I just sent this to the Australian and also to Lateline regarding BOTs in a specific example on MEO.
Dear Sir/Madam,
I am writing to you to see if you were aware of significant level of share price manipulation happening every day on the ASX by big traders using Automatic BOT trading software. Just about every in the know trader has knowledge this is occurring but mum and dad traders have no influence or control over how to stop or protect themselves from it.
The Problem: The following is just one stock and one example. But you can find this type of manipulation on numerous stock on any given day.
If you look at stock ASX:MEO for the 1/04/2010 the BOT trader today is trying to accumulate MEO at 33.5c. The tactic it uses is to push through continual small parcel sales of about 1000 to 2000 shares as sells at 33.5c every couple of minutes. This creates uncertainty among mum & dad traders so they sell much larger parcels of MEO at 33.5c.
Guess who is waiting on the 33.5c buy side with big orders. The BOT trader of course. If you look at all the BOT small parcel sells today they only add up to be in the tens of thousands of shares, whilst the amount of shares being bought at 33.5c by the same BOT trader is far more than that in the many hundred of thousands or possibly even millions. The manipulation is the BOT trader sacrifices small parcels of sells (most likely to itself anyway), to at the end of the day pick up bigger parcels of 33.5c shares as people panic and get out.
If the BOT trader can push the price down to the next bracket (between 33.5 and 33c) it will continue to follow the above tactic accumulating more shares. Same tactic just at a new lower range.
Once the trader has manipulated enough investors to sell and accumulated enough shares, or if it has hit resistance where not many people are selling anymore, it will then try to manipulate the stock the other way. After all there is no point sitting there buying its own small parcel sells for too long. Having accumulated lots of stock at low SP prices it will push prices up with the BOT program where it has already stacked the sell side with big sells (starting just above its lowest buy and ranging up the sell price range).
As it starts to work the price the other way and buyers start to jump in following its lead it gets to sell all of its accumulated stock for profit on the way up at different ranges, starting at small profits but getting bigger as the SP increases. Once the rise in share price starts to falter the Trader with its BOT can start the process all over again.
It can continue to do this up and down all day every day. The more fear or volatility in a stock the happier the BOT trader is as people will follow its lead.
How to prove this:
There is a easy way to prove or disprove this manipulation of share price. You would need to have access to who is buying and selling shares and would have to do the following:
1. Confirm which trader is selling the small parcels of stock using the BOT program. (in the case provided small parcels of shares at 33.5c) 2. Confirm whether or not the same trader is the one actually buying larger parcels of shares at the same price of 33.5c (these are the larger parcels being sold by uneducated investors out of fear, due to manipulation by the trader running the BOT program) These shares are being accumulated by the BOT trader at a much faster rate that the relatively small quantity of sells it is placing. These larger quantity of shares are then in my opinion being placed back on the market almost in real time at a higher sell price (this also could be confirmed).
Hopefully this may be of interest to you as Mum and Dad investors ultimately pay the price here and get manipulated in or out of a stock at the wrong time.
Reason why it should be banned: I also include the following references: "Corporations Act 2001" Section 1041A
Chapter 7 Financial services and markets
Part 7.10 Market misconduct and other prohibited conduct relating to financial products and financial services
Division 2 The prohibited conduct (other than insider trading prohibitions)
Section 1041A
484 Corporations Act 2001
Division 2The prohibited conduct (other than insider trading prohibitions) 1041A Market manipulation A person must not take part in, or carry out (whether directly or indirectly and whether in this jurisdiction or elsewhere): (a) a transaction that has or is likely to have; or (b) 2 or more transactions that have or are likely to have; the effect of: (c) creating an artificial price for trading in financial products on a financial market operated in this jurisdiction; or (d) maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market operated in this jurisdiction.
