Author: SteelEye
24 September 2024
Macquarie Fine Amount: $4,995,000 million (AUD)
Date: 25 September 2024
Violation Period: January - September 2022
Primary Violation: Marking the Close
Following an ASIC investigation, the Markets Disciplinary Panel (MDP) has imposed a financial penalty on Macquarie Bank Limited for failing to prevent suspicious orders in the electricity futures market. As the largest participant in energy derivatives (controlling approximately 58% of electricity futures orders), Macquarie allowed three clients to place orders that potentially manipulated daily settlement prices over a nine-month period in 2022.
Macquarie's primary trade surveillance tool (Nasdaq SMARTS) contained a coding error that prevented it from triggering alerts for suspicious trading activity. The market close time for electricity futures was incorrectly hardcoded as 16:30 instead of 16:00, meaning suspicious end-of-day trading activity went undetected.
Macquarie's suspicious activity followed a consistent pattern:
Orders were placed within the last minute of market close
Trading impacted the daily settlement price
Price movements favored the clients' existing positions
Impact on daily settlement prices ranged from 0.3% to 26.7%
Individual client positions benefited between $10,762 and $4,274,688 per day
Client One (via Third Party Broker) - 12 January 2022:
Placed order 14 seconds before market close
Sold at $47, $1.85 lower than last traded price
Impacted Daily Settlement Price by -3.09%
Client benefited by: $405,000
Client Two - 27 June 2022:
Placed two orders three and four seconds before close
First order: Sold at $305, $16 lower than last traded price
Second order: Sold at $245, $10 lower than last traded price
Combined impact on daily settlement prices ranged from -2.49% to -3.54%
Client benefited by: $4,274,688
Client Three - 8 September 2022:
Placed four orders 13 seconds before close, all with significant price increases:
PNH5: $5.28 higher than last traded (+2.95%)
PNM5: $18.40 higher than last traded (+11.68%)
PNU5: $20.86 higher than last traded (+11.33%)
PNZ5: $19.81 higher than last traded (+10.81%)
Client benefited by: $122,237
January-February 2022: First client placed initial suspicious orders
February 2022: ASIC first alerted Macquarie about suspicious trading
May-June 2022: Second wave of suspicious orders from first client
June 2022: Second client began placing suspicious orders
September 2022: Third client placed 21 suspicious orders
October 2022: Macquarie finally implemented an interim surveillance measure
The MDP structured the $4,995,000 million penalty across three periods of misconduct:
First Period (Jan-Feb 2022): $666,000
Second Period (May-June 2022): $1,887,000
Third Period (Sept 2022): $2,442,000
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