The list of price bands in firms is growing rapidly, what with the magic formula still being a mystery and some market players lamenting that it doesn’t make any coherence. But the Securities and Exchange Commission (SEC) says that this is the idea.
“When we initially imposed the 10% price band last month it was the same situation where we faced many criticisms (now too there will be similar criticisms). This formula is to be tested and if there’re issues we will tackle them,” Indrani Sugathadasa, Chairperson SEC told the Business Times.
Some fear that the day will soon come when every actively traded stock would be slapped with a price band. “The secret formula lacks a limit or a meaning,” another analyst noted, adding that not just the broker community, but anyone needs clear limits depicting what to do and what not to do.
Since September 20 when SEC introduced this formula, as much as nine securities have been slapped with this price curb. The first to enter the band was finance company Vallibal Finance followed by Lake House Printers. Bogala Graphite, Metropolitan, East est, Coco Lanka, Colombo Land (warrants), Ceylon Tea Brokers and Muller and Phipps followed suit into the price curb during the past weeks.
Some say that although the concept of imposing price restrictions only on highly manipulated shares are good, that the way in which the formula itself is hidden by the regulators is very unhealthy and needs to be a transparent process. However, Milinda Ratnayaka Analyst SMB Securities disagrees saying that the SEC has so far identified and slapped the price band only on speculative shares that have appreciated in price without reason.
“This can be seen in the list of price bands so far,” another analyst added.
The fact remains that still the share market players haven’t ‘cracked’ this formula. “It may not really affect every actively traded share. The more liquid shares in my opinion will not be affected- It will only affect the companies which are tightly held (Lower free float),” he said.
Some say that it is hard to fathom. “As we have very little idea as to what behaviour causes the price bands, it’s difficult to say what type of shares actually go into it,” another analyst noted, adding that during the past days the Colombo bourse also has witnessed plenty stocks with rather strange trading patterns which has totally escaped the SEC net.