Is ‘market manipulation’ on Bursa rearing its ugly head again?

 

From Ibrahim M Ahmad

On Dec 14 last year, Bursa Malaysia issued a media release boasting about its success in topping the “auditors and audit regulators” category of the Corporate Governance Watch 2023 report.

What Bursa did not say about the report, which surveyed markets in 12 Asia-Pacific countries, was that it also expressed some serious reservations about transactions carried out on the local bourse.

A joint media statement issued by the Asian Corporate Governance Association and Hong Kong-based brokerage firm CLSA Limited in conjunction with the report’s release included this statement about the Malaysian market:

“Regulators driving reform, but market manipulation still a significant problem.”

Following the release of the report, Bursa proudly trumpeted the first part of that comment, but has maintained an eery silence about the second.

Indeed, market manipulation is a significant problem that plagues our stock exchange. True to form, market watchers have again last week expressed concern about some unusual activity on Bursa’s boards.

On Thursday, at least one bank was known to have imposed a strict “cash-upfront” requirement for the purchase of the stocks and warrants of as many as 24 counters with immediate effect.

Bursa has reportedly issued its infamous unusual market activity (UMA) queries but has otherwise kept mum over the matter. The question is, when, if at all, will the regulator react, and what, if anything, it will say and do about the matter.

With share prices of multiple counters plummeting significantly and several among them hitting “limit down” in recent days, the question many are asking is whether something sinister is happening.

More specifically, is a “rollover” taking place?

Indeed, rollovers have been observed quite frequently over the years.

In the traditional rollover model, a stock is actively traded over a period of time, sometimes as between the left and right hands of market players.

The objective of the exercise is to ensure that the particular stock is spotlighted as among the “most active counters” traded for a certain period so that it becomes visible, especially to retail investors.

Transactions involving these stocks usually involve only marginal price increases – designed to attract purchases by retail investors, who are drawn to buy more and more of a counter as its share price appreciates.

At some point, however, the major investors – those responsible for driving the share price upwards over a period of anywhere between three months and two years – will suddenly drop their support for the market.

If at that point a big selling order is in hand, the stock price will plummet and return to its original shape, quite often within the space of just one day.

As a result, retail investors who entered the fray early on may see a significant reduction in paper gains made previously, or even suffer a small loss. Unsuspecting ones who jumped on the bandwagon later may bleed much more heavily.

Apart from this, there are also instances of market activity which show some characteristics of a rollover but on minimal trade – usually involving no more than several thousand lots – before a plunge in the stock price suddenly kicks in.

In these situations, the major shareholder of the company involved usually maintains a low profile and quietly absorbs the loss. He may have a hidden reason.

So, will Bursa break its silence on the matter anytime soon?

Of course, we can expect the regulator to say it is looking into the matter and that unusual market activity (UMA) queries have been issued to the companies in question, but the reality is that in most cases, nothing ever comes out of them.

Will the regulator take real action to deter market manipulation this time? - FMT

Ibrahim M Ahmad is an FMT reader.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.