Large-scale penalty levied on Societe Generale Australia for Overlooking Warning Signs in Futures Transactions

Societe Generale Securities Australia has been fined AUD 3.88 million by the Australian Securities and Investments Commission (ASIC) for allowing clients to place unusual trading requests that potentially manipulated the prices of electricity and wheat futures.

The problematic trades shared several characteristics that should have triggered internal alarms, such as being placed within the final minute before market close and benefiting the clients' existing positions. The orders were designed to influence daily settlement prices just before market close, a practice known as "marking the close."

The disciplinary panel found Societe Generale's conduct became increasingly problematic over three distinct periods, starting as "careless" behavior and escalating to "reckless" conduct by the final period. The bank's monitoring systems were criticized for weaknesses, with staff reviewing flags from the "Entry of High Closing Bid or Low Closing Ask" alert lacking proper expertise to identify suspicious patterns.

This isn't Societe Generale's first run-in with Australian regulators. In 2020, the bank's local division was fined for client money violations after improperly handling client funds between 2014 and 2017. The bank uses NASDAQ's SMARTS platform to flag potential misconduct, but the platform's effectiveness was limited due to a lack of understanding of electricity and wheat futures markets among the staff reviewing the alerts.

Societe Generale Securities Australia was the second-largest participant in Australia's ASX24 futures market as of June 2023, handling nearly 12% of total trading volume. The penalty comes during heightened scrutiny of Australia's commodities markets due to global supply disruptions from the Russia-Ukraine conflict.

ASIC contacted Societe Generale five separate times in 2023 with notices, questions, and warnings about suspicious client activity, but the bank allowed additional questionable orders to reach the market. The bank eventually banned one client from trading in the final two minutes before market close, but only after ASIC's investigation was well underway. No similar restrictions were initially placed on the second client.

The penalty represents ASIC's fifth major enforcement action targeting alleged manipulation in electricity and wheat futures over the past 15 months. Macquarie Bank was fined a record $4.995 million last September for similar gatekeeper failures. J.P. Morgan Securities Australia paid $775,000 in May 2024 for allowing suspicious wheat futures orders.

Societe Generale SA, the company's parent, ranks as the world's 19th largest bank by assets. The bank has not yet released a public statement regarding the penalty.