Mining boss raises alarm on high-frequency trading
FEARS that high-frequency trading might be undermining the integrity of the Australian stockmarket have resurfaced, with OZ Minerals boss Terry Burgess revealing concerns that his company's share price may be falling victim to the practice.
High-frequency trading allows participants to execute thousands of trades a second, and the strategy has roused concerns among market regulators and governments worldwide.
The trend has forced the Australian government and corporate regulator the Australian Securities and Investments Commission to consider new trading rules, and Mr Burgess added his name to the list of concerned parties on Thursday.
"I have to say the share price has been extraordinarily volatile over the last few weeks and we are uncertain about some of the things that are going on," he said.
"We are seeing those big volumes of shares traded but for relatively small values . . . there was a day where 60 per cent of our trading had less than 100 shares traded."
Mr Burgess said trades of five and six shares at a time were becoming common, meaning that the number of trades in a day was becoming unfathomably large.
"I don't think it's just with OZ Minerals, I think there is a number of companies that are seeing this and I guess it is high-frequency trading," he said.
OZ Minerals shares fell 46¢ to $6.85 yesterday on the back of gloomier production and cost guidance at its flagship copper and gold mine for the year ahead. While that shift had a clear explanation, Mr Burgess said there had been numerous days recently when the stock moved significantly without any clear driver. In December OZ shares fell more than 9 per cent in a day without any clear motive.
Mr Burgess said he did not know if high-frequency trading was good or bad for the market, but he believed it was not good for mining companies, which typically deal with long-term projects and prefer stable long-term investors.
"I don't think we want to see a share price as volatile as it is," he said. "We are thinking long term . . . the ethos of a mining company in theory is something where people think in the long-term frame, I'm not sure if the day traders and very-high-frequency trading is something that really fits in with what a mining company is trying to do."
Mr Burgess' comments follow complaints from the Industry Super Network last year that high-frequency trading was causing "a breakdown of orderly markets", while a survey of more than 1750 market participants in September found almost 97 per cent of respondents believed high-frequency trading was having a negative effect on the ASX.
More than 90 per cent of respondents to the same survey said high-frequency trading was damaging the ASX's ability to conduct a fair and transparent market.
ASIC, with the backing of the federal government, is establishing a new set of rules for high-frequency traders, which will include new volatility controls.
OZ met its full-year guidance for copper and gold production yesterday, but forecast that copper production from Prominent Hill will fall about 10 per cent next year to a minimum of 90,000 tonnes.
The cost of production is tipped to increase up to 40 per cent to a range between $US1.50 and $US1.65 a pound.
OZ stressed that future years may not be as tough as 2013, during which the company will shift an abnormally large load of waste rock.