SocGen Fined $2.55 Million Over Market Gatekeeper Failures

Key Takeaways

• SocGen Penalty: SocGen was fined $2.55 million (AUD 3.88 million) for failing to stop 33 suspicious orders in the ASX 24 electricity and wheat futures markets.
• Integrity at Stake: The suspicious orders were designed to “mark the close,” influencing daily settlement prices and potentially impacting electricity and wheat costs for consumers.
• Ignored Warnings: ASIC contacted SocGen five times in 2023 about suspicious trades, but the firm failed to act, leading the MDP to find its conduct reckless.
• Compliance Failures: The MDP flagged weak surveillance, inadequate training, and lack of management oversight at SocGen as key shortcomings.

Deep Dive

One of the biggest players in Australia’s futures market has been hit with a $2.55 million (AUD 3.88 million) penalty after failing to stop a wave of suspicious trading orders in the electricity and wheat futures market. The Market Disciplinary Panel (MDP) imposed the fine on SocGen, following an ASIC investigation that found the firm breached market integrity rules by permitting two clients to place 33 suspicious orders between May 2023 and February 2024.

The case marks ASIC’s fifth enforcement action in just over a year targeting alleged manipulation in electricity and wheat futures on the ASX 24 Market, markets that directly affect supplier funding costs and, ultimately, electricity and wheat prices for households and businesses.

Manipulation Risks and Ignored Warnings

The orders in question bore the hallmarks of attempts to “mark the close”, placed in the last two minutes of trading to influence the daily settlement price in a client’s favor. The trading occurred against a backdrop of global market volatility driven by energy supply disruptions and the ongoing Russia-Ukraine war, creating fertile ground for manipulative strategies.

ASIC Chair Joe Longo was blunt about the risks, stressing that “this is about integrity and confidence in our markets that can have real world impacts on electricity and wheat prices.”

ASIC contacted SocGen five times in 2023 to flag concerns about volatility and suspicious trades. Despite these warnings, the firm failed to take timely or effective remedial action, allowing additional questionable orders to enter the market.

The MDP concluded that SocGen acted recklessly in failing to prevent the further orders and expressed concern about the ineffectiveness of its compliance and surveillance systems. The panel highlighted a lack of adequate training, skills, and oversight within the firm to detect and address manipulative trading behavior.

“Market gatekeepers have a duty to keep our markets safe,” Longo said. “Missing suspicious orders puts the entire system at risk. Companies like SocGen must have appropriate preventative and detective tools and controls, including people with the right expertise as well as surveillance software.”

Market misconduct in energy and commodities derivatives was one of ASIC’s stated enforcement priorities in 2023.

SocGen did not contest the breaches of Rule 3.1.2(1)(b)(iii) of the ASIC Market Integrity Rules (Futures Markets) 2017. The firm complied with the infringement notice and paid the penalty. Under Australian law, compliance with the notice does not amount to an admission of guilt or liability, nor does it mean SocGen is taken to have contravened the Corporations Act.

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