Following an investigation by the Australian Securities and Investments Commission (ASIC), the Markets Disciplinary Commission (MDP) fined Macquarie Bank a record $4.995 million for failing to prevent suspicious orders being placed in the electricity futures market.

In a statement on Wednesday, the corporate regulator said Macquarie breached market integrity rules by allowing three of its clients to place suspicious orders on as many as 50 occasions from January to September 2022. – a period of unprecedented volatility in energy markets worldwide.

Each order exhibits characteristics of a “close mark” intent, meaning that each order is placed within the last minute of market close, impacting the daily settlement price, in a direction favorable to the client’s existing interest in that contract. According to ASIC, the MDP considered that Macquarie should have suspected that each of the 50 orders was placed with the intention of creating a false or misleading appearance in the market.

“The record penalty imposed by the MDP reflects Macquarie's serious, sustained and potentially systemic failures to detect and prevent alleged manipulation of the ASX 24 energy derivatives market. Macquarie is the largest participant in the energy derivatives market and given its gatekeeper role it must ensure that suspicious orders are not allowed to be placed in our markets,” said ASIC chairman Joe Longo.

Longo shared this ASIC notified Macquarie of suspicious orders placed by its clients on numerous occasions and "repeatedly failed" to take timely action to address its client behavior and gaps in its monitoring ability. Namely, the regulator is believed to have contacted Macquarie on six separate occasions to alert it to ASIC's concerns.

"The consequences of manipulating energy markets can have a detrimental effect on supplier financing costs and in turn on energy prices. This could lead to higher energy bills for consumers who are already struggling with the cost of living," the chairman said.

The MDP found that Macquarie's failure to address ASIC's concerns in the context of the increased need to monitor the electricity futures market was an aggravating factor in determining the amount of the penalty.

In addition, the MDP found that Macquarie failed to appreciate the seriousness of its obligations as a market participant to act promptly and appropriately in the face of obvious risks of deficiencies in its monitoring system and at the time did not take full ownership or responsibility for its conduct.