HIGH-FREQUENCY traders had nothing to do with a trading price spike on the Australian Securities Exchange in October, according to the corporate regulator, 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.
Shares in more than eight blue-chip stocks - including ANZ, Commonwealth Bank, Brambles, AGL, Bank of Queensland, Ansell and Aristocrat - saw huge spikes in their share prices in the seconds after trading began at 10am.
The series of transactions raised the spectre of market manipulation - and called the integrity of trading on the ASX into question - after a trade worth $200 million was revised down to just $56 million in the seconds before the market opened.
ASIC did not rule out market manipulation, saying only that high-speed traders were not involved.
"ASIC has ruled out a dysfunctional algorithm or high-frequency trading strategies as the cause of the spike," its 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 after the incident with the parties involved in the transactions, including the client."
It found that all 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 yesterday 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, pushing it above the 4600 level for the first time since the global financial crisis.
The $144 million change caught the market napping, and large fluctuations hit some share prices.
The mystery trades in ANZ pushed the share price up $1.67, or 6.5 per cent, when trading began at 10am. The stock soared to $27.63 per share on the opening bell, before falling to $25.79 when the market closed. Inquiries are continuing.
Frequently Asked Questions about this Article…
What was the ASX trading spike on October 18 and which stocks were affected?
On October 18 a series of unusual transactions at the ASX caused large, instantaneous price spikes in more than eight blue‑chip stocks. Companies affected included ANZ, Commonwealth Bank, Brambles, AGL, Bank of Queensland, Ansell and Aristocrat, with some shares jumping in the seconds after the 10:00am opening auction.
Did high‑frequency traders or a faulty algorithm cause the ASX price spike?
No. The corporate regulator, ASIC, ruled out high‑frequency trading strategies and a dysfunctional algorithm as the cause of the trading spike. ASIC said it had spoken with the market participant and the ASX and conducted interviews the day after the incident.
Has ASIC ruled out market manipulation in the ASX opening‑auction spike?
Not yet. ASIC has ruled out HFT and algorithm malfunction, but it has not ruled out the possibility of market manipulation. Its inquiry is ongoing as it continues to examine the unusual transactions.
Which broker placed the large orders that influenced the ASX opening prices?
ASIC found that all questionable orders were placed through the same broker, which the regulator believes was UBS acting for an overseas client. ASIC did not officially name the broker and UBS said it would not comment at this stage.
How did the late reduction in sell orders affect ASX opening prices and ETFs like XJO?
ASIC found that a late reduction in the volumes of large sell orders just before the opening auction caused several securities to trade at significantly higher prices relative to the previous close. That larger order profile inflated the ASX opening prices and increased the reported value of ASX‑200 based ETFs such as XJO.
What was the $200 million trade revision reported around the ASX spike?
Reports showed a trade initially recorded at about $200 million was revised down to roughly $56 million in the seconds before the market opened. ASIC said that a $144 million change caught the market off guard and contributed to large price fluctuations that day.
How did the ASX200 futures respond on October 18 during the trading spike?
On October 18 the ASX200 futures index reached 4,606, pushing it above the 4,600 level for the first time since the global financial crisis, reflecting the impact of the unusual opening‑auction activity on broader market indicators.
What follow‑up steps has ASIC taken after the ASX opening‑auction incident?
ASIC released an update on its inquiry, interviewed the parties involved (including the client) the day after the incident, and continues to investigate the series of unusual transactions. Inquiries into the matter are ongoing.
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