Wednesday, October 07, 2009

Unusual Market Activity (UMA) - Needs Teeth

Trying to ensure an orderly market is difficult for Bursa. It seems that the constant issuance of UMAs will always result in the company replying that they are not aware of any material developments.

Sep 29: Bursa Malaysia queried two companies, LFE Corp Bhd and Tracoma Holdings Bhd, about the recent unusual market activity (UMA), which saw sharp increases in their share prices.

Bursa directed the two firms to provide an announcement for public release after making due enquiry with their directors and major shareholders seeking the cause of the UMA.

LFE surged more than 140%, or 24 sen, to 41 sen on Friday, its highest in 14 months. The counter added 4.5 sen, or 10.9%, to 45.5 sen at the mid-day break. It finished at 44 sen on volume of 7.5 million shares.

Meanwhile, Tracoma added six sen to 38 sen at the midday break but ended at 32.5 sen on volume of 1.55 million shares. On Friday, the counter jumped 64% to 32 sen.

In an announcement to the exchange, LFE said there had been no material corporate development not previously announced that might account for the UMA, including those in the stage of negotiation or discussion. It believed a recent newspaper report could account for the UMA.

Tracoma also said there was no material corporate development relating to its business and affairs that had not been previously announced that might account for the UMA.

My Views: Bursa is right to issue these UMA and these warning SHOULD be taken seriously by all investors. Bursa will only issue the UMA when the price and volume registered unusual movements. Usually, these counters also have very little in fundamentals to talk about. We must be careful to strike a balance as any well functioning capital markets needs to have a bit of "cowboyness" in it. So far, I am in agreement of all the recent UMAs issued.

But Bursa needs to move to the next level, it needs to have teeth. UMAs are now being regarded as junk email in the eyes of the affected companies. May I suggest that a clarification be issue by Bursa, that when a company is issued with a UMA, and the irrational price and volume persists, Bursa reserves the right to implement "cash only buying" for the counter for an indefinite period. Now that that is out there, I believe investors will take these UMAs very seriously. Cash buying only will make any manipulated counter collapse for sure.

p/s photo: Haruna Yabuki

1 comment:

emacro said...

Maybe a fine on the Boards who issue such UMA denials, when later it turns out there is indeed a material event.....