FINANCIAL services company JP Morgan Securities Australia has been fined $775,000 for permitting suspicious clients’ orders to be placed for wheat futures contracts.

Following an Australian Securities & Investments Commission investigation, the Markets Disciplinary Panel concluded that orders placed by a client in respect to Eastern Australia Wheat futures January 2023 (WMF3) contracts should have raised concerns with JPMSAL.

The investigation related to 36 orders placed between 11 January 2022 and 3 March 2022 which the MDP found were submitted with the intention of creating a false or misleading appearance of the WMF3 market.

ASIC deputy chair Sarah Court said JPMSAL and other market participants have the responsibility to monitor and investigate possible rule breaches in a timely manner.

“There are real-world consequences for this sort of behaviour, which is why tackling manipulation in energy and commodities derivatives markets has been an ASIC priority,” Ms Court said.

“Farmers use these contracts to manage wheat-price fluctuations which can affect what Australians pay at the checkout.

“Market participants are the gatekeepers to Australia’s markets, and they need to uphold the highest standards.

“They have a central role in detecting, preventing and disrupting suspicious trading activity, particularly in periods of volatility as was the case here.

“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.”

The MDP’s view was 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”, which refers to placing orders or trading close to the end of a trading session to influence the daily settlement price of a derivate contract.

The MDP found that JPMSAL’s failure to identify its client’s trading as suspicious was “careless”, that the company should have detected the conduct, and should have acted more expeditiously when alerted to it by ASIC.

The MDP found JPMSAL should have suspected the client’s orders were suspicious for a number of reasons, including a large proportion of the orders was entered late in the trading session and were small-volume orders, and some sell orders resulted in, or could have resulted in, a decrease to the daily settlement price.

These orders were also considered unusual in the market for WMF3 contracts when considering the history of, and other trading in, that product.

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.

JPMSAL has complied with the Infringement Notice and paid the fine.

Compliance with the infringement notice is not an admission of guilt or liability and by doing so, JPMSAL is not taken to have contravened subsection 798H(1) of the Corporations Act.

Manipulation in energy and commodities derivatives markets was an ASIC enforcement priority for 2023.

Source: ASIC