“In assessing trading trends, it needs to be borne in mind that market manipulation can and does occur even though it mostly passes under the radar of regulators because of flexibilities that exist in current regulatory frameworks. Indeed, former deputy ASIC Commissioner Belinda Gibson has acknowledged as such. …… algorithmic andhigh frequency trading is sometimes manipulative or illegal, but it is often simply predatory on other investors.” “Researchhas identified a large number of anomalies in a range of ASX stockscorrespondingtothe disclosures made by substantial shareholders. It focusses particularly on the widespread collusion that takes place amongst brokers, the extent of manipulative short selling that occurs regularly and the extent of insider activity and dubious takeover actions able to take place without rather obvious conflicts attracting regulatory scrutiny.”
“Trading that is kept under the radar of price movement and volume thresholds monitored by ASX market surveillance officers is generally able to escape scrutiny even if it has been associated with suspicious activity. Share price manipulation seems acceptable if prices are taken down incrementally and kept under say 10% each day. Cases in point are the 68% share price declines of Linc Energy during 2012 <Refer:Chapter 7.2Pg. 19> andmore recently the 66% fall in CuDeco between May 14 and August 8 this year.
Bothcompanieswere sent singlepleaseexplainnoticesondays that falls exceeded 10%, and even after it was confirmed that the falls were not company related, no effort was made to investigate highly dubious trading behaviours as falls continued to occur day after day.
Share price manipulation manifests in a variety of ways, where fund managers acting through groups of brokers and where brokers and entities acting in their own right are able to exercise control over the market. It is widespread throughout the ASX because the algorithmic systems responsible for control over prices are utilized by institutions in much of their trading.
A wide range of trading behaviours instrumental in manipulating prices have been able to flourish, principally because of the acute lack of transparency associated with the current trading and settlement system. A lax, generally unresponsive regulatory regime has helped as well.
Share price manipulation is embedded in all of the following trading activities taking place on the ASX on a daily basis:
The selling of shares by entities back and forth to themselves or affiliated entities (formally or informally and referred to as trading churn) with orders distributed amongst a large number of brokers to camouflage the Trading churn is generated by algorithms synchronously tuned by brokers acting for the same interests. It usually results in control over the market, the setting of artificial prices and little change to beneficial ownership. If tested in court the motivations behind the churning of stock are likely to be shown as non-genuine and therefore manipulative.The high levels of collusion required for the selling and subsequent retrieving of large parcels of shares, such as has occurred with CuDeco, and many other ASX stocks, also points to contrived, non-genuine markets.
The re-balancing of holdings without price discovery through extensive use off-market transfers and through trades executed in Dark Pool venues.
The use of Dark Pools for strategic trades thereby removing liquidity from the lit market which is then subject to volatility as genuine buyers and sellers attempt to fill orders in thinner markets.
The implementation of particular trading agendas through designated brokers but with trading organized through other brokers in support, (e.g., buying or selling through one or more brokers but churning stock through others in an attempt to control, manage or confuse the market.
The use of proprietary trading programs that deliver control over pricing levels, for example, by forcing Downticks between groups of brokers who are effectively colluding with their trading. The collusion is facilitated by HFT algorithms able to link designated sellers with preferred buyers and is usually characterized by either large numbers of small trades that lower prices, or by small broker crossings put through the market to achieve price reductions.
The selling is seen to be targeting lower prices with brokers changing roles from one day to the next as prominent sellers. Such trading is highly manipulative, and was also shown to occur across other ASX companiesin Attachment1.2,Pages 5&6.
A further example of selling that has targeted lower prices is provided by a particular broker’s selling activity regarding CuDeco over the recent period August 29 to September 30, 2013 as shown below.
The large numbers of small Downtick trades that forced lower prices meant that the broker was responsible for a very large number of falls in price in daily trading, despite miniscule overall selling volumes put through the market.
The behaviour is at extreme odds with the High Court ruling that regards genuine sellers as those looking to receive the best returns for sales. Of course, non-genuine selling implies manipulation.
Control(again via trading algorithms) over the setting of prices during auctions.
Usingthe systemof short sellingas a manipulative trading tool whereby downward pressure on the share prices occurs through short selling in the market and where adjustments to short exposures are achieved in off-market Such activity is unfair as it avoids fair price discovery. The activity also requires collusion by those with short exposures needing to cover, and those who are willing to supply shares off-market to help reduce exposures.
Daily short selling on market and short covering on-market representing trading churn for the most part, where strategic relationships between brokers ensures that stock shorted into the market can be readily retrieved (i.e., buyers of stock are happy to put it back into the market where it can be re- claimed by the selling entity). Much of the activity represents a zero-sum game.
