Market manipulation on ASX

Since we talked about market manipulation the other day, I asked chatGPT for some known examples. I don’t want to derail the PLS Good News & Bad News thread with this topic which is why I created a new one.

I am posting this as a PLS thread to inform you that what happened to other stocks in the recent years could potentially happen (right now?) to PLS as well. This is to counter arguments like „There is no such thing as manipulation because you cannot control prices in a stock like PLS!‘ (see RIO example) or „The ASIC never found any manipulative activity so everything is the result of perfect supply/demand dynamics!“

Take care.


Here is what chatGPT has to offer:

The Australian Securities and Investments Commission (ASIC) has indeed taken action against various forms of market manipulation in the past, including those involving short-selling, spreading FUD (Fear, Uncertainty, Doubt), and coordinated trading activities like wash trading and ring trading. Below are specific examples of cases where companies and their stocks were affected by such manipulation.

1. Short-Selling and Rumor Mongering – Quintis (2017)

•Company: Quintis Ltd (formerly TFS Corporation)

•Background: Quintis was a major player in the sandalwood plantation industry. In 2017, the company became a target of short-sellers, who were accused of triggering negative reports to push down the stock price.

•Type of Manipulation: Hedge funds, notably Glaucus Research, released a report accusing Quintis of running a “Ponzi scheme” and overhyping its financial prospects. This report created widespread doubt among investors.

•Outcome: The stock price plummeted after the report’s release. Even though the Glaucus report was later contested, the damage was done, and Quintis eventually went into administration (insolvency).

2. Wash Trading and Price Manipulation – Rio Tinto (2017)

•Company: Rio Tinto (a major Australian mining corporation)

•Background: In one of the rare public instances of wash trading, Rio Tinto was indirectly affected by manipulative high-frequency trading (HFT) activity.

•Type of Manipulation: Certain algorithmic traders were found to have engaged in wash trades (trading the same stock back and forth to create misleading market activity) to influence the stock price of Rio Tinto for short-term gains.

•Outcome: The ASIC implemented tighter regulations on algorithmic trading strategies, but Rio Tinto itself was not directly involved in the manipulation.

3. Market Manipulation and Short-Selling – Blue Sky Alternative Investments (2018)

•Company: Blue Sky Alternative Investments Ltd

•Background: Blue Sky, an investment firm specializing in alternative asset classes like private equity and real estate, was targeted by Glaucus Research in 2018.

•Type of Manipulation: Glaucus accused Blue Sky of severely inflating its assets under management (AUM). Following this negative report, short-sellers piled on, and the stock plummeted.

•Outcome: Blue Sky’s share price collapsed by more than 80% within days, eventually forcing the company into administration. Although ASIC monitored the case closely, it couldn’t definitively prove illegal short-selling activities.

4. Short-Selling and Negative Reports – Bellamy’s Australia (2016)

•Company: Bellamy’s Australia Ltd (a baby food producer)

•Background: In 2016, Bellamy’s was hit by a short-selling campaign after reports surfaced about alleged difficulties in expanding into the Chinese market.

•Type of Manipulation: Hedge funds and short-sellers capitalized on rumors of mismanagement and distribution problems, driving the stock price down by over 40%.

•Outcome: Although many of the negative reports were later found to be exaggerated, the company’s market value had already been severely damaged by the time corrections were made.

5. Spreading False Information and Short-Selling – GetSwift (2018)

•Company: GetSwift Ltd (a delivery management software company)

•Background: GetSwift, a tech company, was heavily shorted in 2018 following negative reports about its business dealings.

•Type of Manipulation: The company was accused of issuing misleading information about its customer contracts and revenue prospects, which led short-sellers to amplify the news, causing the stock price to tumble.

•Outcome: GetSwift’s shares plummeted, leading to the company being suspended from trading on the ASX. ASIC launched an investigation, and legal actions followed.

6. Market Manipulation – Commonwealth Bank and ANZ (2016)

•Companies: Commonwealth Bank of Australia (CBA) and ANZ Banking Group

•Background: ASIC investigated several major Australian banks, including CBA and ANZ, for manipulating the Bank Bill Swap Rate (BBSW), an important benchmark interest rate.

•Type of Manipulation: The banks were accused of coordinating trading activities to manipulate the BBSW for their own financial gain. This also indirectly impacted stock prices, as it cast doubts over the integrity of the banks’ practices.

•Outcome: The banks were fined heavily, and ASIC introduced stricter guidelines to monitor such trading activities.

7. Naked Short-Selling Scandal – ASIC’s Broader Enforcement (2020)

•Background: In 2020, ASIC began cracking down on naked short-selling, where traders sell shares without having actually borrowed them, which is illegal in Australia.

•Type of Manipulation: Several major international and domestic trading firms were accused of engaging in naked short-selling activities, which artificially depressed the stock prices of various companies, particularly small-cap stocks with low liquidity.

•Outcome: ASIC fined multiple firms and introduced stricter reporting obligations to prevent similar occurrences in the future.

8. Targeting by Short-Sellers – Treasury Wine Estates (2020)

•Company: Treasury Wine Estates Ltd

•Background: Treasury Wine Estates, a major global wine producer, was targeted by short-sellers in 2020. A report from an anonymous short-seller accused the company of financial mismanagement and overproduction issues.

•Type of Manipulation: The negative report was timed to coincide with market conditions that amplified the stock’s decline, contributing to a major sell-off.

•Outcome: Treasury Wine Estates’ share price fell by over 30% within a short period. Although ASIC didn’t find evidence of illegal manipulation, the incident highlighted how short-sellers could trigger significant stock price drops through coordinated reporting.

9. High-Frequency Trading and Market Manipulation – Australian Markets (2015-2017)

•Companies: Various Australian-listed stocks

•Background: In several cases, ASIC uncovered manipulative strategies by high-frequency traders (HFT), who used algorithms to manipulate stock prices in illiquid markets.

•Type of Manipulation: HFT firms were engaging in quote stuffing and layering, tactics used to create the illusion of market interest or price changes. This artificially influenced stock prices, often to the detriment of other investors.

•Outcome: ASIC introduced tighter regulations on high-frequency trading, aimed at preventing algorithmic traders from manipulating illiquid stocks for their own gain.

Conclusion

ASIC has consistently pursued cases of market manipulation, including those involving short-selling, spreading FUD, and coordinated trading activities. Companies like Quintis, Blue Sky, Bellamy’s Australia, and GetSwift have all been severely impacted by such tactics. Although proving outright illegal behavior is often challenging, ASIC’s vigilance has led to fines, trading suspensions, and stricter regulations aimed at curbing these forms of manipulation.

In many cases, short-sellers and firms like Glaucus Research have played prominent roles in triggering significant stock price declines, often through the publication of negative reports timed to benefit from short positions. ASIC remains focused on maintaining market integrity, using its monitoring systems to detect and respond to unusual trading activities that signal potential manipulation.

These examples illustrate the wide range of manipulative activities that ASIC targets, from short-selling attacks to wash trading and high-frequency trading strategies designed to distort prices.