ASX Disciplinary Announcement Kokomo Capital
Kokomo Capital Pty Limited (‘Kokomo’) contravened ASX Market Rule 14.1.1* by entering an Ask into the Trading Platform which resulted in a market for the quoted securities of QBE Insurance Group Limited (‘QBE’) that was not both fair and orderly.
For this contravention the Tribunal imposed a fine of $25,000 (plus GST). The circumstances of the matter are detailed as follows:
On 9 March 2009 at 14:26:36.91 another Market Participant (‘P1’) erroneously entered an Ask into the Trading Platform for 20,000,000 QBE at $10.00 (‘Erroneous Ask’). The market for QBE prior to entry of the Erroneous Ask by P1 was $15.69 / $15.70 / $15.70 (Bid/Ask/Last).
The Erroneous Ask resulted in the last price of QBE falling from $15.70 to $11.00, a 29.9% decrease, and cleared the entire Bid schedule. The fact that the stock was QBE, a highly liquid stock, contributed to the seriousness of the contravening conduct and the overall impact on the market;
• The Kokomo Ask necessitated the involvement of ASX in cancelling trades;
• The value of the trade, while being relatively small, was not considered by the Tribunal to be a significant factor in mitigation of the conduct;
• Kokomo has no previous disciplinary history before the Tribunal;
• The misconduct was unintentional and the result of Kokomo’s automated order processing system;
• The breach was an isolated occurrence – the Tribunal found no indication that the misconduct was systemic or indicative of a pattern of non-compliance with the Rules; and
• Kokomo advised it has taken necessary remedial steps including updating its AOP filters to prevent orders being entered in similar circumstances in the future.
Disciplinary Tribunal Sanction Guidelines
As the contravening conduct occurred after 31 March 2008 (but prior to 1 August 2010)*, that being the effective time under the ASX Disciplinary Processes and Appeals Rulebook (the ‘Rulebook’), the Tribunal was bound by the Sanction Guidelines (Annexure A to the Rulebook) in making its determination as to sanction in this matter.
The Tribunal determined that this contravention was classified as a Level 2 Serious Contravention, for which the applicable penalty range is $20,000 – $100,000 (plus GST). Given the mitigating and aggravating circumstances in this matter the Tribunal determined that a fine of $25,000 (plus GST) was an appropriate sanction.
The Tribunal wishes to send a clear message to the market that a contravention of ASX Market Rule 14.1.1 is serious and requires an appropriate sanction. The Tribunal is of the opinion that this sanction will act as a deterrent and appropriately serves the interests of ASX and Market Participants in maintaining a market that is fair, orderly and transparent.
After the Erroneous Ask traded with the QBE Bid schedule, another Market Participant (‘P2’) entered seven Bids for a total of 28,577 QBE at prices ranging from $10.04 to $10.00. These Bids traded with the residual Erroneous Ask in their entirety in seven Market Transactions, decreasing the price of QBE from $11.00 to $10.00.
At 14:26:38.21, P2 entered its 8th Bid for 1,050 QBE at $0.004.
At 14:26:38.66, Kokomo entered an Ask for 500 QBE at $0.004 via its ‘ITS Trader Version 2’ Automated Order Processing (AOP) system.
The Kokomo Ask traded with the 8th P2 Bid, resulting in the last price of QBE falling from $10.00 to $0.004, a 99.96% decrease in price of QBE.
Between 14:59:16 and 15:40:29, in accordance with P1’s request and a recommendation by the Governors Dispute Committee, 158 Market Transactions were cancelled totaling a volume of 963,428 QBE and consideration of $10,701,253.
In determining penalty, the Tribunal took into account a number of matters including the following:
• The importance of the strict obligation imposed on Participants by ASX Market Rule 14.1.1 which requires that Participants do not do anything which results in a market for a Product not being both fair and orderly;
• The misconduct had the potential to damage the reputation and integrity of the ASX and the market and facilities it operates;
• The entry of the Kokomo Ask had a considerable impact on the market for the product, causing the price to drop by 99.96% from the last traded price;