Surveillance in Australian FICC Markets: The Shape of Enforcement to Come

Surveillance in Australian FICC Markets: The Shape of Enforcement to Come

ASIC is tightening its focus on suspicious activity in Australia’s Fixed Income, Currencies, and Commodities (FICC) markets. In just over a year, the regulator has imposed penalties on three major institutions for failing to recognise orders placed with the intention of creating a false or misleading appearance. These actions reinforce ASIC’s expectations around suspicious activity reporting and highlight the complex surveillance challenges posed by certain FICC markets. 

For firms trading in Australia, these cases should serve not only as a compliance signal but also as an invitation to reassess whether surveillance frameworks are truly fit for purpose in fast-evolving and often illiquid FICC environments. 

Why FICC Markets Demand Special Attention 

FICC markets present distinct structural and operational challenges. Unlike highly liquid equity markets, many FICC instruments, such as electricity futures or agricultural derivatives, trade thinly and settle using formulaic price mechanisms. These characteristics create opportunities for manipulative behaviour that can be both subtle and impactful. 

ASIC’s recent enforcement actions demonstrate a clear concern with: 

  • Trades that disproportionately influence settlement or reference prices 
  • Order placement strategies near the market close 
  • Economic rationales that don’t align with trading activity 
  • DMA clients operating in sensitive or benchmark-linked markets 

These are not abstract concerns. In recent cases, ASIC found that suspicious trades had a material impact on benchmark pricing, margin calculations, and, ultimately, market integrity. 

Three Cases, One Pattern: Vulnerable Markets, Missed Signals 

While gatekeeper responsibility remains a consistent theme across ASIC’s enforcement actions, it is the nature of the underlying FICC markets that has often enabled or obscured problematic trading behaviour. 

1. Major Australian Bank: The Challenges of Electricity Futures 

In 2024, ASIC’s Markets Disciplinary Panel (MDP) fined a major Australian bank AUD $4.995 million after its DMA clients placed suspicious orders in the Australian electricity futures market. These trades occurred moments before the daily settlement price (DSP) was calculated, a price derived from a two-minute volume-weighted average and final unexecuted order prices. 

Because electricity is non-storable and regionally constrained, its futures market is highly volatile and often illiquid. A misconfigured surveillance parameter meant the bank’s controls simply missed the activity. ASIC took issue with both the intent of the trades, as well as the failure to detect and escalate activity in a market uniquely susceptible to manipulation. 

2. Tier 1 US Investment Bank: Illiquidity and Influence in Wheat Futures 

In another case, a tier 1 US investment bank’s DMA client, a major agribusiness, accounted for nearly 100% of trading volume on certain days in the Australian wheat futures market. The client’s trades were concentrated at the close and appeared to be aimed at influencing the DSP to reduce margin requirements. 

Here too, the regulator’s concern centred on the structural features of the market: thin trading, physical delivery, and benchmark sensitivity. ASIC found that the bank’s surveillance processes failed to adapt to these dynamics, leaving potentially manipulative patterns unflagged. 

3. Tier 1 European Investment Bank: Gatekeeping Failures in Gas and Wheat Futures 

Most recently, ASIC’s MDP fined a European investment bank AUD $3.88 million after finding the bank failed its gatekeeping obligations in the Australian electricity and wheat futures market. According to the MDP, the bank did not have adequate systems and controls in place to detect or prevent suspicious orders placed by a DMA client, which were alleged to create a false or misleading appearance in the market. 

Similarly to the two cases above, the misconduct centred on trading near the market close in an illiquid commodity futures contract, where even small trades can disproportionately influence the settlement price. The penalty, one of the largest to date in this series of actions, highlights ASIC’s increasing willingness to sanction firms that fall short in monitoring client behaviour in FICC-linked products. 

This trend suggests ASIC’s focus is not only on who is responsible but also on where manipulation is most likely to occur. 

Surveillance Takeaways: Practical Lessons for Users of FICC Markets   

Whether you’re facilitating agency or proprietary trading in FICC markets, these cases underscore some key lessons: 

  • Know the Mechanics of Your Markets 
    Understand how reference prices are calculated, especially in energy, agri, and fixed income products. 
  • Prioritise Vulnerability 
    Illiquid instruments with rules-based pricing and physical delivery should be treated as high-risk for surveillance. 
  • Go Beyond Rules-Based Monitoring 
    Traditional systems often fail to detect subtle patterns in low-velocity markets. Statistical and intent-based models offer greater precision. Rules-based alerts, particularly when built on static parameters, can quickly become outdated. This was seen in the case against a major Australian bank noted above, where a hardcoded closing window meant potentially manipulative trades went undetected for months. Model-based metrics that automatically calibrate for changes in volatility, liquidity, and market structure provide a far more adaptive layer of defence. 
  • Act Fast — Even Without Certainty 
    ASIC is clear: you don’t need to confirm intent or breach before lodging a Suspicious Activity Report (SAR). Suspicion alone is enough. 
  • Watch Margin-Related Behaviour 
    Repeated efforts to move a closing price to reduce margin calls should raise immediate red flags, even when the trades appear small. 
  • Interrelatedness
    Surveillance systems are increasingly expected to provide a holistic view of trading across products and venues. By linking exposures in both OTC and listed contracts, firms can gain a more granular understanding of trader intent. Viewed in this way, activity that appears suspicious in isolation may look legitimate in a broader context, or vice versa. 

Aligning with ASIC’s Expectations on SARs 

In Information Sheet 265, ASIC outlines the behaviours it expects intermediaries to report in FICC markets. These include: 

  • Trades that create a false or misleading appearance 
  • Transactions lacking economic sense 
  • Unusual order timing or management 
  • Inappropriate sharing of confidential information 

Timeliness is crucial. ASIC emphasises that SARs should be submitted without delay. Firms are encouraged to report early, not after they investigate or confirm wrongdoing. 

Final Thoughts: From Reactive to Proactive 

As ASIC’s enforcement actions show, the burden of surveillance in FICC markets is increasing, and rightly so. These markets underpin key economic sectors, from agriculture and energy to sovereign debt and FX. Their integrity matters. 

Firms need to recognise that vulnerabilities in these markets, illiquidity, benchmark reliance, and complex settlement dynamics, require more than off-the-shelf legacy rules-based surveillance solutions. They demand sophisticated surveillance solutions with tailored controls, and fast, confident decision-making. 

Now is the time to move from compliance checklists to risk-led frameworks. Because in Australia’s FICC markets, surveillance excellence isn’t just regulatory, it’s foundational to fair, functioning markets.