The corporate regulator is taking Macquarie Securities (Australia) Limited (MSAL) to court, alleging it repeatedly misled the market by misreporting millions of short sales over a 14-year period - but investors don’t seem to mind.

In a NSW Supreme Court filing made Wednesday, the Australian Securities and Investments Commission (ASIC) accused MSAL of failing to properly report the volume of short sales between 2009 and early 2024.

It's an error ASIC alleges may have distorted data on between 298 million and 1.5 billion trades across at least 321 securities.

The watchdog isn’t pulling punches with this one. It claims the misleading conduct was the result of multiple long-term systems failures, which Macquarie Securities either failed to detect (which is bad) or failed to remediate for over a decade (also bad).

“This action is timely given significant recent global market volatility,” ASIC Chair Joe Longo said in a statement. “We allege Macquarie’s failures may have led to the financial services industry relying on misleading and false information for over 14 years.”

The alleged failings don’t stop there, either. ASIC also claims MSAL misreported Regulatory Data for more than 630,000 orders submitted to the market between November 2022 and March 2023.

As for relief? The regulator is seeking penalties, as well as a court-ordered independent review of MSAL’s systems and controls to ensure compliance going forward.

An escalating pattern

The case is the latest in a string of actions ASIC has taken against Macquarie entities in the past year, including:

• a $10 million fine over unauthorised fee transactions,
• a record $4.995 million penalty for market misconduct in electricity futures,
• and new licence conditions imposed just last week tied to derivative trade reporting breaches.

This suit highlights comments made very recently by ASIC, claiming that Macquarie has demonstrated a “serious neglect” of internal systems and controls across multiple parts of the business.

Last week Macquarie reported a $3.7 billion full-year profit, with solid earnings growth across Asset Management and Banking and Financial Services, despite softening in its commodities and global markets division.

But I we noted at the time, the results were overshadowed by ASIC’s decision to time its announcement of new licence conditions to coincide with the earnings release - signalling the regulator’s escalating frustration with the Group’s compliance culture.

Macquarie responds, investors look past it

In a statement released Wednesday, Macquarie acknowledged the ASIC proceedings and confirmed the issues were self-identified and reported in late 2022. It also said the reporting errors have since been remediated and new controls are in place.

“Macquarie takes its compliance obligations very seriously and continues to invest in programs to further improve systems and controls across the Group,” it said. The Group declined to comment further, citing the ongoing nature of the court case.

Yet despite the severity of ASIC’s allegations, including alleged breaches of multiple provisions of the Corporations Act, investors barely flinched.

Macquarie shares initially dipped at the open as ASIC released the news, triggering a brief sell-off, but quickly recovered and finished the session up 1.1% at $214.48. That’s higher than Tuesday’s close of $212.

Regardless of investor sentiment as ASIC continues to build its case, it’s clear the Group’s reputation for internal control is facing its sternest test yet.