Warning over penny stock plays

CLAMPDOWN: Securities Commission wants end to
‘unhealthy’ speculative trading practices


THE Securities Commission (SC)is believed to be in the process of
clamping down on speculative trading of penny stocks.

A circular from the SC to a brokerage house obtained by Business Times indicated that the clampdown was a high priority to the regulator.

In the letter dated June 21, the SC said it had noted several key areas of concern that would require immediate attention and action by all participating organisations (POs).

POs are stockbroking firms.


“The SC has found some unhealthy trading practices in the trading of penny stocks, which are low-priced shares of small companies,” the regulator said in the letter to the POs.

In Malaysia, penny stocks are categorised as stocks that trade below RM1.

In recent weeks, trading interest in penny stocks had declined rapidly as the market was expecting some form of action from the regulators.

“Normally, the POs are brought in for discussions on how to overcome a set of problems.

Only when the discussions are not delivering the right form of results are things put in black and white,” claimed a stockbroker with more than 17 years of experience.

Retail participation in the market last week was below 20 per cent, and although the market raced to an intra-day record early this week, interest on penny stocks or second liner stocks were muted at best.

On Monday, the all blue chip FBM KLCI Index, which tracks about 30 stocks, peaked to an intra-day high of 1,611.50 points in the first session of trading.

The best closing for the FBM KLCI was on April 3 this year, when the key benchmark index closed at 1,606.63 points.

Maybank Investment Bank Bhd head of retail investment Lee Cheng Hooi told Business Times early this week that retail participation in the market was mild.

According to data obtained from Bursa Malaysia’s website, retail participation in the market on Tuesday was at 17.87 per cent, as
opposed to the 59.24 per cent contribution from institutional funds.

Last month, retail participants contributed some 50.45 per cent of the volume traded, information obtained from Bursa Malayia’s website showed.

In terms of value, trades done by retailers contributed some 18.05 per cent. The total value of trades done on the stock exchange was RM31.1 billion, with the total volume at 23.8 billion shares.

The SC also noted shortfalls in the standards of some POs on market and business conduct, which were elaborated in the Guidelines on Market Conduct and Business Practices for Stockbrokers and Licensed Representatives, issued in 2008.

“Hence, POs are reminded to take reasonable steps to organise and manage their business,” the SC said.

As such, it suggested that POs have in place an appropriate monitoring system to detect and manage any manipulative trades.