(Bloomberg) — UK authorities fined Macquarie Bank Ltd.’s British unit £13 million ($16.3 million) after a junior trader on the firm’s London metals desk was able to book 426 fictitious trades to conceal his losses for almost two years.
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Macquarie itself lost $57.8 million after unwinding the positions, the Financial Conduct Authority said Tuesday. The trades, made by a freight and iron ore derivatives trader named Travis Klein, were recorded between June 2020 and February 2022, the FCA said.
The bank’s ineffective systems and controls allowed Klein to “mask” his losing positions by giving the appearance that those positions had been lowered, the FCA said, adding that it had banned the trader from the financial services industry.
Macquarie’s failings “meant that one of its employees could, at least for a time, hide trading losses which cost the firm millions to unwind,” Steve Smart, the FCA’s joint executive director of enforcement and market oversight, said in a statement.
The FCA said it would also have fined Klein, but the trader was suffering financial hardship. He resigned the day the bank confronted him about the false trading.
Australia’s Macquarie is the largest bank in commodities markets, rising to pole position in the past decade after US banks pulled back from the sector amid regulatory pressure. In metals, it is one of a handful of leading banks, as a major financier of the Australian mining industry and as a clearing member of the London Metal Exchange.
The metals and bulks trading desk in London generated some £65.3 million in revenue during the relevant 20-month period, according to the FCA.
The false trading had no external impact and only existed as entries on Macquarie’s internal systems, the regulator said. Macquarie agreed to resolve the matter and qualified for a 30% discount on the fine.
“The unauthorized trading was isolated to one individual. The unauthorized trading did not affect clients, or the market, and no financial benefit or gain was derived by Macquarie or any other party directly from the activity,” the bank said in a statement. The incident was not financially material to the group, it added.
Klein joined Macquarie in Australia in 2017 as a graduate, before moving to London in 2018, the FCA said. He primarily traded derivatives as both an agent for customers and on behalf of Macquarie itself.
The fictitious trading started in June 2020, after Klein was “benched” and told to de-risk his positions in freight, the FCA said. Instead, he started to book false trades to make it appear that the risk had been lowered.
One way he did this was by placing a false trade into the treasury system, leaving it open for several days then canceling. Klein also rolled forward the clearing date on his fictitious trades to avoid detection.
Macquarie’s risk management monitoring processes came in for particular criticism, with the FCA saying that the trading reconciliation process excluded trades with future-dated clearing dates.
In its final notice, the FCA pointed to an occasion, in the early stages of Klein’s fake trading, when Macquarie’s markets operations team had identified problematic activity. They spotted a number of positions sitting within the bank’s treasury system without a matching exchange entry — an issue that the commodity markets and finance teams discussed, but failed to follow up.
–With assistance from Jack Farchy.
(Updates with detail on false trades from tenth paragraph.)
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