A failure to update reference prices for Swedish stocks in line with corporate actions has resulted in fines for three brokers.
Carnegie Investment Bank, Skandiabanken and UBS have all been fined SEK 400,000 (€44,933) by stock exchange NASDAQ OMX Stockholm for contravening its rules and regulations, by mediating sales orders subject to terms that deviated from the current market value of shares.
The firms all failed to take into account a price increase in SeaNet Maritime Communications stock following a 1:1,000 reverse split by the company on 24 January, which gave its shares a value 1,000 times higher than the previous day, while reducing their number by the same factor.
UBS then repeated the error the following day when directory assistance firm Eniro AB, owner of the ”118118' brand, made a 1:50 reverse split on 25 January.
On 24 January, the Swiss-owned broker entered a sell order for SeaNet stock at SEK 0.03 with a volume of 450,200 shares, which constituted, following the reverse split, an order to sell 42% of the company at a price deviating 100,000% from current market value.
After the good-till-cancelled order was entered, the exchange's Trading Surveillance team called UBS before the start of continuous trading and asked the broker to cancel the order since it was entered based on erroneous information and there was a risk that it would cause a serious disturbance of the trading if left on the order book.
The order was not cancelled and instead was executed in three tranches at an erroneous price and volume. Carnegie and Skandiabanken made similarly erroneous trades. All trades were cancelled by the exchange.
On 25 January, UBS entered a sell order in Eniro AB at SEK 0.79 with volume 125,000. Again, the volume was not adjusted to take account of the new number of shares in the company and the price subsequently deviated from current market value. The exchange's Trading Surveillance unit called UBS before the start of continuous trading and asked the firm to cancel the order.
The order for 125,000 Eniro shares was cancelled but was then entered again before the start of continuous trading and was executed in several trades at opening. UBS later called Trading Surveillance to ask for a cancellation, but as the trades were executed at current market value the request was denied.
Skandiabanken and Carnegie have both attributed the errors to poor administrative systems that they have resolved to address.
UBS has explained that the orders entered on both days were routed by clients via its DMA service. Such orders are subject to a variety of built-in control parameters, including price and size of the order, and would normally have been rejected by UBS's system instead of being routed to the exchange.
However in the cases of SeaNet and Eniro the reference price had not been updated to reflect the reverse split, and the orders were, therefore, erroneously routed to the exchange.
In a statement the broker said, “This fine is related to two incidents which were the result of human error. UBS has now put in place remedial measures designed to prevent such errors taking place in the future.”
According to a NASDAQ OMX Stockholm's report on the incidents, UBS has instituted a manual change to ensure that the closing prices of stocks subject to corporate actions are carefully reviewed to guarantee that client orders are based on correct close prices. It also notes that relevant staff have been reminded to treat all calls from the exchange with the utmost urgency.
Additionally the broker is working on a project to provide a single source of adjusted close prices.