Surely You're Joking, Sam!

In Starbiz today, you will see an article entitled "Is Bursa too strict?", where the President of the Remisiers Association of Malaysia, Sam Ng Soon Lee was lamenting about the stricter measures implemented by Bursa Securities in order to curb irregular or manipulative dealing activities. Some of the market breaches that are forbidden by the exchange are price manipulation, short selling and trades with no change of beneficial ownership.

Sam feels that the stricter implementation of these rules may impact liquidity in the equities market. “We're semi-liquidity providers but many are put-off by the tightened measures over volume activity (which may breach stock exchange rules) and this will impact trading volume,” Ng said. He observed that market regulators must also consider the consequences of interpreting the rules more strictly as this could impact genuine participants whose business would be affected.

I do not agree with Sam. Firstly, I believe the exchange is very careful in making a distinction between genuine activities and irregular or manipulative activities as it has the powerful surveillance system to track all trades done in the market. From a recent seminar conducted by Bursa, we learned that the exchange has a Market Management process to deal with irregular market activities. The steps involved are:

1) Fact Sharing or Finding

2) Surveillance Query

3) Unusual Market Activities ('UMA') Query

4) Market Alert

5) Designation

The first two steps are preliminary steps taken to inform the remisiers and/or dealers concerned that they are under surveillance. They are given an opportunity to explain their action as well as to cease their activities. If these activities are genuine transactions, the exchange would not take any action against the parties concerned. If the exchange is not satisfied with the explanation given, it would take further action, such as issuing UMA Query. In the case of Harvest, the exchange was not satisfied with the reply to two UMA Queries and it had to issue Market Alert & followed with Designation.

Secondly, we should never condone market manipulation. It is self-serving to argue that a stricter regime would result in poorer liquidity in the market, when in actual fact, what you've wanted is bigger volume in order to generate more business for yourself. I am all for making more money, both for myself and my clients. However, we can see lately that some stocks in our market were played up sharply and these are zero-sum plays, where a fortunate few win handsomely while a whole lot of people lose their shirts. A good market cannot be sustained based on trickery.

Finally, if we want to see our Bursa Malaysia becoming a world-class stock market, we must lay down strict rules on transparency & corporate governance. How can such a market live side-by-side with a third-world mentality, lax rules & poor enforcement where market manipulation is a daily affair? We must lay down good laws and rules and enforce them strictly.

Sam Ng is a very dedicated remisier. He has served as the President of the Remisiers Association of Malaysia for a few terms. He had spoken out on a few issues where the interest of investors were trampled. He had also lobbied for rules and regulations to protect the interest of remisiers as well as investors. However, on the above issue, I feel strongly that Sam took the wrong position. His view does not represent the view of many remisiers who are not happy with the prevalent market manipulation involving 2nd and 3rd liner stocks. I believe the exchange is doing the right thing in trying to rein in such activities.