We are now entirely used to the daily mini-flashes in US equities as algos lose their stabilizer and run one way or another. Recently we noted the same algos-gone-wild had hit the India stock exchange. Tonight, the HFT-bug has moved to Australia, where the open - which just happens to be option expiration - saws a number of major equities (including several of the banks - e.g. ANZ and CBA) get smashed instantaneously higher (by 5-7%) at the open - only to plummet back to normalcy soon after. The cuplrit - it would appear to us - is a market-clearing wipe-out of all resting stops above the multi-year highs that the stocks were at the edge of. Regulatoirs are 'investigating' though their first comment was "it is certainly nothing to do with the trading system." As the Sydney Morning Herald [7] notes a market participant: "Either that or an algorithm has gone haywire, a mistake has been made, or these trades are deliberate.' Either way, do we have an orderly market?"
An example of the algo in ANZ:
[8]
Perhaps this explains it - resting orders just above the multi-year highs (red dotted line) all wiped out...
[9]
Via SMH [7]:
Traders suspect that the share prices of a number of major ASX200 stocks - including ANZ Bank - were manipulated when trade opened this morning.
Mystery trades in ANZ pushed the share price of ANZ up $1.67, or 6.5 per cent, when trading began at 10am.
ANZ, which closed at $25.79 yesterday, soared to $27.63 per share on the opening bell, before the stock collapsed to $26.16.
In the first few minutes of trading about a third of the average daily number shares in ANZ changed hands. Large fluctuations hit the share prices of Ansell, Aristocrat and AGL, while Commonwealth Bank and Bank of Queensland also spiked when the ASX opened.
"I've had five of my brokers contact the ASX and they are clueless as to what has gone on," said one of Australia's leading stockbrokers.
"They are saying the trades fall within a reasonable range, but if a broker pushed a stock up five per cent we'd cop a $25,000 fine. Right now, I'd say this is in the 'too hard' basket for market control at the ASX."
Watchdogs alerted
A spokesman for the body in charge of monitoring real-time trading — the Australian Securities Investment Commission — said it was ‘‘aware of a surge in ANZ share prices and was looking into the matter.’’
‘‘This is not a formal investigation,’’ he said.
ASX spokesman Matthew Gibbs said the price jumps were a result of buying orders, and nothing to do with the trading system itself.
‘‘There were a number of large buying orders at the market’s open, and the price of a number of stocks went up,’’ he said.
‘‘Most of them appear to have come down now and are trading at a normal price band. Naturally ASX is monitoring the situation.’’
Mr Gibbs said the ASX was so far aware of a price jump in AMP, ANZ, AGL, Aristocrat and Brambles stocks.
‘‘It’s certainly nothing to do with trading system,’’ he said.
Options affected
The trades were large enough to affect the price of options traded on the S&P/ASX 200 Index - commonly referred to in the investment world as XJO Index Options. The index tracks shares that form the S&P/ASX 200. The XJO Index rose to 4606 on the back of the moves, before settling back to 4575.
A number of brokers noted that those options expire at the close of trade today. The settlement price for those options will be calculated using today's 4606 opening price of the XJO index.
"I hope ASIC and the ASX investigate the ANZ open at $27.63 this morning," posted one reader on the BusinessDay markets blog. "It might just be a coincidence that index options expire today."
Brokers have called for the trades to be investigated immediately because they caused volatility on markets and could cause substantial losses.
"Someone has made big money on the Index trades this morning," said one major broker.
"Either that or an algorithm has gone haywire, a mistake has been made, or these trades are deliberate.' Either way, do we have an orderly market?"
Brokers have complained that the shift in responsibility for control of the market from the ASX to ASIC meant that nothing was done when trades of this nature caused alarm bells to ring.
"We rang the ASX, they said 'Ring ASIC'. We rang ASIC, they said 'Ring the ASX'," said one Melbourne-based broker.