Macquarie Group subsidiary Macquarie Securities (Australia) Limited (MSAL) has been ordered to pay a A$35 million (US$24.4 million) penalty for systems-related failures that caused the misreporting of short sales.
The order was made by the New South Wales Supreme Court, which also found MSAL engaged in misleading conduct in relation to its misreporting, and ordered it to engage an independent expert to assess its short sale and regulatory reporting systems and processes, and pay ASIC’s costs.
The Australian Securities and Investments Commission (ASIC) said MSAL failed to correctly report at least 73 million short sales and misreported between 298 million and 1.5 billion short sales between 11 December 2009 and 14 February 2024.
ASIC said the inaccurate reporting was due to serious deficiencies in MSAL’s systems, processes and controls, many of which remained undetected for more than a decade, despite a number of internal reviews.
ASIC Chair Joe Longo said the case was a stark reminder that the consequences of systemic failures could escalate when firms ignored red flags and allow risks to go unchecked.
“Regulators and investors rely heavily on short sale data to understand market conditions and identify emerging risks, particularly at times of market volatility and uncertainty,” Longo said in a news release.
“As one of the country’s largest financial services groups with significant reporting obligations, Macquarie should be setting the standard.”
AASIC said accurate reporting underpinned trust and confidence in Australia’s financial markets.
“What we saw in this case was simply not good enough. These are critical systems and controls that market participants need to be closely watching,” Mr Longo said.
Short sales involve borrowing and selling stock in the hope of buying it back at a lower price to lock in profit before handing it back to the lender.
In closing ASIC’s first short-sale reporting case, Justice Scott Nixon declared that MSAL:
- engaged in misleading or deceptive conduct
- failed to have adequate risk management systems
- failed have appropriate supervisory policies and procedures
- failed to have and maintain necessary organisational and technical resources, and
- failed to provide accurate regulatory data to the market operator.
At the time of writing Macquarie Group (ASX: MQG) shares were trading down 91 cents (0.47%) at $194.42, capitalising the company at $74.09 billion.
