The dramatic price spikes which occur just before the markets close at 4pm – the strongest proxy of market manipulation – are being used to boost bonuses for rogue fund managers, the researchers claim. The dramatic price movements occur in the last 15 minutes of trading each month, quarter and end of financial year and most likely relate to fund managers lifting their trading results which are measured on the key dates. “They are getting money in all the time but instead of buying it every day they save it and buy it at the last minute to drive more demand,” chief executive of the federal government-backed Capital Markets Co-operative Research Centre, Michael Aitken, told The Australian Financial Review. For example, on December 20 last year, $23 million was traded in the last 15 minutes for just three stocks, Village Roadshow, Ocean Gold and REA, most likely delivering a healthy Christmas bonus to the rogue fund managers. On Friday, $23 million in trading occurred for the same three stocks over the entire day. ASIC commissioner for markets Cathie Armour said that ASIC’s new $44 million market surveillance system would more quickly hone in on market manipulation as well as deal with the renewed concern over high-frequency trading. “There have been examples of bad behaviour on future rolls in the past and we have absolutely taken action,” she said. The regulator has also pointed out that while it is one thing to find trades that look suspicious, it is very difficult to prove an illegal intention. ‘Not a good look’ Irrespective of whether the spikes are market manipulation or unusual volatility, it is “not a good look”, Mr Aitkin warned. “Volatility in the end of day price is quite a problem in this marketplace,” he said. “The price is dramatically bouncing around at the end of the day.” The sharemarket index at the end of each financial period is typically used as a benchmark price for the valuation of companies, executive compensation, superannuation policies and capital returns to investors. “It is way more variable than you would expect it to be based on other markets,” Mr Aitkin said. The average ratio of market dislocation to trading turnover on the ASX is 3.7 basis points, which dwarfs other markets including Hong Kong (0.06), London (0.04) and the Indian stock exchange (0.41). The research centre, recently awarded $32.5 million by the federal government, is also being engaged by major healthcare providers to identify abnormal claims and rorting of the health system. The revelations put renewed pressure on the corporate regulator, which is already facing criticism over its failure to rein in Commonwealth Bank’s rogue traders, uncover corruption allegations against Leighton Holdings, seek a jail sentence against former Gunns chairman and convicted insider trader John Gay or pursue a case against the David Jones board for suspicious director trades. Investors are also still seething over voluntary fines agreed by the Australian Securities and Investments Commission with UBS and National Australia Bank – announced on Christmas Eve. The fines came after NAB was revealed as the mystery client behind a shock spike in major blue-chip stocks on October 18 last year. Retail investors and brokers have also contacted the Financial Review concerned that ASIC is now backing down from earlier comments that it would clamp down on high-frequency trading if the controversial practice grew unrestrained.
Source: Australian Financial Review
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