$1.5 BILLION: ASIC Sues Macquarie Securities Over 14-Year Short Sale Misreporting Scandal
Financial Watchdog Alleges Millions of Transactions Misreported, Fourth Regulatory Action Against Macquarie Group in 12 Months
The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against Macquarie Securities (Australia) Limited (MSAL) for allegedly misreporting at least 73 million short sales over a 14-year period, potentially impacting market integrity and investor decision-making across Australia's financial landscape.
The lawsuit, filed in the NSW Supreme Court yesterday, marks ASIC's first case targeting short sale reporting and comes amid growing regulatory scrutiny of the Macquarie Group, which reported a $3.7 billion profit in its latest financial year.
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Key Takeaways:
ASIC alleges MSAL failed to correctly report between 298 million and 1.5 billion short sales between December 2009 and February 2024
The misreporting may have inflated or deflated published short sale volumes by an average of 12%, with some instances exceeding 50%
This represents the fourth regulatory action against Macquarie Group entities in just over 12 months
What You Need to Know: ASIC Chair Joe Longo emphasized the critical importance of accurate market reporting: "This action is timely given significant recent global market volatility. Accurate and reliable data underpins the integrity of, and confidence in, Australia's financial markets. Investors expect reliable information to analyse market movements and inform their investment decisions."
"We allege Macquarie's failures may have led to the financial services industry relying on misleading and false information for over 14 years," Longo added.
The case specifically targets systemic failures in MSAL's reporting systems, with ASIC alleging the financial giant's conduct violated multiple provisions of the Corporations Act and ASIC Market Integrity Rules. The regulator is seeking substantial penalties along with independent review and assurance of MSAL's regulatory reporting systems.
"MSAL's repeated systemic failure to detect and resolve these issues indicated serious neglect of its systems and disregard for operational controls and technological governance," Longo stated in the announcement.
The timing of this lawsuit is particularly significant, as it follows closely behind ASIC's May 7 decision to impose additional Australian Financial Services license conditions on Macquarie Bank Limited after more than a decade of compliance failures.
"Our actions reflect the ongoing and deep concerns we have with Macquarie Group and its weak remediation of long-standing issues, which led us to impose additional conditions on Macquarie Bank's Australian Financial Services licence only last week," the ASIC Chair explained.
Financial analysts note that short sale reporting requirements were implemented following the 2008-2009 Global Financial Crisis specifically to enhance market transparency and stability. Short selling, the practice of selling borrowed securities with the intention of buying them back at a lower price, can significantly impact market dynamics and investor sentiment.
The alleged misreporting affected at least 321 different securities, potentially distorting market data that investors, financial advisors, and market analysts rely on daily. This raises serious questions about the reliability of published market information during the affected period.
ASIC is also pursuing separate allegations that MSAL failed to correctly report Regulatory Data for 633,680 orders submitted to Market Operators between November 2022 and March 2023, further compounding concerns about the company's compliance procedures.
Industry experts suggest this case could have far-reaching implications for financial reporting standards across Australia's securities markets, potentially leading to stricter enforcement and heightened scrutiny of other major market participants.
The Macquarie Group, a global financial services provider headquartered in Sydney, has yet to issue a public response to the allegations. The company's shares closed down 2.3% following ASIC's announcement.
How confident are you in the market data you rely on for investment decisions? Share your thoughts on whether stronger penalties are needed for financial reporting violations.
Macquarie acknowledges the civil proceedings commenced by ASIC against Macquarie Securities (Australia) Limited (MSAL) primarily in relation to inaccurate short sale transaction reporting.
Specific issues with MSAL’s daily reporting of the number of shares short sold were first identified by MSAL and self-reported to ASIC in late 2022. MSAL subsequently identified a number of related issues, which were also self-reported to ASIC.
The reporting issues identified in the proceedings have been remediated with additional controls implemented.
MSAL is now reviewing ASIC's claim. As the matter is before the court, it would be inappropriate for Macquarie to make further comment.
Macquarie takes its compliance obligations very seriously and continues to invest in programs to further improve systems and controls across the Group.
In an interview with ABC Australia's "The Business," ASIC Chair Joe Longo emphasized the serious nature of the allegations: "By not accurately reporting its short sale activity and related regulatory data, it does undermine our confidence that we know what's going on in the market."
The accuracy of short sale reporting is critical for market transparency, as "it gives us a real insight into market sentiment and what's happening in the market. So, if we're getting a misleading picture, then that's not good for transparency and market efficiency," Longo explained.
While ASIC is not alleging deliberate misconduct, the regulator characterizes the situation as "systemic failures over a long period of time." According to Longo, "We raised these issues on several occasions since 2015 with Macquarie, got assurances that they'd been rectified, but as these proceedings allege, they simply were not rectified."
The case, filed in the New South Wales Supreme Court, represents a significant regulatory action against one of Australia's most powerful financial institutions. Macquarie Group, often referred to as the "millionaire's factory," has seen its share price impacted by the announcement, dropping by more than one percent following the news.
Perhaps most concerning for Macquarie stakeholders is Longo's assessment of the bank's compliance culture. "This incident, together with other incidents, do suggest a significant problem at Macquarie with its risk management systems and its compliance culture," he stated, adding that "it really does indicate a level of complacency that's set in over years, which has now come home to roost."
Despite the serious nature of the allegations and this being the fourth regulatory action against Macquarie in just over a year, ASIC appears confident the institution can address its compliance issues. "Macquarie are a major institution of the Australian economy. They're a global player. They're capable of dealing with these issues. They simply have not invested enough and taken the appropriate approach to deal with them," Longo told ABC Australia.
Short selling—a strategy where investors profit from falling stock prices—requires stringent reporting to maintain market integrity. ASIC's unprecedented legal action signals a tougher regulatory approach to compliance failures, especially among Australia's largest financial players.
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