Mystery player moves market

MONEYWEB, Julius Cobbett, 15 September 2005

One trader buys 15 000 top 40 contacts, drives the market to an all-time high.

Thursday afternoon’s futures closeout went off without a hitch, despite some brokers’ concerns that the JSE trading platform would not hold up. The concerns were not unfounded: June’s futures closeout ground to a halt after there was a serious failure in the line connecting the JSE to its parent platform in London.

The futures closeout is a quarterly occurrence in which futures market participants must decide whether to settle their obligations, renew their contracts or close them out. It is the date on which futures contracts holders are obliged to either buy or sell a certain quantity of the underlying security at a predetermined price. However, the vast majority of futures market participants settle their positions before the delivery date falls due.

Several stockbrokers were concerned about whether the JSE would be up to the challenge, and many were content to just renew their futures positions rather than closing them out. However, the exchange held up despite heavy volumes of trade.

During trade, the JSE all share index touched an all time intra-day high of 16 218 points. The spike, says Arthur Buchner of Nedcor Securities, was the result of “aggressive buying” in the top 40 index by one market player. According to Buchner, the trader – likely one of the big overseas banks –bought 15 000 top 40 index contracts with a value of R2,1-bn.

Buchner reckons the player was a continuous buyer of the top 40 index future over three days before the closeout. He explains that by aggressively buying such a large quantity of the underlying index, the player managed to manipulate the market on the upside, and collect a profit on his futures position.

Posted in Market commentary

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