ASX derivatives market participant cops $3.8m fine

The second-largest market participant on the Australian Securities Exchange’s (ASX’s) futures trading venue ASX 24 Market, Societe Generale Securities Australia (SocGen), has been fined $3.88 million for breaching market integrity rules related to alleged manipulation in electricity and wheat futures.

An Australian Securities and Investments Commission (ASIC) investigation found SocGen allowed two of its clients to place 33 suspicious orders on the electricity and wheat futures market between May 2023 and February 2024.

The Market Disciplinary Panel (MDP), which handed down the fine, found each order was placed within the last two minutes before market close with the intention to “influence” the daily settlement price to benefit the client, thus creating “a false or misleading appearance in the market”.

In a statement, ASIC said any attempted manipulation by market participants of the daily settlement price of electricity and wheat futures can cause a ripple-effect on supplier funding costs and prices for consumers.

The timing of the suspicious orders comes during an ongoing period of global volatility in energy and wheat markets due to supply chain issues exacerbated by the Russia-Ukraine War.

“This is about integrity and confidence in our markets that can have real world impacts on electricity and wheat prices,” ASIC Chair, Joe Longo, said.

“ASIC contacted SocGen on five occasions in 2023 to serve notices, ask questions or raise concerns about volatility in futures markets and suspicious orders placed by its clients.

“Despite ASIC’s contact, SocGen failed to take timely and effective action, and permitted additional, suspicious orders to enter the market.

“SocGen’s lack of response and inadequate remediation were made more significant because they are the second largest participant in the ASX 24 Market.”

The MDP said market participants like SocGen are responsible for orders placed by their clients and noted SocGen’s “recklessness” in “failing to prevent further suspicious orders” despite several warnings from ASIC. The investigation also revealed “lack of effectiveness of SocGen’s compliance and surveillance functions to detect and address manipulative market behaviour”, including “a lack of training, skills and management oversight to adequately monitor the ASX 24 electricity and wheat futures market”.

“Market gatekeepers have a duty to keep our markets safe. They have direct visibility over client trading and can prevent orders from being placed on the market,” Longo said.

“Missing suspicious orders puts the entire system at risk.

“Companies like SocGen must have appropriate preventative and detective tools and controls, including people with the right expertise as well as surveillance software, to ensure compliance.”

The action against SocGen marks ASIC’s fifth enforcement action in the last 15 months related to manipulation of electricity and wheat futures on the ASX 24 Market. SocGen accounted for 11.8 per cent of the total traded volume across the ASX 24 market, as of 30 June 2023.