Market players continue to exploit the quick speculative profit opportunities operating within the restrictive price curb, analysts say pointing out that ‘manipulation’ has become so much easier now and the new rules has not done much to curb manipulators.
“The price bands were brought in to curb manipulation. However things have turned around and people have got used to the price bands. Now the manipulation has become so much easier," Dimantha Mathew, Analyst Capital Alliance said.
Doing it their way
Explaining how a share is manipulated within the price curbs that the Colombo Stock Exchange imposed early last month, an analyst said that once a share is selected by a trader, every day it’s taken up the full 10% mark and once this 10% is cleared no seller would step in knowing it would go a similar amount the next day. So when a share starts going up 10% a day it can easily reach the full 10% mark for at least 5-6 days.
Mr. Mathews, while agreeing with this, noted that there are problems pertaining to the price curbs when price sensitive information is announced by the firms.
Can’t go up
“For example when Aitken Spence announced the share split, its prices couldn't increase because of the 10% band. Nobody wanted to sell at that price level and further when trades don't happen, the price band for that share for that day doesn’t change as well. The same is true for the next day as well. However it's likely that someone sacrificed 100 shares which traded at a higher price the next day (after the split announcement) so that the price could move up the following day,” he explained. Many agree that this setback in the regulation is a major issue.
Can’t go down
“Another example is that if there is a hotel trading at Rs.80 and something like a tsunami happens and the hotel is not there the next day and supposing the value of that share is Rs. 8 (after the tsunami), this price cannot realize as there won’t be no buyers at the lower 10% band, which is why the Rs.80 price cannot realize,” Mr. Mathews noted.
But traders are happy
Despite all this traders seem to be happy within the price band according to some analysts as they say that the movement of the market is basically driven with the very positive sentiment prevailing in the country and the development that is expected on the macro picture.
“Traders are taking positions in the market with these regulatory controls. Somehow they are interested in blue chip counters as they feel that the market is now adjusting to the right levels,” Thakshila Hulangamwa Vice-President Asha Phillips Securities said.
Others say that sharp increases in prices, when not justified by improvement in outlook/ fundamentals are a reflection of the price manipulation rather than the cause. “Price bands targeted the symptom not the cause,” a second analyst said, adding that unless the regulator can track and monitor manipulation, the individual/s involved will continue the game, quite freely.
Bands are needed
He added that once the system capability is in place with improved surveillance this manipulation will decrease.
Price bands are needed to control undue volatility arising from excessive speculation, market panics and where manipulation arises despite close surveillance, according to the regulators.
Show must go on
Some analysts say that despite the price bands, ‘the show must go on’. "Regardless of what happens traders will continue to exploit opportunities to make money. Price bands brought some control to a market where speculators took some stocks like Dankotuwa Porcelain to highs that valuations could not justify. However, investor sentiment remains positive backed by healthy earnings which will enable the indices to hit new highs with pockets of profit taking in-between,” Milinda Ratnayaka, Analyst SMB Securities said.