Wednesday, June 03, 2009

Chewing The Fat About Cowboys & Indians


I have a few friends who work at senior positions at Bursa and Securities Commission, not trying to do name dropping, just the facts. We always end up up with heated debates on issues surrounding the markets. The latest was a friend's concerns over the cowboy-ness of our markets.

A cowboy market can be termed as a market that is full of syndicates and massive rampings and "lootings" by unscrupulous players. My friend was concerned about that and wanted to look for ways to rein them in with their own lassos. I basically told my friend that you need some "cowboy-ness" in every market. When I forced my friend to come out with cowboy names, names such as SAAG, Huaan, Mulpha, Mobif, Compugates... were mentioned. The theory goes that these counters would have less than 100,000 shares traded normally and can be considered to be dead ducks for most of the year. Suddenly out of the blue, these counters can register daily volumes in excess of 10 million a day! Surely they were rigged!!!

What are syndicates but the collusion among a few players. If the intention is to control the counter, ramp it up and dump, then its sinister and illegal, and should be prosecuted. When they do not really have control, i.e. a relatively large free float, like KNM, you cannot say these counters are controlled even though there may be syndicates behind these counters. Many syndicates do have the controlling shareholders behind them - if you think syndicates do not exist, please go fly a wau bulan.

I am not asking the Bursa or SC to ignore some of the more unscrupulous activity. I am basically voicing out that you need some element of cowboy-ness in every market. If the counter has sufficient liquidity and a good free float, and it appears to be high on volume list, its best to let things be. If the counter appears to be controlled - e.g. more than 50%-70% being tied up and the rampings seems rampant, then by all means query the company. The trouble is 99.9999% of all companies queried will answer that they are not aware of any news, developments or business activities that would have led to such irrational activity in their share's volume and price.

The SC and Bursa SHOULD look closely when certain groups of players buy and sell the same shares among themselves, and when that level is more than say 50% of total volume traded in a day. The SC and Bursa should have the ability to look at trades breakdowns to get at those information. But that alone is not a sufficient "bad factor".

Buying and selling can also be pure day trading, which cannot and should not be faulted. Heck, even EPF buys and sell the same shares in the same day.

The SC and Bursa are there to maintain some sort of integrity in the market and to make sure the public are not duped. It is better to have "share gains threshold" before launching a thorough investigation into the manipulation or syndicate activities. I would propose that:

a) put a company on your red alert list if a stock gains more than 50% in value over a 4 week period

b) an investigation should be launched if the said gains is also accompanied by: massive "private placements" activity; and/or certain individuals or groups recording same buys/sells activity that accounts for more than 50% of daily volume

Other than that, it is better to let cowboys be cowboys, you need that element to bring back the crowds. Its a necessary part of a healthy functioning market. Btw, I also told my friends that there are now way tooo... many lawyers working at Bursa and the SC, trying to monitor and run the local markets. Its not healthy, its too legalistic... and most importantly, most lacked market savvy-ness and an appreciation of market nuances, which are paramount in order to govern effectively and successfully. In the end, you will end up with just one of the two, effective but not successful, or successful but not effective.




p/s photos: Kanjiya Shihori

6 comments:

see said...

SC & Bursa folks are clueless on what drives markets. I know many of them pretty well & what should I say.....their lack of market savvyness, to put it diplomatically. Regulators will always be a step behind, thats why frauds and shenanigans always occur

solomon said...

Not only here I guess, Wall Street is also plagues with the similarities with their SEC.

You need to have savviness in the regulators? How? I think it is better let some of the cowboys be the sheriff (regulators). Come on, do not only employing those with good education background, please lah it would not effective in this era.

They need some good cowboys to guard the bad cowboys. Like the good bacteria and bad bacteria in the body system.

Seng said...

Hi Dali,

Nice article. Since you have friends at high places, I thought I drop another idea to plant the seed so to speak ......

The root cause seems to be investor protection. Regulators are naturally concerned when the lay investor got scammed and lost tons of monies from these specky counters, and then complain that regulators don't do their job.

Your suggestion to commence investigation when the stock price has risen > 50% in 4 weeks is not bad. Selective investigation is clearly better than no investigation. But this is still after the fact, meaning, by the time investigation starts and before it ends, someone / a lot of people will have already got burnt from their ignorance.

Investor education helps, but realistically, we cannot educate 27 million Malaysians to the extent of them being able to identify which stock are specky and which are NOT specky. This is simply impossible to achieve - someone will still continue to get hurt.

My suggestion - which you might have raised in the past - is to tighten the criteria for Main Board vs Second Board. Ideally, the number of stocks on the Main Board should only be 20% of what it is today - I don't think we really have that many blue-chip stocks.

If they tighten up the criteria for Main Board listing, then, it becomes a more practical tool for Bursa to educate investors, particularly the mass.

The problem is we only have 3 Boards - Main, Second, Mesdaq. Perhaps what's needed is another Board called a Premium Board, where only 10% or 20% of Main Board counters would be upgraded to Premium. Then, the mass would be reminded that if they want to genuinely invests, they should screen for Premium Board stocks first, as Main Board stocks have been known to have very volatile price swings ......

Basically, some form of easy identification for the mass, so that they can know what type of stocks to avoid. In my own mind, the stocks you listed like HUAAN, COMPUGT, MULPHA, etc. would never made it to the Premium Board.

Just planting a seed ....

Cheers!

Seng.

METALRAGE said...

People with no underlying interest in a business/commodity/thing they are buying are like middle men making money by being in the middle of a transaction between a legit buyer and seller.

One big difference -- middle men typically perform the service of making the deal possible. And so are a net positive to society, economy.

Not so in this case.

There are people really good at channeling wealth to themselves, but are in essence a net ZERO to society.

And so I don't see their value to society/economy. No point facilitating it. From a pure utilitarian perspective for society in general lah!

Their value will only be apparent to the same community of like-minded ilk who channel wealth to themselves by games of pitching dice.

If nobody is playing at a casino, who do you play against?

METALRAGE said...

People with no underlying interest in a business/commodity/thing they are buying are like middle men making money by being in the middle of a transaction between a legit buyer and seller.

One big difference -- middle men typically perform the service of making the deal possible. And so are a net positive to society, economy.

Not so in this case.

There are people really good at channeling wealth to themselves, but are in essence a net ZERO to society.

And so I don't see their value to society/economy. No point facilitating it. From a pure utilitarian perspective for society in general lah!

Their value will only be apparent to the same community of like-minded ilk who channel wealth to themselves by games of pitching dice.

If nobody is playing at a casino, who do you play against?

KoSong Cafe said...

How can we have a dynamic stock market without syndicates and speculators? Or, put it another way, we cannot stop such people from going into a market when the conditions are suitable for them to make a killing. There are winners as well as losers, among the 'predators' who are actually big time gamblers.

During the bull markets, there were talks about syndicates going round to controlling shareholders of some public listed companies to strike a deal with them. Basically, it involves an agreement by them not to sell their shares, so that the syndicate can play up the remaining shares of particular counters. There was even talk about certain people extorting money even though the rise had nothing to do with them! Anyway, we have seen some known names who tried to corner certain counters and got themselves cornered!

We can have rules to regulate, but like agreements, nothing is perfect. Just bear in mind there are vultures circling for a quick kill whether it is a bull or bear market.