ASIC cracks down on insider trading The World Today Finance reporter Sue Lannin Updated July 14, 2011 17:21:14
Photo: There have been 35 cases of possible market manipulation referred to ASIC in the first six months of 2011. (Lateline) Audio: ASIC crackdown on insider trading in relation to takeovers (AM) Map: Australia The corporate regulator has issued strong warnings about automated share trading and insider trading.
ASIC took over supervision of the share market from the market operator ASX in August last year.
Since then there has been an increase in the number of possible cases of market manipulation referred for investigation, including 17 possible cases of insider trading.
ASIC's head of market supervision, Greg Yanco, says he is particularly concerned about leaks involving takeovers.
"These are instances where we've seen people having access to document management systems that aren't properly locked down," he said.
"So for instance everyone in a firm having access to certain information when that information should be restricted, it should be restricted access to only those people that should be, need to be aware of a pending corporate action."
One of ASIC's other areas of concern is the use of computer generated trading, known as algorithmic trading, to buy and sell shares.
Deutsche Bank was fined after a bad trade affected the Share Price Index Futures and pushed the index down.
Mr Yanco says ASIC has increased the action it is taking over automated trades.
"It's not high frequency trading that we've drawn out in this report, it's more about badly written or poorly written algorithms that cause spikes in the market or may cause a cascading effect," he said.
"So, for instance, in some cases we've seen stop loss orders that are triggering other stop loss orders, and there's potentially a cascading effect."
He says another area of concern is exchange traded funds, which track the value of underlying assets such as shares.
"We're not concerned about the products themselves," he said.
"What we are concerned about is when retail investors choose to buy, for instance, an investment in an exchange traded fund and they go into the market and just buy at the current offer price without having a look at what the underlying index is, and seeing whether there is a disparity between the two."
Carole Comerton-Forde, an expert on share markets from the Australian National University, says there needs to be more requirements for testing algorithms before they are used to trade on real markets.
"I think the most important thing is testing - ensuring that there's rules in place that require participants to test their algorithms before they're going into the market," she said.
"And to ensure that there are controls in place for, in the extreme, that orders can be cancelled and not make it into the market if they are going to cause extreme volatility."
However, she says subsequent investigations have shown that high frequency automated trading was not the primary cause for last year's 'flash crash' on Wall Street.
"I think the initial reaction from the market was that it was high frequency trading, but I think the subsequent reports that came out from the SEC (Securities and Exchange Commission) and CFTC (Commodity Futures Trading Commission) suggested that there were a range of factors and high frequency trading was probably not the main one," she said.
"It was a combination of a lack of coordination across the different markets in the US and their different rules in responding to uncertainty."
Topics: regulation, stockmarket, fraud-and-corporate-crime, australia
First posted July 14, 2011 16:52:48
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