Macquarie Bank fined a record $4.9m over suspicious energy futures trading

The penalty follows an investigation by the Australian Securities and Investments Commission (ASIC) in relation to energy market futures contracts traded in 2022.

ASIC found that 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 favour of the client’s existing interest in that contract.

The Markets Disciplinary Panel (MDP), a peer review panel that independently makes decisions on behalf of ASIC, found that Macquarie should have suspected each of the 50 orders were submitted with the intention of creating a false or misleading appearance in the market.

“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,” says ASIC chair Joe Longo.

“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.”

Longo says ASIC had put Macquarie on notice about suspicious orders placed by its clients on “numerous occasions”.

“It repeatedly failed to take timely action to address the conduct of its clients and the gap in its surveillance capability,” he says.

“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 is the largest market participant in the ASX 24 electricity futures market, accounting for about 58 per cent of all electricity futures orders placed on the ASX 24 market in 2022.

Macquarie’s conduct occurred during a period of “unprecedented volatility” in energy markets globally impacted by supply issues and the Russia-Ukraine conflict.

ASIC says it 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.  

The MDP also found Macquarie had failed to appreciate the seriousness of its obligations as a market participant to act promptly and appropriately on “obvious risks of deficiencies in its surveillance system”.

The MDP says Macquarie at the time had not taken “full ownership or responsibility for its conduct”.  

The MDP also notes that Macquarie is responsible and accountable for the conduct of its staff and, if matters are not escalated when they should be, it may suggest more systemic issues regarding the culture and reporting within Macquarie.

The crackdown by ASIC on the energy and commodities derivatives markets in 2023 also led to a $775,000 fine issued in May this year by the MDP to J.P. Morgan Securities Australia for market gatekeeper failures in relation to suspicious orders by its client in the ASX24 wheat futures market.

In July this year, ASIC also launched civil penalty proceedings against COFCO International Australia and COFCO Resources SA for alleged manipulation in the ASX24 wheat futures market.