ASIC on trail of mystery trades

HIGH-frequency traders had nothing to do with a price spike on the Australian Securities Exchange in October, the corporate regulator says, but market manipulation has not been ruled out.

The Australian Securities and Investments Commission released an update on Tuesday of its inquiry into a series of unusual transactions on the ASX on October 18. The share prices of more than eight blue-chip stocks - including ANZ, Commonwealth Bank, Brambles, AGL, Bank of Queensland, Ansell and Aristocrat - surged seconds after trading began at 10am.

The series of unusual transactions raised the spectre of market manipulation and called into question the integrity of trading on the ASX, after a trade worth $200 million was revised down to just $56 million seconds before the market opened.

"ASIC has ruled out a dysfunctional algorithm or high-frequency trading strategies as the cause of the spike," its market update said.

"ASIC has spoken with the market participant and the ASX, to obtain information regarding the cause of the trading spike. Interviews were conducted the day following the incident with the parties involved in the transactions, including the client."

The regulator found that the questionable orders were placed through the same broker - believed to be UBS on behalf of an overseas client - but neither is named by ASIC.

A spokeswoman for UBS said on Tuesday the company would "not be making any comment at this stage".

ASIC said its inquiry had found that large volume orders to sell securities in the opening auction on the ASX were placed through a single broker.

But immediately before the beginning of the daily opening auction, there was a reduction in the volumes of those sell orders for securities trading in the A-B rotation of the auction (in companies with names beginning with letters A and B).

"This late reduction in volumes caused several securities to trade in the auction at significantly higher prices relative to the previous day's close," the update said.

The larger order inflated the ASX opening price and the value of exchange-traded funds based on the ASX 200 index, listed as XJO.

The ASX 200 Futures Index reached 4606 on October 18, rising above 4600 for the first time since the global financial crisis.

The $144 million change caught the market napping, and some share prices fluctuated wildly.

The mystery trades in ANZ pushed the share price up by $1.67, or 6.5 per cent, when trading began at 10am. The stock soared to $27.63 on the opening bell, before falling to $25.79 when the market closed.

ASIC said it would continue to investigate the matter.