McDouall Stuart fined, censured by NZX for falling short on liquid capital
By Paul McBeth
Dec. 22 (BusinessDesk) – McDouall Stuart Securities Ltd., the brokerage that outsourced its trading and settlement in protest over NZX Ltd.’s rising fees, has been fined a total of $83,000 and publicly censured for breaching stock exchange rules in the lead-up to its exit.
NZ Markets Disciplinary Tribunal found McDouall Stuart breached required liquid capital levels after it mistakenly included a subordinated loan of Diligent Board Member Services Inc. shares in its calculation, which was a second breach. It also failed to hold more client assets than liabilities after trying to include a $300,000 bond with the NZX in that formula. It didn’t hold clients’ assets on trust at all times, and failed to ensure excess client funds were paid to clients when possible.
The broker was fined $25,000 for falling short on the required capital level, $13,000 for the value of client assets being less than liabilities, $40,000 for using an account (referred to as the Charles Schwab account) that wasn’t a client funds trust account, and $15,000 for not repaying excess funds where possible.
The breaches occurred in the lead-up to the broker’s March 15 departure from the NZX as a market participant in protest over the new clearing and settlement system, which managing director Andrew McDouall at the time said would probably lead to fewer participants.
The tribunal found McDouall Stuart genuinely believed it was operating within the rules most of the time and was surprised the NZX didn’t pick up and question some of the breaches earlier on, as the brokerage was already under so-called ‘intense oversight’ having breached capital adequacy requirements in August 2008.
The stock exchange operator and regulator was given a rap over the knuckles for not offering any evidence in its allegations over McDouall Stuart’s use of the Charles Schwab account and that the brokerage didn’t hold client assets in excess of liabilities, both of which wouldn’t have been proven without an admission of guilt.