A read a story in the Sydney Morning Herald this morning which I found quite perplexing and raises lots of questions. I can’t post it but its short enough to type out below:
“Trader Jailed for Rigged Market, by Sarah Dankert
A Sydney day trader has been jailed for two years and three months for manipulating the share price of four speculative mining stocks listed on the Australian Securities Exchange. Nigel Derek Heath will be eligible for release after serving just nine months on the basis of good behaviour and providing a $10,000 self-surety. He pleaded guilty to two charges of market manipulation in October Last year.
Heath was charged following an investigation by the Australian Securities and Investment commission into his trading. Over the 20-month period, Heath used complex trading products called contracts-for-difference (CFD) and traded through no less than nine separate share trading and CFD accounts, which allow traders to bet on the future price movements of shares, commodities or currencies.
Between February 2012 and August 2013, Heath carried out 138 transactions involving financial products relating to Petsec energy. Each trade by Heath artificially increased the price of Petsec share on the ASX by between 4 and 11.5 per cent. During the period when Heath’s trades took place, Petsec’s shares ranged from 19.9c to 10.3c. While the average value of his 138 trades was just $496, they inflated the value of his underlying holding in the company by between $15,878 and $46,928.
Heath also targeted Leyshon Resources, Malagasy Minerals and Orca Energy, inflating the price of each by between 3.1 per cent and 6.5 per cent."
Ok, it illustrates that manipulation of small speculative stocks occurs but really:
- How is it that a day-trader can be seriously manipulating the market with basically $500 trades? $500!!
- Why did ASIC, charged with ensuring market integrity, single out this bloke, amongst possibly half the traders on HC who ramp or have multiple nics and accounts or speculate with cfd's?
- And for ASIC to actually spend their limited budget pursuing him, versus serious manipulators. How did he even come to their attention?
- What was the basis on which the day-trading crossed over into market manipulation. That he had nine accounts? I have three accounts, a company structure I trade through, plus some trades in my personal name and some in my SMSF.
- How do you “artificially increase the price” of a penny spec stock anyway, as if the pricing has some inherent integrity to begin with?
- Apparently his trades inflated the value of his underlying holdings. But if he tried to sell he probably would have pushed down the price given $500 trades moved the price around. So it’s not clear he could have made much money from the trades.
- The people he would have been trading against were probably mostly gamers and speculators anyway in this spec mining end. He was probably unlucky enough to have a couple of investors on the register who thought they were making a serious investment in the stocks and complained, or maybe management did. But half the time management in spec mining stocks seem to be the biggest promoters of rubbish investments anyway.
- Is day trading CFD’s really a “complex product” given their use is dominated by retail traders. Maybe the CFD provider complained to ASIC which would be an investing turn of events for those day traders who deal with them.
- Surely if ASIC allows cfd providers to offer cfd's over spec stocks, what other outcome could that produce than high volatility and speculative activity of taking a share position and using the cfd to ramp the stock. What, do they think serious long term investors would take out these products to more "legitimately" take a position?
- Go have a look at a chart of Petsec and the massive movements in the share price through it's history, verus the relatively small fluctuations during the period this guy was supposedly manipulating. His trades might have even added to liquidity and allowed some trapped holders to trade out.
How was this worth a two year gaol sentence versus say the big banking firms fined in recent times for market manipulation or versus what large numbers of Hot Copper posters seemed to be doing everyday. Sounds more the poor bloke just had a dud lawyer to actually get gaoled for this, versus a fine.
I don’t support market manipulation and want ASIC to hunt it down, but seriously this bloke getting goaled for two years for this versus what else seems to be going on as just normal day to day business at the spec end seems just extraordinary.
(20min delay)
