Court imposes $35 million penalty on broker for short sale reporting failures

by CNM Legal

The Supreme Court of New South Wales has ordered Macquarie Securities (Australia) Limited (MSAL) to pay a $35 million civil penalty following proceedings brought by the Australian Securities and Investments Commission (ASIC) in relation to failures in its short sale reporting systems.

The Court found that MSAL had incorrectly reported millions of short sale transactions to ASIC and market operators over an extended period.

Short sale reporting failures

ASIC’s investigation identified significant failures in MSAL’s systems and processes used to report short sale transactions.

Between December 2009 and February 2024, MSAL misreported at least 73 million short sale transactions. ASIC estimated that the total number of misreported transactions may have been substantially higher.

Short sale reporting plays an important role in maintaining transparency in Australia’s financial markets by allowing regulators to monitor trading activity and potential market risks.

Compliance and systems deficiencies

ASIC found that the reporting failures were caused by a range of systems and supervisory deficiencies.

These included failures to:

  • maintain adequate supervisory policies and procedures
  • ensure appropriate organisational and technical resources were in place, and
  • implement effective risk management systems to ensure compliance with short sale reporting obligations.

ASIC also identified additional reporting errors affecting orders submitted to market operators during 2022 and 2023.

Court-ordered penalty

Following civil penalty proceedings commenced by ASIC, the Supreme Court ordered MSAL to pay a $35 million civil penalty for contraventions of the Corporations Act and the ASIC Market Integrity Rules.

ASIC emphasised that accurate transaction reporting is essential for maintaining confidence in Australia’s financial markets and enabling regulators to effectively supervise market activity.

Key considerations for market participants

This decision highlights the importance of maintaining robust systems and controls to ensure the accuracy of regulatory reporting.

Financial services providers should ensure that their reporting frameworks, technology systems and supervisory arrangements are regularly reviewed and tested to ensure compliance with regulatory obligations.

Failures in reporting systems or internal controls can result in significant regulatory consequences, including substantial financial penalties.

If you require assistance with regulatory compliance, market integrity obligations or responding to ASIC investigations or enforcement action, please contact Chris Mee at cmee@cnmlegal.com.au or call 07 3211 4010.