19 April 2014

Credit Suisse hit with Oz penalty over rogue trading strategy

27 September 2012  |  2697 views  |  0 Credit Suisse

The Australian arm of Credit Suisse has been hit with a A$52,000 penalty for pumping up the share price of a company by accidentally using the wrong trading strategy within its automated order processing system to buy stock on behalf of a client.

The Swiss bank was given an infringement notice by the Australian Securities and Investment Commission (Asic) for the error, which occurred last May when a client tried to buy 942,517 ordinary shares in Celamin Holdings.

The client had intended to buy the shares using one trading strategy within Credit Suisse's Automated Order Processing system but erroneously used another. Because the order was entered without specifying a maximum participation rate, the trading program was designed to complete it by the close of trading that day.

The algo therefore sliced the order and over a two hour period more than 1200 Bids orders were made to buy around half of the 942,517 shares. This gradual approach meant that the price was continually pushed up, increasing by 83.5%, from A$0.425 to A$0.780.

The bank's system alerts then came into play and the order was deactivated but Asic says that it had by then contravened market integrity rules.

The mistake happened because no alerts were triggered immediately prior to the entry on the trading strategy of any of the bids, says Asic. In addition, Credit Suisse's filters were inappropriate in that they were unable to prevent the algorithm from creating price distortion.

Credit Suisse has been given a A$52,000 penalty after self reporting, co-operating with the investigation and agreeing not to contest the matter.

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