JP Morgan Securities Australia Limited (JPMSAL) has been penalised by the Australian Securities and Investments Commission’s (ASIC) Markets Disciplinary Panel (MDP) for permitting suspicious client orders to be placed on the futures market, ASX 24.
According to the panel, JPMSAL should have suspected 36 orders placed by a client between 11 January 2022 and 3 March 2022 were submitted with the intention of creating a false or misleading appearance with respect to the market for, or the price of, the Eastern Australia Wheat futures January 2023 contracts.
It held that, individually and as part of a series, the orders “exhibited characteristics of an intention by the client to manipulate the market” by “marking the close” (placing orders or trading close to the end of a trading session to influence the daily settlement price of a derivate contract).
It alleged JPMSAL should have held suspicions regarding the client’s orders for numerous reasons, including:
- A large proportion of the orders were entered late in the trading session, including seconds before market close.
- A large proportion of the orders were small volume orders, including lot sizes of five or less.
- A number of the sell orders resulted in, or may have resulted in, a decrease to the daily settlement price of WMF3 contracts.
- The orders were unusual in the market for WMF3 contracts when considering the history of, and other trading in, that product.
The panel found that JPMSAL’s failure to identify its clients’ trading as suspicious was “careless”, including that JPMSAL “should have acted more expeditiously when alerted to it by ASIC”.
The MDP’s infringement notice outlines that, “this case highlighted the responsibility of all market users to pro-actively draw attention to potential rule breaches in order to maintain market integrity, and the importance of timely communication between regulators, market participants and clients to ensure that any potential misconduct is rectified immediately once detected”.
ASIC deputy chair Sarah Court highlighted the “real world consequences” of such behaviour, which, she said, is why the regulator prioritises tackling manipulation in energy and commodities derivatives markets.
“Farmers use these contracts to manage wheat price fluctuations which can affect what Australians pay at the checkout,” she said.
As the gatekeepers to Australia’s markets, market participants need to upload the highest standards, with a central role in detecting, preventing and disrupting suspicious trading activity, she added.
“The MDP’s decision emphasises that market participants cannot solely rely on automated trade monitoring systems to detect potential misconduct and must take immediate action once alerted to misconduct by ASIC,” Court said.
JPMSAL cooperated with ASIC’s investigation and did not contest that it had breached Rule 3.1.2(1)(b)(iii) of the ASIC Market Integrity Rules (Futures Markets) 2017.
It has complied with the infringement notice and paid the fine of $775,000.
Compliance with the infringement notice is not an admission of guilt or liability.
