Davidof and Australian Securities and Investments Commission

This matter concerned an appeal by Mr Davidof against a banning order made by the Australian Securities and Investments Commission (ASIC). The dispute arose from Mr Davidof's involvement in transactions concerning MINI warrants traded on a financial market. ASIC had determined that these transactions contravened section 1041A of the Corporations Act 2001 (Cth), which prohibits conduct that creates or maintains artificial prices in financial products traded on a financial market. The court was required to determine whether Mr Davidof's actions constituted a breach of section 1041A and, if so, whether the banning order issued by ASIC was appropriate in its duration.

The court's reasoning focused on the interpretation and application of section 1041A of the Corporations Act. It adopted the reasoning from a previous decision, McLean, which established that the impugned MINI warrants trading involved a contravention of this provision. The court emphasised that the main object of Chapter 7 of the Act, which includes section 1041A, is to promote fair, orderly, and transparent markets for financial products, and to ensure fairness, honesty, and professionalism by those providing financial services. The court noted that market manipulation, such as setting artificial prices, undermines the integrity of the market by preventing it from reflecting genuine supply and demand, and that participants are entitled to assume transactions are between genuine buyers and sellers.

In considering the appropriate period for the banning order, the court acknowledged submissions that the order should be shortened, taking into account Mr Davidof's long history as an industry participant and the hardship the order would occasion. However, the court also reiterated the seriousness of a breach of section 1041A, particularly for a financial services licensee. Applying ASIC's regulatory guidelines, which suggest a range of three to ten years for such breaches, and balancing the factors in favour of Mr Davidof against the gravity of the contravention, the court determined that a banning order at the lower end of the recommended scale was appropriate. Consequently, the court affirmed the reviewable decision, fixing the period of the banning order at three years.