Broker McDouall Stuart fined, censured for NZX breaches

File photo / Kenny Rodger

Wellington brokerage McDouall Stuart Securities has been fined $83,000 and publicly censured by the stock exchange's disciplinary tribunal for breaching market rules on five separate charges.

In the first breach the tribunal found McDouall Stuart had breached the rules on nine occasions between January 8 and March 8 by failing to have enough liquid capital as prescribed by a waiver already granted to the company.

For that breach it was fined $25,000.

The tribunal also found the company breached another rule by including a subordinated loan of securities in its liquid capital calculation despite the NZX telling it it did not approve of the loan being used for that.

In the third breach McDouall Stuart was found guilty of not holding enough client assets in excess of its obligations on 13 occasions between September 2008 and February 2010. For that it was fined $13,000.

But the largest breach and fine of $30,000 was handed out for failing to hold client assets on trust at all times and for not obtaining written notice from its bank of the trust status of the account.

The breach related to an account held by an American client called Charles Schwab.

The tribunal also found McDouall Stuart breached an amended waiver by failing to ensure excess client funds were paid to clients where possible and for that it was fined $15,000.

McDouall Stuart chief executive Andrew McDouall said while the firm was guilty and it accepted the breaches there were mitigating circumstances.

McDouall said most of the breaches were small the largest one was the $30,000 fine relating to the Schwab account.

He said his company had only taken over the account two years ago when it acquired another business yet it had been audited by the NZX for the last eight years.

It was the only account out of 19 it had taken over where it had been unable to supply the paperwork to the exchange, he said.

"The stock exchange had audited it for eight years. However the ultimate responsibility should be on the participant and I accept that - it would be wrong for that not to be the case."

The 13 occasions in which there were not enough client assets were related to foreign currency timing issues as the money was transferred from the US, McDouall said.

McDouall said the capital breaches were not good but it had been a tough year for the company. He said the NZX had also increased its requirements on the firm during the time it was being monitored.

The company had spent a lot of money fighting the case but had decided not to appeal it.

"You do get to the stage where you think - let's just move on. It has been such a horrible year."

McDouall Stuart resigned from being an NZX trading and advising firm on March 15.