Blue-chip spike sparks high-frequency trading probe

CALLS for tighter restrictions on computerised share trading have intensified, as the corporate watchdog investigates whether foul play was involved in this week's dramatic spike in several blue-chip stocks.

By InvestSMART · 20 Oct 2012

By InvestSMART ·
20 Oct 2012

Comments

Brokers believe a computer program played a key role in Wednesday's sudden surge in the share prices of more than eight companies including ANZ Bank, Commonwealth Bank, AGL, Bank of Queensland, Ansell and Aristocrat.

The increase, which also forced up options on the ASX 200 index, occurred because several buy orders were withdrawn just six seconds before share trades were about to take place.

The Australian Securities and Investments Commission has launched an investigation into whether market manipulation was behind the spike, amid fears some traders profited from the surge.

Meanwhile, the peak body representing shareholders said yesterday the incident underlined the need for restrictions on high-frequency trading. The chief executive of the Australian Shareholders' Association, Vas Kolesnikoff, said regardless of whether the increase was the result of a technology glitch or something more sinister such as market manipulation, it highlighted the threat that technology posed to market integrity.

Mr Kolesnikoff said some retail investors were already selling down their share portfolios due to fears that high-speed traders had an unfair advantage and called on the Financial Services Minister, Bill Shorten, to intervene.

"He's got to start considering why the market exists, because all this is chipping into everybody's superannuation savings," he said.

A spokesman for Mr Shorten said Treasury and the Australian Prudential Regulation Authority were investigating high-speed trading, and they were expected to report on their findings by the end of the year.

The deputy chair of ASIC, Belinda Gibson, said on Thursday night she did not think a high-speed trading algorithm drove the event.

However, brokers and other market participants think a computer program must have been used to make the changes to the sell orders in a matter of seconds.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What happened in the recent blue-chip share price spike on the ASX?

The article reports a dramatic, sudden spike in the share prices of more than eight blue‑chip companies. Brokers say several buy orders were withdrawn seconds before trades, and the surge also pushed up options tied to the ASX 200 index.

Which companies were reported to be affected by the sudden share price surge?

The article names several affected blue‑chip companies, including ANZ Bank, Commonwealth Bank, AGL, Bank of Queensland, Ansell and Aristocrat, among others.

Could high‑frequency trading or an algorithm have caused the spike?

Brokers and market participants believe a computer program played a key role because sell or buy orders were changed in a matter of seconds. However, ASIC’s deputy chair Belinda Gibson said she did not think a high‑speed trading algorithm drove the event, and regulators are investigating to determine the cause.

Is ASIC investigating the possibility of market manipulation?

Yes. The Australian Securities and Investments Commission (ASIC) has launched an investigation to determine whether market manipulation or foul play was behind the spike, amid concerns some traders may have profited from the surge.

How exactly did the order changes occur before the spike?

According to the article, several buy orders were withdrawn just six seconds before share trades were about to take place, a timing detail that prompted suspicion about automated trading activity.

Have other regulators or government bodies responded to the high‑speed trading concerns?

Yes. A spokesman for the Financial Services Minister said Treasury and the Australian Prudential Regulation Authority (APRA) were investigating high‑speed trading, and they were expected to report their findings by the end of the year. The Australian Shareholders' Association has also called for action.

What did the Australian Shareholders' Association say about the incident?

The ASA’s CEO, Vas Kolesnikoff, said whether the spike was a technology glitch or market manipulation, it highlighted the threat technology poses to market integrity. He warned some retail investors were already selling down portfolios and called on the Financial Services Minister to intervene.

Did the article mention any market or investor impacts from the spike?

Yes. The article notes the spike forced up options on the ASX 200 index and that some retail investors were selling shares out of concern that high‑speed traders might have an unfair advantage, potentially affecting superannuation savings.