Market monitor warns against window dressing
THE market watchdog has warned it will be on the lookout for market manipulation and "window dressing" by fund managers in the last days of 2012.
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.