🗞️J.P. Morgan Securities Australia Fined $775,000 for Market Manipulation"

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J.P. Morgan Securities Australia Limited (JPMSAL) has been fined $775,000 by the Markets Disciplinary Panel (MDP) for allowing suspicious client orders to be placed on the ASX 24 futures market, following an ASIC investigation. The MDP concluded that JPMSAL ought to have suspected that 36 orders submitted by a client between January 11, 2022, and March 3, 2022, were intended to present the Eastern Australia Wheat futures January 2023 (WMF3) contracts' market or price in a false or misleading manner. "There are real world consequences for this sort of behaviour," stated Sarah Court, deputy chair of ASIC, "which is why tackling manipulation in energy and commodities derivatives markets has been an ASIC priority."

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‘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,’ Ms Court said.

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’.

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’ (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 JPMSAL 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:  

1. a large proportion of the orders were entered late in the trading session, including seconds before market close,

2. a large proportion of the orders were small volume orders, including lot sizes of five or less, 

3. a number of the sell orders resulted in, or may have resulted in, a decrease to the daily settlement price of WMF3 contracts, and 

4. 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.

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.

View the infringement notice on the MDP Outcomes Register.

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