Ann: Ceasing to be a substantial holder, page-5

Here's an analysis of why UBS Securities Australia Ltd conducted such frequent trading with relatively low profit margins:

Market Making Activities

UBS is likely acting as a market maker, providing liquidity to the market. In this role:

• They profit from the bid-ask spread, typically earning just a few basis points per share
• High frequency and volume are necessary since profits per transaction are minimal
• The 0.03% profit margin on matched trades aligns with typical market maker returns
• Market makers focus on handling large volumes rather than maximizing profit per trade

Risk Management and Position Adjustment

These transactions may be part of broader risk management activities:

• Frequent position adjustments to maintain risk exposure within specific parameters
• Some trades could be hedging other portfolio risks or positions
• The presence of a "Rehypothecated position" indicates potential securities lending or financing activities
• Daily inventory management to avoid holding substantial overnight positions

Algorithmic Trading and Arbitrage

UBS may be executing statistical arbitrage or other algorithmic strategies:

• Exploiting minor pricing inefficiencies in the market
• Scaling small advantages into meaningful aggregate returns through volume
• These strategies rely on speed and scale rather than high margins
• Often involve pairs trading or multi-asset correlations

Client Services and Agency Trading

Some transactions might be executed on behalf of clients:

• Acting as a broker-dealer to fulfill institutional client demands
• Earning commissions rather than spreads on these transactions
• May include breaking down block trades for clients
• Principal trading to accommodate client needs

Regulatory and Capital Optimization

Frequent trading can serve capital optimization or regulatory purposes:

• Optimizing capital utilization through intraday trading
• Managing specific regulatory metrics such as leverage ratios or risk-weighted assets
• Complying with internal risk control requirements
• End-of-day position adjustments to meet reporting requirements

In conclusion, this high-frequency, low-margin trading pattern is common among institutional investors, particularly large investment banks in modern financial markets. While the paired trading profit margin is extremely low (0.03%), UBS achieves overall profitability through massive transaction volumes. These trades likely serve multiple objectives beyond direct profit-seeking, including liquidity provision, client service, and sophisticated risk management.