Computer clamp urged over trade spike

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

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

The spike which also forced up options on the S&P/ASX 200 Index occurred because several buy orders were withdrawn six seconds before trades were about to happen.

The Australian Securities and Investments Commission has launched an investigation into whether market manipulation was behind the spike.

Meanwhile, the Australian Shareholders Association said the incident underlined the need for restrictions on high-frequency trading. Chief executive Vas Kolesnikoff said regardless of whether the spike was a technology problem or something more sinister, it highlighted the threat technology posed to market integrity.

He said some retail investors were already reducing their portfolios due to fears that high-speed traders had an unfair advantage, and called on 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."

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

ASIC deputy chairman Belinda Gibson said late on Thursday she did not think a high-speed trading algorithm drove the event.

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Frequently Asked Questions about this Article…

What caused the sudden spike in share prices for several ASX blue‑chip stocks?

Brokers told the media a computer program likely played a key role in the sudden surge. The spike happened after several buy orders were withdrawn about six seconds before trades were due to occur, and the corporate watchdog (ASIC) has launched an investigation to see if market manipulation was involved.

Which companies and market instruments were affected by the share price surge?

The article says more than eight companies were affected, including ANZ, Commonwealth Bank, AGL, Bank of Queensland, Ansell and Aristocrat. The spike also forced up options on the S&P/ASX 200 Index.

Is ASIC investigating the trading spike and what has it said so far?

Yes. The Australian Securities and Investments Commission (ASIC) has launched an investigation into whether market manipulation was behind the spike. ASIC deputy chairman Belinda Gibson later said she did not think a high‑speed trading algorithm drove the event.

Are other regulators or government bodies looking into high‑frequency trading after the spike?

According to a spokesman for Financial Services Minister Bill Shorten, Treasury and the Australian Prudential Regulation Authority (APRA) were also investigating high‑speed trading and were expected to report their findings by the end of the year.

What do investor groups say about the need for tighter rules on computerised trading?

The Australian Shareholders Association (ASA) said the incident highlights the need for restrictions on high‑frequency trading. ASA chief executive Vas Kolesnikoff warned that whether the spike was a technology glitch or something more sinister, it showed the threat technology can pose to market integrity.

Could this kind of trading behaviour affect my superannuation or long‑term investments?

The ASA warned that some retail investors were already scaling back portfolios because they feared high‑speed traders had an unfair advantage, and said the issue is 'chipping into everybody’s superannuation savings.' The article reports these concerns but does not provide specific estimates of impact.

How did the withdrawal of buy orders contribute to the market distortion?

The article explains the spike occurred after several buy orders were withdrawn about six seconds before trades were due to happen. Rapid cancellations like that can distort the order book and briefly push prices higher, contributing to volatility in affected stocks and related derivatives.

What should everyday investors do to stay informed about this ASX share spike and ongoing investigations?

Keep an eye on official updates from ASIC, Treasury and APRA, and statements from investor groups like the Australian Shareholders Association. Watch announcements from the companies named (ANZ, Commonwealth Bank, AGL, Bank of Queensland, Ansell, Aristocrat) and any regulator reports expected by the end of the year, so you can assess any potential implications for your portfolio.