Watchdog team has eye on '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 this year.
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 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 also saw the introduction of a competitor to the Australian Securities Exchange 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 said.
ASIC monitors markets in real time, but also reviews trading 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 provided better surveillance and window dressing has declined in recent years.
But fund 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 outperform the rest of the market or meet promised targets.
And while it may cost fund managers thousands of dollars to buy overpriced shares, outperforming the rest of the market can lead to higher fund management fees that are worth millions, one industry insider said.