Wrong-footingandpanickingretail investors through tactics such as deliberately selling down announcements that herald major developments for the A disappointing share price reaction invariably takes away from the significance of an announcement and leads to investor confusion and angst. In the case of CuDeco the activity has been shown to occur over a period of 3.5 years.
Panickinginvestorsby using large buy bids to support a share price and then suddenly selling into the bids to give the appearance of price weakness, but where the buying and selling has been between related parties.
Capitalizingon trading volatility by entities engineering price falls in trading between themselves that lead to the margin limits of exposed investors being triggered causing irrational panic amongst retail investors, which in turn accelerates price falls.
Camouflagingextensivelevelsof Wash Trade activity (i.e., no changes to beneficial ownership) by putting many of the trades through brokers with large numbers of retail clients and then settling on the net positions at the close of trading.
Entitiesoperatingwithin,say,CommonwealthSecuritiescamouflagedby retail investors while heavily targeting pricing levels with, for example, large numbers of small Downtick The result is that falls in price are attributed to retail investors,not thesophisticated investorsresponsibleandwhohave deliberately targeted lower prices.
Takingadvantageofa settlement system where the brokers used for high volumes of dubious institutional trades are not identified on the register, thus further camouflaging the trading
Takingadvantageofunreliablereporting systems to disguise trading activity as evidenced by substantial changes in short positions not being matched by corresponding changes in stock lending & stock borrowing data, and where for example a large increase in open positions is usually not reflected on the register by corresponding falls in the lender’s holding.
The deliberate selling down of a holding to create volatility only to re-purchase shares as investors panic.
Floodingthemarketwithbidsandoffersthatonlystayforbriefmomentsof time to encourage activity from genuine sellers (or buyers) at reduced bids or higher offers.
Frontrunningretailordersby changing the bid structure between the time the retail investor sends the order and the time it takes to reach the The activity results in retail sellers receiving less for their shares and paying more for purchases.
The use of public forums to establish sentiment that supports particular trading agendas often achieved by groups of posters banding together to create maximum levels of confusion.
The selling down of the share price through related interests or through genuine sales knowing that cheap placement shares will be forthcoming to replace those
The withdrawal of liquidity at critical times when for example a company-specific problem or a market sentiment issue (e.g., a strong downtrend on Wall Street overnight) might encourage In that scenario the withdrawal of bids may cause a genuine seller in need of cash or pressured because of margin requirements, to chase prices lower as each time he sells into a buying bid, the bid is adjusted out of the way by the time the sell order reaches the exchange.
In frustration and perhaps through necessity because of the need to raise funds, the seller may then target a lower buy order to try and get a fill, only to see it adjust too in the fraction of time his order is finding its way to the exchange. The lightning fast adjustments are afforded by HFT algorithms where the buyer may withdraw from the market altogether, or the buy order may be adjusted downwards or even involved in a crossing to a related party, whereby all actions effectively prevent the seller from getting a fill for his order. In such instances the notion that markets provide liquidity is farcical. Suchactivityis particularly manipulative and can use genuine, motivated sellers to force prices dramatically lower. Examples include trading in CuDeco on August 18, 2010 following a resource upgrade and November 13, 2012 following a fund raising announcement. Both days saw extreme volatility with the share price taken dramatically lower amid confusions on Aug 18, and lower despite positive news on Nov 13. Anecdotaland empiricalevidencebothsuggestshareprice manipulation was strongly at play, irrespective of the news events accompanying the price falls. Revealingly,onboth occasions,sophisticatedinvestors retained their holdings despite very extensive churning of stock.
Justifyingmanipulativesellingor buyingdue to indexmovements of thesector a stock belongs to, but where shares are simply traded back and forth between the same interests for no beneficial change to
Changesto major indexes are a primary driver of modern day markets, irrespective of the fundamentals associated with particular companies outside the index, and for that matter, individual company news. An article by broker Marcus Padley <Refer Link>refersto a small group of large stocks almost completely dominating the main index in a downward trend that occurred between May 2011 and August 2012. Just 20 stocks accounted for 97 per cent of the fall in the market or put another way, 10% of the stocks have dictated 100% of the performance of the ASX 500 index over the period.
Given that a select few stocks can control the direction of the entire market, means that individual stocks can be manipulated at will irrespective of news releases and any company developments achieved.It further helps to explain how good news is suppressed (i.e.,it wasthe indexthatledprices lower) and it helps to explain why CuDeco has tended to have been harshly dealt with on days that the general market was down. Pressure from falls in the leading index can act as a cover for higher levels of manipulative activity in individual stocks.
