Following an investigation by the Australian Securities and Investments Commission (ASIC), the Markets Disciplinary Panel (MDP) has fined Macquarie Bank Limited a record $4.995 million.

The fine stems from Macquarie’s failing to prevent suspicious orders being placed on the electricity futures market. This is the highest penalty ever imposed by the MDP.

On 50 occasions, from January to September 2022, Macquarie breached market integrity rules by permitting three of its clients to place suspicious orders.

Each order displayed characteristics of an intention to ‘mark the close’, meaning each order was placed within the last minute of market close, impacting the daily settlement price, in a direction favourable to the client’s existing interest in that contract.

MDP found Macquarie should have suspected each of the 50 orders were submitted with the intention of creating a false or misleading appearance in the market.

The MDP found that Macquarie’s failure to respond to ASIC’s concerns in the context of the heightened need to monitor the electricity futures market was an aggravating factor in determining the size of the penalty.

Further, the MDP found Macquarie had failed to appreciate the seriousness of its obligations as a Market Participant to act promptly and appropriately upon what were obvious risks of deficiencies in its surveillance system and had not at the time, taken full ownership or responsibility for its conduct.

The MDP also noted that Macquarie is responsible and accountable for the conduct of its staff and if matters were not escalated when they should be, it may suggest more systemic issues regarding the culture and reporting within Macquarie.

Rule 3.1.2(1)(b)(iii) of the ASIC Market Integrity Rules (Futures Markets) 2017 prohibits a market participant from offering to purchase or sell a contract on account of another person, where taking into account the circumstances of the order, a market participant ought reasonably suspect that the other person has placed the order with the intention of creating a false or misleading appearance of active trading in any contract or with respect to the market for, or the price of, any contract.

Those on the other side of the price movement can be exposed to larger variation margin calls or reduced notional profits, which can lead to cost of funding pressures, and has the potential to lead to flow on cost effects to the customers of those impacted. This was especially heightened in circumstances where many Australian energy suppliers and retailers were extremely sensitive to price variations at the time.

Macquarie is the largest market participant in the ASX 24 electricity futures market, accounting for approximately 58% of all electricity futures orders placed on the ASX 24 market in 2022.

Macquarie 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, Macquarie is not taken to have contravened subsection 798H(1) of the Corporations Act.