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Share Centre Future and FT Spoofing Article 

The Share Centre recently advised their customers of “Our Future with Interactive Investor”. It gave details of the transfer of accounts to the Interactive Investor platform following the acquisition of the Share Centre business. However they failed to point out one important point which customers need to be aware of.

Share Centre ISAs are “Flexi ISAs”. This means that you can take cash out of the ISA and put it back in so long as you do it in the same tax year. Many people may have taken cash out this year after stock markets fell and put it on deposit, with the intention of putting back in later.

But Interactive Investor do not offer a Flexi ISA so if a Share Centre customer took cash out they won’t be able to put it back in after the account transfer. The Share Centre should surely have warned people about this but I can see no reference to it in their literature.

Spoofing

There was a very interesting article in the Financial Times today on the subject of “spoofing” – the practice of entering and cancelling orders in rapid succession to manipulate the prices of shares, bonds or commodities. The article was headlined “US regulators step up battle with spoofing” and mentioned the $920m fine imposed on JPMorgan Chase this week. Apparently the company’s traders had been using this abusive practice for years. The size of the fine should surely deter the practice if companies can actually control their traders.

Spoofing is symptomatic of the sharp practices that are rampant in the financial world. It is of course a practice to be abhorred as it creates a false market in the shares of a company. It suggests that there are buyers or sellers queuing up to buy or sell the stock, and a general impression of activity when none might exist.

Why not put a stop to it by imposing a time limit before an order can be cancelled?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

10 Comments
  1. Jim says:

    Is this the same as High Frequency Trading?

    • rogerwlawson says:

      Spoofing is not the same as high frequency trading although those people doing the latter could be spoofing. High frequency trading refers to using automated trading algorithms and simply buying and selling very rapidly.

  2. Alan Selwood says:

    Perhaps the spoofing orders could be recorded as an automatic part of trading systems by noting where orders and cancellations occurred the same day. If more than 3 such instances occurred per week or month (to allow for the odd ‘fat finger’ trade), a levy or fine could be placed on every single order from that trader for the next 3 or 6 months, to discourage such activity by hitting the wallet of the individual concerned or of his firm (preferably that of the individual).
    I would also like to see HFT totally banned globally, as it prevents a level playing field in dealing.

    • Mark Bentley says:

      Whilst I support Roger’s suggestion of imposing a time limit (with the caveat, as you mention, of allowing for “fat fingered trades” to be cancelled), it would be wrong to consider orders cancelled within a day as being abusive. There are many legitimate reasons for cancelling an order within the same day, e.g. news emerging subsequent to the order being placed, or arbitrage trades where the the trader may wish to change the price for their limit order when the price of a linked security or index changes. A time limit of a few minutes would be more realistic and would catch a lot of spoofing. But it’s still not perfect: what distinguishes a spoof order is that the trader placing it never wants it to be filled, so will cancel the order as soon as it seems likely that it may get filled, i.e. when the touch price gets too close to the order price. That characteristic is not time linked and it’s hard to prove the intent of the trader doing the spoofing, except by observing repeated behaviour of orders being placed and then cancelled when the touch price moves.

      • rogerwlawson says:

        There are some probably legitimate defences for placing an order and then very quickly (in minutes) cancelling it. New news appearing or fat finger problems are two. But I do not think it is beyond the wisdom of man to think up some appropriate rules. The repetitive nature of such actions gives the game away for example.

  3. Toby Keynes says:

    SHARE CENTRE and FLEXI-ISAS (corrected version of this post)
    Roger clearly didn’t spot this, but the booklet from Share Centre (which I received earlier this week) does state on page 11 that the “flexi” feature will end on 5th April 2021 (Page 11, “Important information”).
    This is in the section comparing Share Centre accounts and the default Interactive Investor account.
    It reads:
    “If you have an ISA account, that would stay “flexible” with interactive investor until 5 April 2021, meaning you can take money out and pay it back in without that affecting your annual ISA allowance. After 5th April 2021, you will not be able to make flexible withdrawals from your ISA, which means payments back in from any withdrawal would count towards your annual ISA allowance…”
    Having said that, I’m not sure it’s given as much prominence as it deserved.
    This is also a very backward move; the flexi feature is a major benefit – and one that I hope to use.

    • rogerwlawson says:

      I stand corrected. Must stop speed-reading 26 page documents! Not that it was very clear because the normal term for that kind of ISA is a “Flexi-ISA”.

    • rogerwlawson says:

      P.S. to my previous comment. I wrote the item on Share Centre ISAs after an exchange of emails with a Share Centre support person. They suggested that once the account had been transferred, cash could not be put back in. If in doubt, put the cash back I suggest a.s.a.p.

  4. Paul de Gruchy says:

    I think when we talk about HFT we need to be clear about a number of things. The first is that the shares are generally bought and sold within seconds: I believe the figures released last year found that the average time a share was held on the LSE was now 7 seconds. If you look at certain companies you will see the transactions are dominated by computer generated trades. Minutes go by with no trades then there are dozens of trades within a second of each other, often for similar amounts of shares. No doubt it aids liquidity or does something that we should be grateful for.
    The second is that a lot of HFT relies on obtaining knowledge of orders that have already been placed and then jumping the queue. So if, for example, there are 100 shares of a company for sale at £1 and you place the order to buy them at £1, it is perfectly legal for HFTs to see your order being placed, go into the system, buy the 100 shares available for £1, and then put them up for sale straight away at say £1.005.
    Quite why any of this is deemed acceptable is a question that you would have to raise with the LSE and/or the FCA. But it doesn’t have much to do with “investing” in any sense.

    • James Wilkins says:

      Interesting, does remind me of Investors Chronicle Simon Thompson when he shares his information on companies, people have then commented how much the share price rises so quickly rises.

      Reminds me of when I put in a price for a camera on Ebay, normally on sale for about £400 with hardly any bids. When I entered a bid for £200 I was astonished when a large number of bids appeared and pushed the price to nearly £400 within a minute which put me off buying.

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