Macquarie Group slapped with $4.9m in fines over failures to prevent energy market manipulation

The banking major was repeatedly warned by the corporate regulator it was allowing clients to manipulate energy prices but failed to act.

The Petroineos oil refinery in Grangemouth, Scotland. Picture: Jeff J Mitchell/Getty Images

Macquarie Group failed to prevent clients manipulating energy markets, in the darkest day of the Russian invasion of Ukraine, with the investment bank smacked with a record penalty by the corporate regulator.

The Australian Securities & Investments Commission handed Macquarie a $4.99m penalty on Wednesday, warning the bank had failed to prevent at least three clients from attempting to manipulate energy market futures contracts through at least 51 big bids at the end of the day.

ASIC said Macquarie allowed clients to place “mark the close” bids repeatedly between January and September 2022, a period of turbulence for global energy markets in the wake of Russia’s invasion of Ukraine.

These trades were executed in the last minute of trading, resulting in a benefit for clients topping $4.2m.

ASIC said Macquarie allowed these clients to attempt to manipulate the daily settlement price in their favour, despite being warned on at least six occasions to stop the conduct.

But the regulator found Macquarie failed to conduct investigations or inquiries into market trades by clients despite being warned by ASIC.

ASIC’s Tim Mullaly, Joe Longo, Simone Constant and Kate O’Rouke. Picture: Jane Dempster/The Australian

ASIC chair Joe Longo said Macquarie’s penalty was aimed at reflecting the “serious, prolonged and potential systemic failures” to detect and stop the market manipulation.

“Macquarie is the largest market participant in energy derivatives and given its role as a gatekeeper, it must ensure suspicious orders are not permitted to be placed on our markets,” he said.

Macquarie trades almost 58 per cent of all energy futures in Australia.

“We put Macquarie on notice about suspicious orders placed by its clients on numerous occasions, and it repeatedly failed to take timely action to address the conduct of its clients and the gap in its surveillance capability,” Mr Longo said.

ASIC found Macquarie’s SMARTS trading surveillance tool failed to trigger alerts for the manipulative trades due to an error in its system closing off alerts at 4.30pm instead of 4pm.

An infringement notice finds Macquarie attempted to contact NASDAQ, the provider of the SMARTS system, in a bid to secure changes to its alerts' threshold but failed to get a response.

Macquarie only lodged an incident report with ASIC in October 2022.

Macquarie Group CEO Shemara Wikramanayake. Picture: John Feder/The Australian

The Market Disciplinary Panel, a review board composed of other market participants, handed Macquarie the fine marking the highest penalty from the body since it was established.

The panel found Macquarie failed to respond to ASIC’s concerns and failed to appreciate the significance of its obligations to act promptly and appropriately.

Macquarie did not contest the penalty.

Mr Longo said the manipulation of energy markets had a detrimental impact on supplier funding costs resulting in prices for the consumer being raised.

“This can lead to higher energy bills for consumers who are already struggling with the cost of living,” he said.

Macquarie’s commodities business has churned out profits for the bank, with the division trading a broad range of financial and physical commodities across energy, gas, and fuels.

Nick O’Kane, who headed up the division until his recent defection to rival trading firm Mercuria, made headlines as the highest paid banker at the millionaire’s factory raking in $57.6m in the 2022-2023 financial year.

This came after enjoying a bumper $36.2m pay packet in 2021-2022.

Macquarie faced a class action in the US over allegations it profiteered from a deadline winter ice storm that smashed the country’s south affecting 170 million people.

Several state governments are also targeting Macquarie over the storm, alleging the bank attempted to manipulate the price of fuels in the lead up to the storm.

Macquarie has long held a reputation as a “cowboy” firm, with the US Securities and Exchange Commission fining the bank $117m last week over allegations it overvalued illiquid mortgage assets in advisory accounts in a bid to secure extra fees.

A Macquarie spokeswoman said the bank acknowledged the ASIC infringement notice, noting it “takes full responsibility for all aspects, particularly given its important role as gatekeeper and the largest market participant facilitating clients’ activity in electricity futures in Australia and New Zealand”.

“There are learnings from this matter and Macquarie takes ASIC’s action very seriously,” she said.

“Macquarie has implemented remediation actions to ensure that issues with monitoring for suspicious orders are escalated and actioned appropriately and is continuing to work on areas for further improvement.”

It is understood bonuses of staff at Macquarie have been affected by the breaches.