order: the price of ORIR78 increased $35.645, representing an increase of 10,041% from the last traded price, being the closing price of ORIR78 on 19 June 2014; and at 11:33:13, at the request of Etrade, the ASX cancelled the Relevant Trade as it had been executed within the Extreme Trade Range (ETR).

In deciding this matter, the MDP noted that the misconduct was negligent on the part of Etrade as the functions of a DTR were not exercised to the requisite high standard in that the Etrade DTR did not take due care in assessing the Client Order, before submitting the Relevant Order into the ASX Trading Platform.

Also, Etrade was unaware of the disorderly market triggered from the Relevant Trade until being made aware by the client.

In addition, MDP said that Etrade did not self- report the breach to ASIC as required.

The MDP also took into account that the misconduct was an isolated incident and that Etrade took steps to prevent recurrence of the breach.

E*trade co-operated with ASIC throughout the investigation and did not dispute any material facts and agreed not to contest the matter.

To view the full announcement from the Australian regulator, click here.

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