Macquarie Bank has been fined a record $4.995m for a serious market gatekeeper failure, ASIC said in a statement on 25 September.
The fine by the Markets Disciplinary Panel (MDP) follows an ASIC investigation which uncovered failure to prevent suspicious orders being placed on the electricity futures market. This is the highest penalty ever imposed by the MDP.
On 50 occasions, from January to September 2022, Macquarie breached market integrity rules by permitting three of its clients to place suspicious orders.
Each order displayed characteristics of an intention to ‘mark the close’, meaning each order was placed within the last minute of market close, impacting the daily settlement price, in a direction favourable to the client’s existing interest in that contract.
MDP found Macquarie should have suspected each of the 50 orders were submitted with the intention of creating a false or misleading appearance in the market.
ASIC Chair Joe Longo said: “The record penalty imposed by the MDP reflects the serious, prolonged and potential systemic failures by Macquarie to detect and prevent suspected manipulation in the ASX 24 market for energy derivatives. Macquarie is the largest market participant in energy derivatives and given its role as a gatekeeper, it must ensure suspicious orders are not permitted to be placed on our markets.
“We put Macquarie on notice about suspicious orders placed by its clients on numerous occasions and it repeatedly failed to take timely action to address the conduct of its clients and the gap in its surveillance capability. As a consequence, it permitted further suspicious orders to be placed on the market.
“The consequences of manipulating energy markets can have a detrimental flow on impact to supplier funding costs, and in turn energy prices. This can lead to higher energy bills for consumers who are already struggling with the cost of living.”
Macquarie’s conduct occurred during a period of unprecedented volatility in energy markets globally stemming from supply issues and the Russia and Ukraine war. ASIC contacted Macquarie on six separate occasions to alert it to ASIC’s concerns about volatility in energy markets or suspicious trading by Macquarie’s clients.
The MDP found that Macquarie’s failure to respond to ASIC’s concerns in the context of the heightened need to monitor the electricity futures market was an aggravating factor in determining the size of the penalty.
Further, the MDP found Macquarie had failed to appreciate the seriousness of its obligations as a Market Participant to act promptly and appropriately upon what were obvious risks of deficiencies in its surveillance system and had not at the time, taken full ownership or responsibility for its conduct.
The MDP also noted that Macquarie is responsible and accountable for the conduct of its staff and if matters were not escalated when they should be, it may suggest more systemic issues regarding the culture and reporting within Macquarie.
In 2022, energy markets experienced a lengthy period of extreme volatility, creating conditions that can incentivise market manipulation in futures contracts. When a person manipulates the closing price of the daily settlement price of the ASX 24 electricity futures contracts, the person benefits at the expense of others in the market with opposing positions.
Rule 3.1.2(1)(b)(iii) of the ASIC Market Integrity Rules (Futures Markets) 2017 prohibits a market participant from offering to purchase or sell a contract on account of another person, where taking into account the circumstances of the order, a market participant ought reasonably suspect that the other person has placed the order with the intention of creating a false or misleading appearance of active trading in any contract or with respect to the market for, or the price of, any contract.
Those on the other side of the price movement can be exposed to larger variation margin calls or reduced notional profits, which can lead to cost of funding pressures, and has the potential to lead to flow on cost effects to the customers of those impacted. This was especially heightened in circumstances where many Australian energy suppliers and retailers were extremely sensitive to price variations at the time.
Market misconduct in energy and commodities derivatives markets was an ASIC enforcement priority in 2023. Macquarie is the largest market participant in the ASX 24 electricity futures market, accounting for approximately 58% of all electricity futures orders placed on the ASX 24 market in 2022.
In addition to the MDP fine issued to Macquarie, in May 2024, the MDP fined J.P. Morgan Securities Australia Limited $775,000 for market gatekeeper failures in relation to suspicious orders by its client in the ASX24 wheat futures market (24-093MR), and in July 2024, ASIC commenced civil penalty proceedings against COFCO International Australia Pty Ltd and COFCO Resources SA for alleged manipulation in the ASX24 wheat futures market (24-163MR).
Macquarie did not contest the alleged breaches of Rule 3.1.2(1)(b)(iii) of the ASIC Market Integrity Rules (Futures Markets) 2017.
Macquarie has complied with the Infringement Notice and paid the fine.
