A $109bn Chinese-state owned food processing company allegedly risked undermining the integrity of Australia’s wheat futures market after engaging in heavy trades at the close of market to protect its short positions.
In court papers served late on Wednesday, the Australian Securities & Investments Commission launched action against COFCO International Australia and COFO Resources for manipulation of futures market contracts.
The two companies are subsidiaries of Chinese-state owned heavyweight food processing operation the COFCO Group also known as China Oil and Foodstuffs Corporation.
The turnover group buys and processes food products, with operations around the world, including an office in Melbourne.
The group also owns China Mengniu Dairy, which attempted to buy Australian drinks giant Lion Dairy in a $600m deal in 2019.
ASIC alleges COFCO manipulated the price of wheat contracts at least 34 times between January 17, 2022 and March 2022.
The regulator claims COFCO’s traders did this by placing orders shortly before the end of day sessions in a bid to affect daily settlement prices in a move known as “marking the close”.
ASIC claims this pushed the price down and did not reflect the genuine supply and demand for futures contracts in Australian wheat.
The daily settlement prices for Eastern Australian Wheat Futures contracts are specified by ASX Clear (Futures), the futures contracts arm of the Australian Securities Exchange.
ASIC alleges COFCO senior trader Nicholas McGaw was key to the alleged market manipulation via its broker JP Morgan.
In court documents, ASIC alleges the Melbourne-based trader “regularly did so”, noting at all times during the period of trading targeted by the regulator COFCO “had an equivalent net short position in Offsetting Contracts”.
“None of those impugned transactions constituted engagement in a genuine process of supply and demand,” ASIC alleges.
Instead, the regulator claims Mr McGaw told JP Morgan he was engaging in the trades to protect COCO’s short position “from another party bidding up the close”.
ASIC court documents show these trades were worth at least $97,593.50.
ASIC claims this conduct constituted creating a false or misleading appearance of active trading and “undermined or had the potential to undermine the integrity of, and confidence in, both the ASX 24 market for WMF3 contracts, and Australian commodity derivatives markets more broadly”.
ASIC chair Joe Longo said the regulator was “committed to responding to market manipulation in energy and commodities markets”.
“This conduct is illegal; it erodes trust and confidence in our markets, increases costs for participants, hurts farmers, food manufacturers, importers and exporters, and impacts the prices Australians pay at the checkout,” he said.
“We allege these companies engaged in a repeated pattern of manipulation to benefit themselves to the detriment of other participants in the market.”
Mr Longo, who is marking a week of several regulatory interventions in financial markets, said commodities markets valued fairness.
“Consumers and economies have felt the impact of distorted supply chains through the pandemic, the Russia Ukraine war and through increases in the cost of living,” he said.
“We have the systems, people and powers to identify misconduct and will not hesitate to take action against those manipulating our markets.”
COFCO notes it is “committed to the highest international standards of corporate governance, and we see this as critical to our long-term success”.
COFCO has been contacted for comment.