VWAP, page-9

At the same time I raised this issue on this forum, I shot off a query to the ASX. Their reply is below.

Thank you for your email dated 13 March 2015 requesting more information about the pattern of small volume trading in Donaco International Limited (DNA) on 12 March 2015. ASX very much appreciates people who take the time and trouble to bring to its attention potential cases where a participant in an ASX market or clearing and settlement facility may not be complying with its responsibilities as a participant. It is an important source of intelligence that helps us to perform our role of monitoring and enforcing compliance with our Operating Rules.
We note that often the course of sales for a stock will show a large number of small volume trades. The following are some of the more common reasons underlying small volume trades:

1. A common order execution strategy is to execute the order at the Volume Weighted Average Price (“VWAP”). The aim of the strategy is to achieve a steady price over the day, weighted by the volume (number of shares) traded. A VWAP order would typically be achieved by splitting the total order into multiples of smaller orders, with these smaller orders being executed throughout the course of the day.
2. A broker may complete a large volume order by breaking it into a number of smaller orders that do not reveal the order’s full size. By doing this the broker does not alert the market to the full size of the order, and thereby avoids possible disadvantageous price movements allowing it to complete the order at the best price for the client.
3. A broker could be attempting to hedge price movements in other shares or instruments, they could be completing orders that were partially filled earlier in the trading session, or a broker could be attempting to trade on minor price discrepancies where a stock is trading on multiple markets – a strategy often referred to as arbitrage.

There are many possible reasons behind these types of transactions and small volume trades should not be assumed to be indicative of market misconduct. However, I would like to emphasise that where market manipulation has occurred, ASX is not able to take any action in relation to these types of matters. Market manipulation is regulated by the Corporations Act rather than by ASX’s Operating Rules. The Corporations Act is administered by the Australian Securities and Investments Commission (“ASIC”) and, if you wish to pursue these types of matters further, you will need to do so with ASIC rather than ASX. ASX has no power to investigate or take action in relation to breaches of the Corporations Act.