Nomura’s Instinet fined by ASIC over dark pool’s market integrity violations

Rick Steves

Instinet operated a crossing system called BLX Australia, often termed a ‘Dark Pool’, from April 1, 2011, until its suspension on October 11, 2022.

Instinet Australia Pty Ltd, a Nomura group company and market participant of ASX Limited and Cboe Australia Limited, has paid a penalty of $670,500. This penalty is in compliance with an infringement notice issued by the Markets Disciplinary Panel (MDP).

The notice cited violations of market integrity rules. These rules require Instinet to provide meaningful price improvement for off-market client transactions, disclose complete information about its crossing system, and accurately report regulatory data on trade execution venues.

Paying the penalty does not imply guilt or liability on Instinet’s part

Instinet operated a crossing system called BLX Australia, often termed a ‘Dark Pool’, from April 1, 2011, until its suspension on October 11, 2022.

According to the regulator, the MDP found that between January 1, 2021, and October 11, 2022, Instinet breached Rule 6.1.1. The BLX crossing system incorrectly referenced the ASX best bid and offer instead of the National Best Bid and Offer (NBBO), said ASIC. Consequently, 3,093 off-market trades, valued at $13.48 million, allegedly did not provide meaningful price improvement over the NBBO.

Further, Instinet allegedly violated Rule 5A.2.2 by failing to inform clients about the operation of the BLX crossing system. Specifically, it didn’t disclose ‘Indications of Interest’ to clients, as required by the Rules.

Additionally, between January 1, 2021, and January 31, 2023, Instinet incorrectly reported the execution venue for 940 transactions under Rule 7.4.2, according to ASIC, which added these transactions were executed off-market but not on the BLX crossing system.

The MDP deemed Instinet negligent for lacking procedures to prevent or detect non-compliance with crossing system rules. It criticized Instinet for not updating its systems in line with market changes, failing to act in clients’ interests, and showing ‘poor market awareness and a ‘set and forget’ approach’ to compliance.

Paying the penalty does not imply guilt or liability on Instinet’s part, nor does it mean Instinet is considered to have contravened subsection 798H(1) of the Corporation Act.

The alleged infringement is a reminder of the critical importance of maintaining up-to-date systems and transparent practices in financial markets, especially regarding pre-trade transparency and accurate reporting.

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