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14-345MR ASIC accepts enforceable undertaking from First Prudential Markets on compliance processes
ASIC has accepted an enforceable undertaking (EU) from First Prudential Markets Pty Ltd (First Prudential) relating to concerns about its compliance processes for detecting and dealing with potentially manipulative client trading.
First Prudential offers Contracts for Difference (CFDs) to its clients through a Direct Market Access (DMA) model.
ASIC reviewed First Prudential's compliance policies, processes and procedures following investigations into the trading of several former clients who were suspected of engaging in market manipulation through their CFD trading.
ASIC's concerns, as stated in the EU, include that in 2013, First Prudential's compliance processes for detecting and dealing with potentially manipulative client trading may not have been adequate.
The EU requires First Prudential to, among other things:
- engage an independent compliance expert to conduct an assessment of, and report on:
- First Prudential's policies, controls and risk management systems for detecting, recording and escalating actual or potential market manipulation by its clients; and
- whether First Prudential has taken reasonable steps to ensure that all staff in risk and compliance comply with the policies and procedures relevant to the identification, reporting and escalation of actual or potential manipulative trading;
- consider the recommendations made by the Independent Compliance Expert to rectify any deficiencies identified and take appropriate remedial action to rectify those deficiencies.
'ASIC Commissioner Cathie Armour said, 'ASIC expects that licensees have appropriate and adequate compliance measures in place to maintain the integrity of and confidence in the broader market'.
First Prudential operates a financial services business in Sydney, New South Wales, and has held its Australian financial services (AFS) licence since May 2005. The AFS licence authorises the company to provide financial product advice, deal in financial products and make a market to wholesale and retail clients.
A CFD is an agreement between an investor and a CFD issuer which allows a trader to speculate on future price movements in a financial product such as shares.
Under its DMA model, First Prudential automatically hedges its exposure to any CFD position executed by a client by taking an equivalent one-for-one position in the underlying shares. This hedging mechanism can result in CFD trades having an immediate impact on the price for the underlying shares in the same way as trading in shares directly and First Prudential clients are able to see CFD positions translate to an actual buy or sell order in the underlying shares on ASX.
For further information about what ASIC looks at when assessing compliance with general licensee obligations, see Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104).