Illiquid share manipulation to stop by month-end
View(s):Manipulating illiquid stocks in the Colombo Stock Exchange (CSE) will cease by end of January with the CSE approved free float-adjusted market cap weighting for ASPI (All Share Price Index) coming into effect by January 24.
This calculation is seeking to eliminate the distorting effect of illiquid stocks which has been a perennial problem at the CSE enticing traders to manipulate low liquidity shares.
“This should have been done a long time ago. With this method, the indices will be less susceptible to manipulation by cornering in liquid stocks,” Murtaza Jafferjee, CEO J B Stockbrokers told the Business Times.
In recent weeks, the ASPI has reached record highs with traders on social media driving up prices and volatility on ASPI stocks with little free float and actual liquidity.
Currently, the ASPI reflects both voting and non-voting shares of listed companies and does not show the liquidity and actual tradability of each security, resulting in inconsistencies between prices on display and the actual prices experienced by the investors.
“It was decided to use a free float-adjusted index – commonly used by several exchanges that consider only the tradable portion of the issued quantity of securities, also known as the free float shares, for the calculation of indices,” the CSE said following a board meeting on November 15. “In this method, in the index calculation, each security is weighted based on its free float-adjusted market capitalisation.”
Mr. Jafferjee also said that during the latter half of last year the market performance has been principally predicated by credit flowing through margin accounts. A slowdown in credit flows during this year will affect the market momentum, he added.
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