Auctions, Uncrossing Trades and Evidence of Manipulation


5 September 2018

Whilst perusing the Level 2 control panel I was recently struck by the surprising number of Direct Market Access (DMA) sells that would appear during the daily auctions that happen before the markets open (7:50-8:00am) at 9 am, 11am, 2pm and at the end of trading at (4:30-4:35pm.)

Those without access to a Level 2 interface may wonder what this is all about - so a little explanation is in order before I get onto the subject of how this system appears to be being used to manipulate the Share Price down, which I conclude is currently in support of a wider shorting or trading exercise. 

The screenshot below shows the Level 2 interface just prior to the closing of the 2pm auction on Tuesday, the 28th August 2018. The Left hand column shows bids to Buy shares and the middle column shows offers to Sell shares , the Right hand column shows a rolling list of trades achieved up to that point. 

The Buy bids are ordered with the highest prices offered at the top, the Sell offers have the lowest price at the top (in each stack if prices are the same then it appears that the order of arrival of the Bid is what determines the priority, with the first received having the highest priority.)

The quantities and price offered are shown together with the name of the Market Maker (eg Cantor Fitzgerald: CFEP,  Winterflood Securities: WINS, etc) - this field is left blank if the offer is from an external individual using Direct Market Access. It appears that only during the 10 or so minutes of each auction do these DMA bidders have access to the market.

At the closing of the auction the bids/offers are frozen and an attempt is made to match as many shares to be sold against shares to be bought - the result of this is what is known as the  'Uncrossing Trade' (UT). In this case by selecting a UT price of 24.5p it was possible to get the maximum match of shares transferred - here 25,400 - and this was precisely the UT trade that was reported 16 seconds after the auction closed at 2pm.

This UT trade keeps both buyers happy - they both get their bid accepted but alas only the top seller (the one offering up 110,843 shares for sale) gets their offer accepted. The offers of 9,000, 15,000 and 2,000 all walk away with nothing because they must have arrived just after Mr 110,843. 

If we had waited two and half hours for the next auction we would have seen the following:-

As you can see Mr 110,843 has now become Mr 85,443 (taking off the 25,400 from the UT trade at 2pm) and he is still asking 24.5p for his shares. Messrs 9K 15K and 2K are all still there and still also asking 24.5p. You can see how it is possible to track specific offers or individuals from auction to auction, subject only to one's level of dedication.

For example it turns out that Mr 85,443 was originally known as Mr 129,120 (and may have been something else even before that) - you can see how his block has been whittled away during the auctions over the last week, and at ever reducing prices:


Poor old Mr 129,120, however this story is not in the main about people like him.

What these auction logs also show is how there are a number of new arrivals entering sales and undercutting the Market Makers, who run the trading in between auction periods. This raises the question of Why would someone go to all the trouble to use Direct Market Access to sell shares at prices lower than they could get from a Market Maker at pretty much any other point in the day ?

These volumes are not so high that a Market Maker would not touch them, and we know from historical inspection that the price that a Market Maker advertises to Buy shares from PI's at is almost always significantly lower than the actual price they will give you for the shares. Offering to sell at 24p when the Market Makers are advertising 24p therefore makes no financial sense, as I'm sure would be well known to 'sophisticated' investors with Direct Market Access.

The answer, as you may have suspected, is to provide a false signal to help drive the share price down. It would appear trivially easily to arrange for very low UT prices on a small block of shares simply by selling back to yourself or a connected party. This of course would be considered market abuse, and would be illegal. But this does not mean that it can not happen - let's inspect the data to see if there is any evidence that it may be happening.

The UT trades for all of the auctions this week are shown on the chart below.

The Orange line shows the price of the last Buy before the auction, the red line the last Sell price before the auction.

The green stars show the occasions (7 out of the 10 auctions on Tuesday and Wednesday) when the UT trade was price below the last Sell just before the Auction. There would appear to be a pattern consistent with auction manipulation appearing.

It might seem that more reasonable behaviour has returned on Thursday and Friday. However look at the following auction bids received for Friday the 31st, August's 2pm auction:

Firstly you can see that someone has offered to sell 60,000 shares at an eye-wateringly low price of 22.2p - undercutting the next lowest offer by a full 0.6p. At 1:50pm this was responded to by an offer to purchase 10K at 22.8p. Others also spotted this very low sell offer and, saying, "I'll have some of that" they offered 22.6p for 35K and then 22.7p for 59K. 

Seconds before the auction closed a new offer of 22.9p was offered for 55K of the 60K being offered - it seems not implausible that this may have been a party, not unconnected with the original 22.2p seller, stepping in to make sure that these shares were not given away to third parties quite so cheaply. It seems remarkably convenient to have received so much of a better deal just before the gavel went down.

One of the takeways from this particular episode is that the end UT trades only tell half the story - in this case the offer to sell a big block of sells at 22.2p has actually resulted in a UT trade much closer to the main trading band, at 22.8p. However the damage has been done - those looking in, and all the Market Makers, will see someone apparently desperate to get rid of their shares, regardless of the price. The message has been sent, and received.

If we delve deeper into the auctions at the start of the week and track back on each offer as we did with Mr 85,443 (ne 129,120) we see that offers D, I and S were all made at significantly lower than the final UT price obtained.

Whilst one of these low offers, marked in bright green, did not result in a UT trade the question remains for the ones that were successfully executed - are these genuine trades between independent DMA participants, or manipulated by connected parties to generate trades at prices below those of the Market Maker operated market ?

Of course the information that the market makes public makes it impossible to answer this question via a simple inspection of the publicly available data. However the true identity of the DMA participants will be available to those who operate the market and the FCA, should they wish to investigate further.

What can be said categorically is that this pattern of auction bidding does seem suspicious and is consistent with the hypothesis, suggested by the previous weekend's intense trolling activity, that the stock is currently being shorted.


This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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