‘Serious oversight’: CLSA’s regulatory data failure draws ASIC’s ire

Investment and brokerage firm CLSA has paid a more than $144,000 fine after the Australian Securities and Investment Commission found it had breached market integrity rules by failing to provide correct regulatory data.

ASIC’s Markets Disciplinary Panel (MDP) found CLSA, a Hong Kong-founded investment and capital markets firm, had, due to a systems reporting error, inadvertently suggested trades and orders were made on behalf of its clients rather than by CLSA itself.

The data reporting breach was the result of a tagging error by CLSA’s back-end systems. MDP found that orders and trade reports were mislabelled by the system as ‘agency’ rather than ‘principal’ – effectively misrepresenting the origin of orders and trades. This erroneous data was then sent to the market operator.

While ASIC acknowledged the breach was the result of an “inadvertent error”, it identified 9,200 instances of orders and 27 instances of trade reports being mislabeled over four months between 2022 to 2023.

“CLSA represented that they were conducted on behalf of its clients when in fact they were conducted on CLSA’s own behalf, thus giving incorrect information about the origin of those orders and trades,” ASIC wrote.

ASIC reports that the data failures stemmed from a planned system change to CLSA’s global order management system.

“The MDP were concerned this system change was not adequately scoped and tested before implementation to capture potential unintended impacts in other jurisdictions.”

ASIC stressed that “establishment and maintenance of technology systems is a fundamental responsibility of a market participant” to ensure accurate market reporting.

While accepting the error was inadvertent, the MDP took issue with the CLSA’s deficient governance processes, noting that changes to its systems were done “without appreciation of [their] global impact”. This action, it added, “was a serious oversight”.

“Providing accurate regulatory data is a core obligation of market participants as that data is used by ASIC to carry out its mandated function of supervising and ensuring the integrity of the market,” ASIC wrote.

“It enables ASIC to detect market misconduct and analyse market structure and trends. CLSA inadvertently distorted the data provided to the market operator, potentially hindering ASIC’s market surveillance capabilities.”

ASIC also found the firm had failed to give post-trade confirmations to its clients and immediately report off-market transactions after the execution of Block Trades (taking 25 minutes to do so) – a further breach of ASIC’s market integrity rules.