Apart from the reply from Senator Sue Boyce with a request for specific questions for the Senate Committee, I have also had the following replies:
From the ASX:
Dear iam,
ASX has Surveillance has reviewed trading in MEO on 31 March when you allege that an algorithmic trading programme (which you refer to as a BOT) manipulated the price of MEO. The trading in MEO on 31 March reflected normal trading and was not manipulative.
Surveillance is aware of the parties involved in the trading in MEO on 31 March. MEO traded in a range of 33c to 35c on turnover of 2.4m MEO. In relation to the buying, internet brokers accounted for 1.8m MEO. Full service retail brokers accounted for another 278,000 MEO. Buying, and the bid schedule throughout the day, was dominated by internet and retail brokers. There is no evidence that a BOT trader was trying to accumulate MEO at 33.5c. However, if you believe that have such evidence which identifies the relevant algorithm or trader, please provide it.
In relation to the selling in MEO on 31 March, one institutional broker used an algorithm to sell 300,300 MEO, or 12% of all selling, in 47 trades with an average trade volume of 6,400. It only caused 3 price decreases. It had minimal price impact when selling. Internet and retail brokers accounted for 1.6m of the selling in MEO. There was not an algorithmic trader pushing through continual small parcel sales of about 500 to 2000 shares as sells at 33.5c every couple of minutes. However, if you believe that have such evidence which identifies the relevant algorithm or trader, please provide it.
In relation to trading in MEO between 17 and 29 March, you allege the share price was pushed down from 37c to 32.5c primarily through BOT action. I note MEO was suspended between 15 and 19 March so presumably you are referring to the period between 22 and 29 March. The suspension was followed by an announcement on 22 March that one of the participants to the farm-in agreement would not execute the agreement as currently presented.
Between 22 and 29 March, MEO traded in a price range of 42c to 32.5c. Total turnover was 34.5m. Of these, internet and retail brokers sold over 26m. Institutional brokers and principal traders accounted for the balance of which one institutional broker sold 2.3m MEO for different clients in 79 trades. It caused one price decrease. Of the buying, internet and retail brokers accounted for over 29m MEO. Given that internet and retail brokers accounted for more buying than selling, your suggestion that smaller investors are especially being turned away or taken out from investing incompanies which are being targeted by BOTS is not supported by the trading. Perhaps the announcement by MEO on 22 March contributed to the weakness in its price thereafter.
In relation to IFE, Surveillance has reviewed trading on 10 March. On 10 March, turnover in IFE was 162,264 and IFE traded in a price range of $1.38 to $1.48. It closed at $1.41. Internet and retail brokers accounted for almost 146,000 of the buy volume in IFE on 10 March. In relation to the selling, internet and retail brokers accounted for over 156,000 IFE (CommSec and ETRADE together accounted for over 100,000 IFE). One institutional broker sold just over 2,000 IFE in 75 trades using an algorithmic trading engine. It did not cause a single price decrease. Clients of all other brokers accounted for 16 price decreases over the day.
The same algorithm was used to sell IFE on 11 March. Again, it did not a single price decrease. It was used to buy IFE on 12 March. It did not cause a single price increase.
If you have any evidence in relation to the other allegations you make, ASX would be happy to consider it.
Yours sincerely,
_________________________
From this reply I now know that I need to be precise with the information I provide in future BSTs.
It will also be difficult to provide evidence to 'identify the algorithm or trader' but they already know who they are anyway. That information is confidential.
I also learned that the BOT trader sold 300,300 shares in 47 trades. The value of these trades at an average of 34c would have been $102,102.
In their reply to sKdoo see post #5303495 here the ASX state that the execution fee is .28 basis points ad valorem of the deal's consideration so for this trade the execution fee would have been $2.86.
For an individual trader with the lowest fee being ~$6 this would have amounted to $282 - up to five times more for Etrade, Commsec etc.
I know BOT traders pay handsomely for the privilege but their up-front costs would soon be recouped along with the other advantages BOT trading gives them.
This discrepancy alone shows how algorithmic trading creates an imbalance in the market place. _____________________________
The Financial Ombudsman Service is a dispute resolution service offered as a free alternative to the courts for consumers with a claim for loss arising from the acts or omissions of a financial services provider. The Ombudsman does not provide general financial or legal advice.
If you have a dispute that you have been unable to resolve with a financial services provider, you can lodge a dispute through our website (www.fos.org.au/disputes). If you would like to speak to a member of our staff about lodging your dispute, please contact us on 1300 78 08 08.
Yours sincerely
Registration Team Financial Ombudsman Service
_____________________________
From the Treasury
Dear iam
Thank you for your email of 8 April 2010, concerning algorithmic trading on the Australian Securities Exchange (ASX).
