Openmarkets to pay record fine over breaches, former head of trading banned

The corporate watchdog's Markets Disciplinary Panel (MDP) has handed down a record fine of $4.5 million to Openmarkets (OMG) and banned former acting head of trading Virginia Owczarek from providing any financial service for three years, following a history of compliance breaches at the Sydney-based fintech.

The Australian Securities and Investments Commission (ASIC) found Owczarek is not fit and proper to provide financial services or to participate as an officer in the financial services industry, having accepted a $2,000 payment from a client for stock tips and engaged in "inappropriate and unprofessional communications" with a client regarding SMARTs alerts.

The regulator also found Owczarek used personal devices for client communications, including trading instructions. 

This is just part of a wider compliance and supervision problem identified by ASIC at the wealth management and trading fintech between 2018 and 2021, and Openmarkets claims to have turned a new leaf since then.

The company has raised $10 million since inception, according to Crunchbase, and pulled out of an initial public offering (IPO) in 2021 with its former CEO Ivan Tchourilov resigning in early 2022. 

ASIC uncovered numerous alleged breaches of market integrity rules at the company following routine surveillance that identified repeated suspicious trading by an Openmarkets’ client.

The unnamed client had placed simultaneous bid and ask orders in the same security and at the same price on 2,011 occasions.

"Many of these suspicious orders formed part of an unusual series of orders involving the rapid cancellation or amendment away from priority of large volume orders," ASIC stated in a release this morning.

"Notably, the same Openmarkets’ client was responsible for suspicious trading resulting in the 2017 infringement notice and the present outcome."

The MDP determined there were reasonable grounds to expect that same-price orders were likely to have the effect of creating an artificial trading price or a false or misleading appearance of active trading, and that Openmarkets had not appropriately calibrated its post-trade surveillance system.

"This resulted in an unmanageable volume of alerts, most of which were not reviewed," the MDP concluded, while also concluding the company had insufficient staff with the appropriate skills, knowledge and experience to carry out effective trade surveillance.

Among other allegations, the MDP found that Openmarkets failed to prevent unprofessional conduct by senior staff, including a senior staff member warning a client in relation to SMARTS alerts that they triggered, instead of escalating the matter to compliance - conduct the panel deemed 'highly unprofessional and an aggravating factor'.

Openmarkets also failed to submit suspicious activity reports to ASIC in relation to further clients engaging in suspicious trading.

In addition a back-office system transition inadvertently resulted in trust account deficiencies of up to approximately $20,000,000 on 35 consecutive business days from 18 August to 5 October 2021 - matters that were self-reported by the company.

The company entered into an enforceable undertaking in order to comply with an infringement notice issued by the MDP, which requires Openmarkets to appoint an independent expert to assess, report on and identify any necessary remedial actions relevant to the adequacy of its organisational and technical resources, as well as the design and operational effectiveness of its arrangements relating to trade surveillance, client on-boarding and client money.  

Compliance with the infringement notice is not an admission of guilt or liability, and Openmarkets is not taken to have contravened subsection 798H(1) of the Corporations Act. 

In a statement, Openmarkets reported that certain former members of the management team identified by ASIC as having engaged in unprofessional conduct were no longer employed by the company.

"By complying with the infringement notice Openmarkets has accepted, and paid, a financial penalty of $4.5 million," the company stated.

"Openmarkets has provisioned for this penalty and so the payment of the penalty will have no impact on Openmarkets' day-to-day operations. Openmarkets has also entered into an enforceable undertaking with ASIC, under which it will appoint an independent expert to review relevant systems and controls.  

"Openmarkets today is a very different business than it was in the period when the above conduct occurred."

The company claims the business has been "significantly overhauled" under the leadership of a new executive team. 

"Further, Openmarkets has uplifted its compliance controls and systems. Openmarkets also commissioned, of its own accord, an independent review of the design of its trade surveillance systems in 2021 and has hired new trade surveillance experts to work within its compliance team," the company stated.

"Concurrently, Openmarkets has undergone significant strategic and operational transformation, with the business doubling down on its B2B product capabilities and client base, as well as appointing the new leadership team to deliver on its strategy."