Flash cash: how one cent added up PUBLISHED: AFR PATRICK DURKIN
‘I know they view retail investors as suckers but it just doesn’t seem right,’ says Benjamin Glasson.
When self-described “computer geek” Benjamin Glasson decided to cash in on his 2000 shares in caravan maker Fleetwood, he carefully checked the $3.02 share price to make sure he was getting a good deal.
Satisfied that his order could be filled at the high price, he asked his broker CommSec to make the trade. When CommSec came back to report the deal, he was surprised to learn that although 1200 of the shares were sold on the ASX for $3.02, the other 800 shares were on-sold on alternative stock exchange Chi-X for $3.01.
More persistent than your typical punter, Glasson pored over the exchange transaction records and was shocked to uncover some suspicious behaviour. It seemed that another fast moving trader had sold 800 Fleetwood shares to the ASX in the same second as Mr Glasson but before his order could be fully filled. The sale of the retail investor’s remaining 800 shares were diverted to Chi-X where they were bought for $3.01. Most likely, a high frequency trader intercepted Mr Glasson’s order to the ASX, sold 800 Fleetwood shares to the ASX ahead of him, before buying them back on Chi-X for 1¢ cheaper, making an $8 profit.
“I contacted CommSec and they just said it is the ‘best execution rule’,” Mr Glasson said. “I thought about complaining but it just became too hard. I thought it is only $8 so I will just write-it off and not worry about it, no one is going to take any notice,” the Master of Biostatistics student said. “I know they view retail investors as suckers but it just doesn’t seem right,” he said.
One Australian fund manager, with more than 20 years’ trading experience, told TheAustralian Financial Review, that he noticed strange price moves as he attempted to sell a small parcel of shares through the Nabtrade platform.
The share orders are part of what insiders have labelled “dumb flow” because it is so easily detected by other sophisticated traders in the market.
When asked about US author Michael Lewis’s new book about high frequency traders, head of dark pool operator Liquidnet Australia said: “Is the market perfect in Australia? No. Is it rigged? That’s a big call,” he told Financial Review Sunday.
“You’re still at the point where around 25 to 30 per cent of the volume on any given day in Australia is high frequency trades,” he said. “If we push that beyond the 50 per cent number you’ve moved from an investor’s market to a trader’s market and I think arguably that would be somewhat problematic.”
Head of the Capital Markets Cooperative Research Centre Mike Aitkin said there is only one way to resolve the problem. “You’ve got to get client identified orders, so we can attach orders to trades and know exactly who is trading and how fast they are trading.”
