Wednesday 24th February 2016
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Macquarie Securities (NZ) has been fined $40,000 and publicly censured by the New Zealand Markets Disciplinary Tribunal after a client mistakenly placed orders to buy Westpac Banking Corp shares on the NZX instead of the ASX, causing a 19 percent price spike.
As well as the fine, Macquarie must pay costs of the tribunal and NZX costs of $2,400. According to the tribunal's statement, on Nov. 5 last year, a trading execution algorithm used by a direct market access (DMA) client of Macquarie entered 220 orders to buy a total of 125,000 Westpac shares, before making 39 amendments and deleting 81.
The activity took place in an 18-minute window on the day and the net 196 trades completed far exceeded the average number for the period, resulting in the share price jumping more than 19 percent to $40. NZX Surveillance was alerted by another market participant and was told by Macquarie that the client had made the trades as a result of an error.
The client had intended to buy the Westpac (WBC) stock on the ASX. "Due to the lower liquidity in WBC on the NZX Main Board, and an error in information sourced from the client’s market data provider regarding order entry, the client’s algorithm did not operate as expected," the tribunal said.
As the trades were in error and resulted in a market impact, NZX Surveillance cancelled 188 of the trades. The mistake wasn't immediately detected by Macquarie's DMA filters, which didn't kick in until the latter part of the trading period, it said. Macquarie has subsequently revised its filter settings to require DMA dealer approval at lower price movement thresholds, while the client had made changes, including an auto-pause.
Mitigating factors were that Macquarie immediately changed its filter settings and that the error came from a client rather than Macquarie itself, the tribunal said.
Westpac shares last traded at $32.07 on the NZX.
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