Australian regulators are probing transactions that added $10 billion to the benchmark stock index for several seconds yesterday, the latest episode of unusual trading after mishaps this year in the U.S., Japan, Hong Kong and India.
Shares of Australia & New Zealand Banking Group Ltd., AGL Energy Ltd., Brambles Ltd. and at least eight other companies surged at the open after bids were placed in premarket trading at prices above the previous day’s closing level, according to data compiled by Bloomberg. ANZ jumped 6.4 percent before immediately paring the gain to less than 1 percent. Brambles jumped 7.5 percent and Aristocrat Leisure Ltd. leaped 7.1 percent. The trades drove the S&P/ASX 200 index as much as 0.9 percent higher before it too immediately retreated.
“They had their orders into the marketplace significantly above where it actually opened, and it’s clear that they certainly influenced the opening price,” said Michael Aitken, professor of finance at the University of New South Wales, in a telephone interview. “Whoever this was, and it seems likely it was one party given that the orders in each stock were simultaneously entered at three distinct times, the activity has likely affected the index.”
Australia joins countries experiencing market disruption this year. In the U.S., Knight Capital Group Inc., one of the biggest market makers, bombarded American exchanges with mistaken orders in the first minutes of trading on Aug. 1. The company blamed the mishap on defective software. Two weeks ago, orders for Indian stocks improperly entered by a Mumbai brokerage sent the S&P CNF Nifty Index down 16 percent in eight seconds before it rebounded.
The S&P/ASX 200 index opened at 4,567.70 at 10 a.m. yesterday, 0.87 percent higher than the previous close, according to data compiled by Bloomberg. The gain was halved within one minute, with the gauge falling to 4,547.72, the data show. The measure closed up 0.7 percent, the highest level since July 2011.
The Australian Securities and Investment Commission began informal inquiries into the share moves, Andre Khoury, a Sydney-based spokesman for ASIC, said in a statement.
ASX Ltd., operator of the country’s main bourse, received no requests to cancel any trades, Sydney-based spokesman Matthew Gibbs said by phone. “Clearly what happened was not usual and ASX will closely examine to find an explanation,” Gibbs said by e-mail.
Large orders for the affected shares, as well as others in the equity benchmark index, were made simultaneously in the premarket period at prices well above the Oct. 17 close, according to data compiled by Bloomberg. Someone bid A$27.78 for shares of ANZ, against a close of A$25.95, while AGL was sought at A$15.88 after closing at A$14.86.
ANZ opened 6.4 percent higher as 836,205 shares changed hands in 349 trades, all at the ask price of A$27.63, according to data compiled by Bloomberg. The stock fell back to A$26.13 within a minute and ended the day lower at A$25.95.
AGL, which closed Oct. 17 at A$14.84, opened 4.3 percent higher when 177,416 shares changed hands in 107 trades at the price of A$15.84. It closed at A$14.86 yesterday.
AMP Ltd., an insurer, opened 4.5 percent higher yesterday when 1.1 million shares were exchanged in 157 trades at A$4.85. The stock closed 3.7 percent below this level at A$4.67.
Brambles Ltd., a supplier of shipping pallets, jumped 7.5 percent to A$7.69 straight after the open before falling to A$7.38 within the first minute of trade. The shares closed at A$7.26 in Sydney. The first trades of the day were crossed from two off-exchange transactions for a total of 50,000 shares at A$7.65, according to data compiled by Bloomberg.
“It is not unusual for parties anxious to trade to put their bids and asks significantly above or below the last price in order to guarantee priority,” said Aitken. “However, if you start doing that in very large quantities, it will not only get you priority, it will start to influence the price.”
Equity derivative contracts on indexes expired yesterday, according to the ASX website. The expiration of those contracts increased the likelihood of erroneous trades being entered accidentally, said Angus Gluskie, managing director at White Funds Management in Sydney, which has more than $350 million.
“Something clearly went wrong and it’s more likely to have been a mistake,” Gluskie said “It’s got the hallmarks of some mistake of a technical nature. It was very unusual and we’d also like to know why it happened.”
The stocks that moved unusually yesterday were mainly those attached to companies whose tickers begin with the letters A and B. Australia’s market opens in phases according to the alphabetical order of tickers, ASX said.
“ASIC is aware of a surge in the share price of a number of major ASX 200 stocks this morning and, in line with its normal practice, is looking into the matter and has commenced enquiries with the market participants involved in trading in these stocks and related derivatives,” Khoury said. “This is not a formal investigation.”
The identity of the bidders in the stocks won’t be known to other exchange members for three days, ASX’s Gibbs said.
Regulators around the world are scrutinizing market structure and electronic trading after a series of malfunctions. In May 2010, a broker’s algorithm set in motion events now known as the flash crash, which briefly wiped $862 billion from U.S. stocks. The Nasdaq Stock Market in May this year was overwhelmed by order cancellations and trade confirmations were delayed on the first day of trading in Facebook Inc., the largest initial public offering of 2012.
Tokyo’s stock exchange has had two computer failures that partially halted trading this year. Hong Kong’s market regulator said in August it had issued 18 compliance notices after disruptions caused mainly by malfunctioning algorithms.
Australia is trying to increase its presence as a financial hub by opening up Asia-Pacific’s fourth-largest equity market, allowing Chi-X Australia Pty from last year to compete as an alternative stock venue.
Australian regulators are considering requiring all trading algorithms to have an inbuilt “kill switch” to immediately disable them if they malfunction, ASIC Chairman Greg Medcraft told a conference in Sydney Oct. 10.
ASX in November last year began using a platform catering to high-frequency traders called PureMatch, part of efforts to counter competition from Chi-X. It described the platform as a “high-speed, low latency order book” for the most liquid shares and exchange traded funds.