Thursday August 16, 04:48 PM Futures trading halt led to fall: broker A decision by the Australian Securities Exchange (ASX) to halt trading on the futures exchange led to a more than five per cent fall in the stock market on Thursday afternoon, brokers say.
The ASX halted futures trading at about 1245 AEST to address an urgent "hardware rectification".
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The halt lasted until just around 1400 AEST.
In the meantime it left traders with no where to hedge risk, so they took to selling physical stocks instead.
CMC Markets senior dealer James Foulsham said the trading halt on futures contracts contributed to the sharp fall.
"A big problem was that the SFE (futures exchange) went down," Mr Foulsham said.
"A lot of brokers use the futures to hedge against their equity exposure.
"So, because the SFE went down, no-one could hedge their positions.
"So everyone who wanted to bring their exposure down had to start selling stock."
Mr Foulsham said when the futures market came back on line, the share market recovered some of its lost ground.
"The market sort of recovered to where it was before that," he said.
"It's just that there was a big squeeze on the market when it was announced that the SFE was going down."
The market was calmer and more orderly in late afternoon trading but investors were still "pretty jumpy".
"They don't want to be left holding the baby," he said.
Mr Foulsham said he expected the market to remain volatile for the next few weeks.
"We're just getting bad leads out of the US and there's still not enough information on the sub-prime problem out in the market for people to make firm judgment on what the market's going to do going forward.
"There's nothing that traders hate more than uncertainty."
The stock market suffered its biggest one-day fall in more than seven years earlier in the afternoon,
Around 1340 AEST, the benchmark S&P/ASX200 fell lost 5.21 per cent or 301.4 points to 5486.6.
The All Ordinaries index fell 5.29 per cent to 306.7 points to 5494.8.
It was the biggest one-day fall in the market since April 2000.
By 1449 AEST it had turnaround much of that loss.
The benchmark S&P/ASX200 was down 2.42 per cent or 140 points to 5648 and the all ords was down 2.69 per cent or 155.9 points to 5645.6.
A spokesperson for the ASX later said trading was halted "for the installation of new hardware".
"The installation of new hardware was completely unrelated to trading volumes," the spokesperson said.
"It was not a result of increased trading activity."
The spokesperson refused to elaborate on the reason behind the installation of the hardware but said it was unscheduled.
"It was just something that was required at the time, and we implemented it."
ASX said futures exchange trading was halted from 1245 AEST until 1400 AEST.
However, the halt in futures contract trading for just over an hour may also have helped the Australian stock market recover, broker Commsec said.
Commsec senior analyst Craig James said the halt would have initially caused shares to fall, as traders wanting to hedge against the downturn had to sell on the stock exchange instead.
But Mr James said the size of the fall in the market could also have brought buyers back in.
"Perhaps it was instrumental in effectively ringing a bell for Australian investors saying enough is enough, it's gone too far," he said.
"And we did see a sharp reversal in afternoon trade so rather than being down over 300 points the market looks like it's going to close down in the order of 110 points."
Mr James also said heavy trading volumes could have caused the technical problem at the futures exchange.
"Clearly there's a lot of volume going through and that can put stresses on systems," he said.
"That certainly could be the case.
"We can only conjecture whether there was more to it than that."
The ASX said the hardware rectification was unrelated to trading volumes.
Mr James said the underlying strength of the economy meant Australian investors were exposed to one of the best share buying opportunities in a decade.
"Any investor who isn't buying either in the next few days or in the next few weeks in a year's time will probably be kicking themselves of missing a once in a lifetime opportunity."
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