The broker’s failure to identify its client’s trading as suspicious was “careless”, according to ASIC’s Markets Disciplinary Panel.
The Australian Securities and Investments Commission has fined J.P. Morgan $775,000 for permitting suspicious client orders to be placed on the futures market, ASX 24.
The penalty for market gatekeeper failure was applied to J.P. Morgan Securities by the regulator’s Markets Disciplinary Panel (MDP) after concluding that the brokerage should have suspected 36 orders placed by a client between 11 January 2022 and 3 March 2022.
“Tackling manipulation in energy and commodities derivatives markets”
These 36 orders were found to have been 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 (WMF3) contracts.
Manipulation in energy and commodities derivatives markets was an ASIC enforcement priority for 2023.
ASIC Deputy Chair Sarah Court said: “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. 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.”
Why JP Morgan should have suspected of those orders
According to the enforcement notice, “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.”
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).
The broker’s failure to identify its client’s trading as suspicious was “careless”, according to the notice, which stated that JP Morgan should have detected the conduct, and should have acted more expeditiously when alerted to it by ASIC.
The MDP found JP Morgan should have suspected the client’s orders were suspicious for a number of 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, and
- the orders were 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.
