ASIC Imposes Fine on JP Morgan Over Suspicious Futures Orders on ASX 24

JP Morgan has been fined $775,000 by the Australian Securities and Investments Commission (ASIC) for failing to identify suspicious client orders on the futures market, ASX 24. The brokerage firm’s oversight has been described as “careless” by ASIC’s Markets Disciplinary Panel.

JP Morgan has been penalized by ASIC for allowing suspicious futures orders on ASX 24, raising concerns about market integrity and the role of market participants in preventing misconduct.

JP Morgan’s Market Gatekeeper Failure

Between 11 January 2022 and 3 March 2022, JP Morgan Securities allowed 36 orders placed by a client that should have raised suspicion. These orders were found to have been submitted with the intention of creating a misleading appearance regarding the market for Eastern Australia Wheat futures January 2023 (WMF3) contracts. The penalty for this market gatekeeper failure was imposed by the regulator’s Markets Disciplinary Panel (MDP).

Manipulation in Energy and Commodities Derivatives Markets

ASIC has made it a priority to tackle manipulation in energy and commodities derivatives markets. According to ASIC Deputy Chair Sarah Court, such behaviour has real-world consequences, affecting the price of wheat and, consequently, what Australians pay at the checkout. Market participants, as gatekeepers, have a crucial role in detecting and preventing suspicious trading activity. The MDP’s decision underscores that automated trade monitoring systems are not sufficient to detect potential misconduct, and immediate action is required once misconduct is detected.

Why JP Morgan Should Have Been Suspicious

The enforcement notice highlights the responsibility of all market users to proactively draw attention to potential rule breaches to maintain market integrity. The client’s orders exhibited signs of market manipulation, such as ‘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. JP Morgan’s failure to identify its client’s trading as suspicious was deemed “careless”.

Reasons for Suspicion

The MDP found several reasons why JP Morgan should have suspected the client’s orders, 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.
• Several sell orders resulted in, or may have resulted in, a decrease to the daily settlement price of WMF3 contracts.
• The orders were unusual in the market for WMF3 contracts when considering the history of, and other trading in that product.

Conclusion

JP Morgan’s failure to identify suspicious trading activity has resulted in a hefty fine and a reminder of the importance of market integrity. Market participants must uphold the highest standards and take immediate action to detect and prevent potential misconduct. This case serves as a warning to all market participants to remain vigilant and proactive in maintaining market integrity.