Market monitor warns against window dressing
It is concerned investment managers may artificially bump up the price of a particular stock on December 31 to improve the value of their portfolio on the last day of the reporting period.
The Australian Securities and Investments Commission (ASIC) said its market surveillance team would be monitoring and investigating any suspicious trades that increase the price of securities.
"ASIC reminds market participants to be alert to unusual trading associated with the year end, which can impact share price valuation and end of year performance figures," it warned.
"Window dressing is a form of market manipulation, and is generally conducted by parties who have an incentive to manipulate prices in or around reporting periods."
ASIC became responsible for market supervision in August 2010 after sweeping reforms to Australian financial markets that included the introduction of a competitor to the Australian Securities Exchange (ASX) for the first time.
The traders most likely to indulge in window dressing are investment managers, fund managers and managed discretionary account managers who report on the value of their portfolio periodically, it noted.
ASIC monitors markets in real time and reviews activity for unusual price movements. Its team cross-checks any price spikes or dives against announcements to the market, news and analyst reports.
Better technology has improved surveillance and window dressing has declined in recent years.
Managers and advisers may still be tempted, because if they can get the overall value of their fund higher on the last day of the period, they can point to it as proof they can out-perform the rest of the market or meet promised targets.
While it may cost managers thousands of dollars to buy over-priced shares, out-performing the rest of the market can lead to higher fund management fees that are worth millions, an industry insider said.
Frequently Asked Questions about this Article…
Window dressing is a form of market manipulation where traders—often fund or investment managers—buy shares to artificially boost a stock's price at the end of a reporting period (for example on December 31) so a portfolio looks stronger. Everyday investors should care because it can distort share price valuation and end-of-year performance figures, making funds appear to outperform when the gains may not be genuine.
ASIC warned it would be on the lookout in the last days of 2012 because investment managers might try to bump up prices on December 31 to improve portfolio values for reporting. The regulator highlighted that unusual year-end trading can impact share price valuation and performance figures.
According to the article, the traders most likely to indulge in window dressing are investment managers, fund managers and managed discretionary account managers—basically parties who report the value of their portfolios periodically and may have an incentive to manipulate prices around reporting dates.
ASIC monitors markets in real time and reviews activity for unusual price movements. Its market surveillance team cross-checks price spikes or dives against company announcements, news and analyst reports to identify suspicious trades that might indicate manipulation.
Yes. The article notes that better surveillance technology has improved monitoring and that window dressing has declined in recent years, although the temptation for some managers still exists around reporting dates.
Managers may buy overpriced shares at period end to lift a fund’s reported performance; although these purchases can cost thousands, the perceived outperformance can translate into higher fund-management fees worth millions. That makes misleading end-of-period prices financially attractive for some managers.
Be alert for sudden price spikes or dives close to reporting dates—especially without corresponding company announcements, news or analyst updates. ASIC specifically warns investors to watch for unusual trading associated with the year end, which can distort reported performance.
The article says ASIC’s market surveillance team will monitor and investigate any suspicious trades that increase the price of securities. ASIC became responsible for market supervision in August 2010 and uses real-time monitoring and activity reviews to follow up on unusual trading behaviour.
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