Oil Patch High-frequency trades cited for share surge

High-frequency trades cited for share surge
NATHAN VANDERKLIPPE


CALGARY -- The massive bump in share price for OPTI Canada Inc. has some of the hallmarks of a high-frequency trading blitz, say traders and analysts who cover the oil sands stock, which has swung wildly over the past two days.


On Wednesday, OPTI closed up 34 per cent, despite a far more modest increase in both oil prices and the country's energy index. Shares in the small oil sands company, whose primary asset is a 35-per-cent share in the Long Lake project with Nexen Inc., gained another 15 per cent yesterday before falling back to close even with Wednesday's price.


The rapid movement was approximately mirrored by another small oil sands player, Oilsands Quest Inc. , which shot up 11 per cent yesterday after posting a similarly large gain on Wednesday. Volatility also affected UTS Energy Corp. and Connacher Oil and Gas Ltd. , and raised eyebrows across the oil patch, not least among those affected.


"It's interesting that the markets swing this far this fast. It puzzles all of us, I think," said Oilsands Quest executive chairman Murray Wilson.


Mr. Wilson believes the jumps came from a combination of technical trading - where heavy buying can be triggered by a stock price crossing a certain threshold - and more normal activity among long-term investors and hedge funds.


Oilsands Quest is not seeking a merger or acquisition, although it is often approached, Mr. Wilson said.


"We have absolutely no specific knowledge about matters which could cause the shares in ourselves, or the rest of our peer group, to move in the manner that they have," he said.


OPTI also released a statement telling markets that it "is not aware of any specific circumstances that may be contributing" to the recent activity.


But the trading pattern - in which CIBC and TD each bought and sold nearly equal numbers of shares in trades that accounted for more than half of the activity - suggests to others a repeat of the sort of play that some believe also sent OPTI shares inexplicably skyrocketing earlier this year.


In what's called high-frequency trading, firms can make money by using computerized systems to execute huge rounds of lightning-fast small trades, and capitalize on passive rebates offered by exchanges.


According to market traders, exchanges pay about 25 cents per 100 shares to the passive - or offering - party in a transaction, as a way to boost liquidity. In other words, if a broker has 100 shares to sell, and someone else meets the asking price, that broker will make 25 cents. The same rebate is given to a broker offering to buy shares at a certain price.


(Exchanges make their money by charging about 35 cents per 100 shares to the person buying from or selling to the passive party. The exchange pockets the 10-cent difference.)


Such high-frequency trading, which some say should be illegal, allows companies to cash in on trades where a stock is bought and sold at the same price - and can be profitable when the shares traded number in the millions, as they have with OPTI in recent days. But the massive trading the practice generates can serve as a signal to others that something is happening.


"People that don't know maybe say, 'Where there's smoke, there's fire.' And it feeds on itself," said Duncan Anderson, assistant vice-president and portfolio manager of Canadian equities at MFC Global Investment Management.


For OPTI, as with some of the other junior oil sands players, market interest has already been stoked in part by PetroChina Co. Ltd., whose $1.9-billion deal with Athabasca Oil Sands Corp. on Aug. 31 signalled the return of international interest in Fort McMurray's huge bitumen deposits.


"The speculation is that ... more oil sands investments [are] going to be coming from some of these sovereign wealth funds," Mr. Anderson said.