Mining boss raises alarm on high-frequency trading
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.
Frequently Asked Questions about this Article…
High-frequency trading (HFT) is an automated strategy that can execute thousands of trades a second. The article notes HFT often produces very large numbers of trades made up of very small parcels of shares, such as lots of trades of five or six shares, and many trades under 100 shares.
Terry Burgess said OZ Minerals has seen unusually large volumes made up of tiny trades and extraordinary share-price volatility in recent weeks. He believes some price moves lack clear drivers and worries HFT may be contributing to those unexplained swings.
The article reports instances where OZ shares moved significantly without an obvious reason, including a December fall of more than 9% on a day with no clear motive. While a recent 46¢ fall to $6.85 was linked to gloomier production and cost guidance, Burgess said there have been numerous unexplained volatile days that he suspects HFT may be involved in.
Burgess argued HFT can be unhelpful for mining companies because mining projects are long-term and benefit from stable, long-term shareholders. He said extreme short-term volatility caused by day traders or very-high-frequency strategies doesn't fit well with a mining company's long-term planning horizon.
According to the article, the Industry Super Network has complained HFT is causing a 'breakdown of orderly markets.' A survey of more than 1,750 market participants found almost 97% believed HFT was having a negative effect on the ASX, and over 90% said it was damaging the ASX's ability to run a fair and transparent market.
Yes. The article says ASIC, backed by the federal government, is establishing a new set of rules for high-frequency traders that will include new volatility controls aimed at addressing the issues raised by HFT.
The article notes OZ met full-year copper and gold guidance but forecasts copper production at Prominent Hill will fall about 10% next year to a minimum of 90,000 tonnes. It also flagged production costs could rise up to about 40% to a range of US$1.50–US$1.65 per pound, while cautioning that future years may not be as tough as 2013 when the company shifted an unusually large load of waste rock.
The article highlights that some OZ share moves had clear operational explanations (like production and cost guidance) while others lacked obvious drivers and may reflect HFT activity. For everyday investors, that means separating fundamental company news—production forecasts, cost guidance, and long-term project outlook—from potential short-term noise caused by high-frequency trading.
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