I am replying to that email and also to the same concerns which you forwarded to the Hon Nicola Roxon, the Minister for Health and Ageing, and which she passed on on your behalf.
Your email poses questions for the ASX, with respect to algorithmic trading. The ASX is a privately owned corporation, not a Government owned entity. Accordingly, the Government is not in a position to answer these questions for the ASX. Any such queries should be directed to the ASX. However, I can provide you with some general information regarding algorithmic trading. Algorithmic trading is a practice that is widely used on financial markets around the world. Most algorithmic trading is not manipulative. In general, the Government does not seek to impose regulations that would seek to restrict or inhibit legitimate trading behaviour. However, the Government is concerned by any behaviour that seeks to manipulate the market. Any deliberate attempts to force a securitys price to an artificial level are illegal. Where this is suspected, the ASX will investigate and refer the matter to the Australian Securities and Investments Commission (ASIC).
If you think that a stockbroker or other participant may have breached the ASX rules or that there has been market manipulation in any particular case, you should lodge a written complaint with the ASX. Further details (including ASX Complaint Forms) are available from the ASX website at www.asx.com.au. If you are aware of facts amounting to price manipulation in any particular case, you may also wish to contact ASIC on 1300 300 630 or at [email protected], giving full details of the particular circumstances and transactions, so ASIC can look into them further.
In addition, you may be interested in the report recently released by the ASX on algorithmic trading and market access arrangements. This report is available on the ASX website at www.asx.com.au. The ASX noted in its report that algorithmic trading had increased on the ASX in recent years, but remained at levels significantly below those experienced in other jurisdictions.
The ASX concluded that algorithmic trading has not had a harmful impact on the market, and that it has not raised any major supervisory or operational issues for the ASX. However, it did identify a number of areas for improvement, including recommendations for ASIC, to ensure that algorithmic trading does not affect market integrity in the future. I am confident that ASIC will give full and careful consideration to these recommendations.
The Government will continue to monitor developments in the area to determine whether any further regulatory changes are needed to ensure the continued integrity of Australias financial markets.
I trust this information will be of assistance to you.
Yours sincerely
______________________
From Senator Doug Cameron's office
Dear iam
Senator Cameron has asked that I acknowledge your email of 9th April and thank you drawing your concerns to his attention. In his capacity as a member of the Senate Standing Committee on Economics, Senator Cameron takes a keen interest in the supervision of capital and equity markets.
Yours sincerely
____________________________
From Senator David Bushby
Dear iam,
Thank you for your email regarding algorithmic trading bots.
This appears to be to be an issue of some concern. Given the recent economic crisis it is particularly vital that concerns regarding potential distortions of our markets are addressed.
Through my position of Chair of the Coalition Economic Policy Committee, I will seek to have these concerns addressed as part of the Coalition policy development process. I will also seek to pursue them through the Senate Estimates process.
Please dont hesitate to contact my office if you wish to discuss this further.
Yours sincerely
____________________________
And finally the standard reply from ASIC:
Dear Sir / Madam,
Thank you for email to ASIC of 1 April 2010.
As I understand it, you wish to raise concerns about the practice of algorithmic trading. Specifically, you state that algorithmic trading targeting MEO Australia Limited on 1 April 2010 had the effect of manipulating the company's share price in contravention of the Corporations Act 2001.
ASIC's process
ASIC values the information we receive from the public, and complaints such as yours assist ASIC in working to build confidence in the integrity of Australia's capital markets.
ASIC conducts an assessment of every complaint we receive. The issues you have raised will receive careful consideration, and have been recorded on our internal intelligence database.
As ASIC is precluded from commenting on operational matters, we are unable to provide further details of what, if any, action we may or may not take in relation to the concerns you have raised. If you require any information on our role as a market supervisor, or enforcement action taken by ASIC, please visit ASIC's website at www.asic.gov.au.
Algorithmic trading
ASIC notes your concerns in relation to the practice of algorithmic trading. As the market regulator, ASIC is responsible for the supervision of operators of market participants, financial markets and clearing and settlement facilities. While ASIC may advise the Australian Government on matters concerning the regulation of Australia's capital markets, it is not a law reform body.
As such, to the extent that you feel that ASIC should enact legislative reforms in relation to algorithmic trading, we advise that this is a function carried out by the Australian Government and Treasury. For contacts details and further information regarding the functions of Treasury, please visit www.treasury.gov.au. You may also wish to make a representation to your local member of parliament in relation to any suggested law reform.
Please be advised that ASIC will only contact you again in relation to your complaint if we require further information or evidence to assist in our enquiries.
Yours sincerely
______________________________
It appears that there are some people out there hearing our concerns.
It is not the use of algorithms in normal trading practices on an even playing field, which we know has always been competitive, that is the problem.
It is the way algorithms can be used to disguise illegal practices and give unfair advantage to their users that I don't agree with.
