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Macquarie Securities is being sued by the Australian Securities and Investments Commission (ASIC) over allegations of “misreporting" millions of short sales to the market operator over more than 14 years.
The legal action is the fourth regulatory move taken by the corporate watchdog against the Macquarie Group (ASX: MQG) in the past 12 months.
It also represents the first case brought by ASIC in relation to short sale reporting which was introduced in 2009 in the wake of the GFC.
ASIC has filed proceedings in the NSW Supreme Court alleging that between 11 December 2009 and 14 February 2024, Macquarie Securities, which provides securities trading services for investors on the ASX and Cboe markets, failed to correctly report the volume of short sales by at least 73 million.
The regulator estimates that this could have involved the trading of between 298 million and 1.5 billion short sales.
ASIC alleges that the misleading conduct was due to “multiple systems-related issues, many of which remained undetected for more than a decade”.
The regulator notes that the case is aimed at highlighting the need for accurate short sale reporting as the data is used to inform investors, governments, regulators and financial market participants about market sentiment and potential risks. ASIC says it also assists in detecting market misconduct and supports market integrity.
“This action is timely given significant recent global market volatility,” says ASIC chair Joe Longo.
“Accurate and reliable data underpins the integrity of, and confidence in, Australia’s financial markets. Investors expect reliable information to analyse market movements and inform their investment decisions.
"We allege Macquarie’s failures may have led to the financial services industry relying on misleading and false information for over 14 years.”
Longo says Macquarie Securities has demonstrated a “repeated systemic failure to detect and resolve these issues” which he says indicates “serious neglect of its systems and disregard for operational controls and technological governance”.
The lawsuit against the equities trading business follows four enforcement actions secured by ASIC against Macquarie Group in the past year.
These include a record $4.995 million fine for Macquarie Bank in September for failing to prevent suspicious orders being placed on the electricity futures market and a $10 million penalty against the bank in April last year for failures to prevent and detect unauthorised fee transactions by third parties.
“Our actions reflect the ongoing and deep concerns we have with Macquarie Group and its weak remediation of long-standing issues, which led us to impose additional conditions on Macquarie Bank’s Australian Financial Services licence only last week,” says Longo.
ASIC says that market participants must ensure that their systems, controls and governance arrangements are “robust and fit for purpose to comply with their regulatory obligations”.
In 2020, Macquarie Securities undertook a review of its short sale reporting process following weaknesses identified in 2015 and 2019. ASIC says it “is clear this review failed to identify and resolve the issues in these proceedings”.
ASIC also alleges that Macquarie Securities failed to correctly report regulatory data for 633,680 orders submitted to the market operator between 16 November 2022 and 21 March 2023.
In addition to penalties, ASIC is seeking an independent review of Macquarie Securities' regulatory reporting systems, controls and supervisory procedures to ensure compliance with the law.
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