Broker manipulation - Merrill's fined

[markrmau]

In todays written AFR, there is an article about how merryls was fined for stock price manipulation. When promina was floated, they took out a massive short position. When it looked like they needed to close the short (at a loss) they put in a number of large sell bids to scare people down to thier buy bids.

If anyone can find the link on afr.com, I can retrieve it and post the full details for people who don't have access.

 

[Investor]

Re: Broker manipulation - merryls fined

ASX fines Merrill
By Robert Clow
31-05-2005
From: The Australian

THE Australian Stock Exchange yesterday fined Merrill Lynch $125,000 for trading Promina stocks for its own account in 2003 in a way that suggested market manipulation.

Merrill agreed to the fine without admitting anything. It also agreed to undertake an education and compliance program.

"We engaged in a series of high-volume trades over the course of a few hours which the ASX disciplinary tribunal took the view had the potential to be viewed by an observer of the market as involving inappropriate trading," said Merrill chief administrative officer Terry Winder.

"We co-operated fully with the ASX review into the matter and without admission did not contest the contravention before the tribunal."

Merrill established a $61 million short position in Promina stock at $1.90 on May 12, 2003, anticipating a number of client sell orders.

But those orders never materialised and Promina's share price started to rise - endangering the short position. Merrill started to buy Promina stock back to cover its short position - eventually closing out the position by buying Promina stock at prices between $1.91 and $1.98.

But at the same time Merrill listed six substantial selling orders on its trading screen - totalling 42.5 million shares between them. Five of the six selling orders never traded, according to the ASX.

"None of the six Asks traded immediately and all were either amended away from priority and/or subsequently cancelled," according to the ASX disciplinary circular. An observer could reasonably conclude that it had entered the six sales with a view to depressing Promina's share price while closing out its long position, the ASX said, and concluded that Merrill's actions were "prejudicial to the interest of the exchange".