Direct Broking is to pay sharemarket operator NZX a $25,000 penalty for trading on behalf of Access Brokerage clients without adequate documentation in the months after the firm's collapse last year.
Direct Broking paid liquidators $204,000 for Access' client database after the discount brokerage was suspended in early September last
year, leaving a $4.8 million shortfall in client funds.
A Direct spokesman said the database contained more than 30,000 names, of which about 8000 or 9000 were active clients.
A "good proportion" of those had chosen to trade through Direct Broking and were sent application forms to facilitate their move to Direct's books.
However, NZX said yesterday it became aware that Direct Broking might not have been complying with "know your client" market participant rules by executing trades early this year for some former Access clients without having first obtained necessary documentation.
NZX brought the issue to Direct Broking's attention and the broker suspended all of the accounts in question and co-operated with NZX's investigation into the matter.
Direct Broking admitted breaching the rules while NZX acknowledged that Direct took action to make sure it entered into proper client agreements with the investors, including getting evidence of identity from them.
NZX also acknowledged that no client was put at risk as a result of the breaches and any risk to the market was negligible.
Direct Broking had agreed to pay NZX $25,000 by way of a fine which would be directed to the NZX Discipline Fund. It also agreed to undertake an independent review of its "know your client" procedures and report the findings back to NZX.
