Drama at the bourse: WealthTrust trades cause mayhem
The Colombo bourse has hit the highest of highs and the lowest of lows but, there has never been a chaos creating day like Wednesday, January 7, with the market day lasting only 23 minutes, exposing massive weaknesses of the stock market systems, after trades on Wealth Trust Securities first trading day. Some suggested that the events may have been the result of deliberate sabotage.
This mayhem at the Colombo Stock Exchange (CSE), currently being probed by both the Securities and Exchange Commission (SEC) as well as the CSE, was started by WealthTrust Securities pré-opening trades involving 6 million shares at an inflated price of Rs. 25,000 each, which resulted in a Rs. 163 billion eyebrow-raising turnover. The company raised Rs. 500 million at Rs. 7 per share in an initial public offering, which was oversubscribed 15 times.
The sell order price for WealthTrust Securities has sparked debate, with some endorsing it as a result of “human error,” while others argue that a five-digit selling price was not a mistake and that the pricing was intended, potentially causing market disruption. To curb the situation, the CSE, with SEC’s recommendation, halted trading at 4 p.m., meant to protect investors and assert a fair and orderly market, as it was exposed that some clients had sold shares at astronomically inflated prices using borrowed funds to buy shares of other listed companies.
Despite certain individuals pointing fingers at the authorities, claiming a monetary loss, the authorities state that the reversal has resolved any such issues.
From Rs. 7 to Rs. 25,000 a share, the orders were placed through the stockbroker’s Automated Trading system (ATS), an analyst said, noting that it was the stockbrokers’ job to check this transaction. The stockbrokers had had a meeting with the market operator on Wednesday, and they had wanted the transactions reversed.
Analysts lashed out at the CSE for not spotting the unusual price in advance, especially since the order was placed before market opening. “The daily turnover of the market is around the Rs. 5 – 7 billion range during the past year. The highest it has hit is Rs. 34 billion. On Wednesday, it hit Rs. 163 billion, and anyone should have noted that it cannot be plausible. As such this was an unrealistic market. The solution had to be decided by the market operator, and closing the market and erasing that day by cancelling all orders and transactions carried out on 7 January was the right decision,” the analyst reasoned.
Although the CSE has restrictions for companies with established closing prices, IPO shares without a trading history are not subject to similar limitations.
The decision by the CSE and the SEC to cancel the disputed trades has been met with cynicism. Brokers and analysts raised concerns about the lack of provisions in trading rules for such cancellations and questioned what influenced the actions of the SEC and CSE, but officials said that there is a provision under the SEC Act to do so.
Late Thursday evening, the Sunday Times Business learned that the regulator was questioning stockbrokers responsible for the transaction and is trying to figure out what happened. It was also revealed that the CSE was probing the situation separately. Further, the CSE will be producing certain guidelines and rule changes, where it will be imposing market orders for IPOs on their first day of trading.
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