Australia accuses units of China's COFCO of wheat futures manipulation
Adds dateline, wheat futures code, COFCO International no comment in paragraph 7, background in paragraph 14-15
By Byron Kaye
SYDNEY, July 25 (Reuters) -Australia's corporate watchdog has accused two local subsidiaries of Chinese food giant COFCO Corp of manipulating the price of domestic wheat futures contracts.
In a court filing late on Wednesday, the Australian Securities and Investments Commission (ASIC) said an employee of COFCO International Australia placed an order to sell Eastern Australia Wheat Futures contracts below market value just before the close of trading on the Australian Securities Exchange (ASX) 34 times in 2022 in an attempt to influence the settlement price of the contract. 0#YWM:
Another local COFCO unit, COFCO Resources, stood to benefit because it held a short position in the same futures contracts, the federal civil court filing said. A short futures position means an investor has sold a futures contract and will profit by buying back futures at a lower price in a bet the market for the commodity will decline.
Most of ASIC's regulatory actions in recent years have targeted domestic Australian companies. This is the first time that it has brought an action against units of China's COFCO Corp, which is owned by the Chinese government and is one of China's largest food and grain traders.
"The defendants' conduct ... undermined or had the potential to undermine the integrity of, and confidence in, both the ASX 24 market for (Eastern Australia wheat) contracts, and Australian commodity derivatives markets more broadly," ASIC said in the court filing.
COFCO's actions could have also detrimentally impacted other participants in the wheat futures market by making them liable for margin payments on their contracts that were larger than they should have been, the filing said.
A COFCO International spokesperson in Geneva said in an emailed response that the company does not comment on ongoing court procedures.
COFCO's Australian office and lawyer did not immediately reply to requests for comment.
Nicholas McGaw, the COFCO wheat trader named as placing the sell orders at the centre of the lawsuit, did not reply to emails or LinkedIn messages seeking comment.
In its court filing, ASIC said McGaw explained his practice of selling futures below the highest possible price in an email to his trading account broker JP Morgan Securities.
"(COFCO International) was protecting its short position from another party bidding up the close," the email said, according to the ASIC filing.
JPMorgan declined to comment when contacted by Reuters.
ASIC said it was seeking unspecified fines and declarations of wrongdoing.
COFCO International, the overseas trading arm of COFCO group, is one of the world's largest agricultural commodity merchants, selling nearly 122 million metric tons of goods last year for $50.1 billion in revenue.
COFCO Resources is part of COFCO International.
Reporting Byron Kaye in Sydney and Echha Jain in Bengaluru; additional reporting by Gus Trompiz in Paris; Editing by Sherry Jacob-Phillips, Michael Perry and Christian Schmollinger
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