Bursa Malaysia’s current share trading system and the integrity
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THE “erroneous” trade involving the shares in Kuala Lumpur Kepong Bhd (KLK) raises some serious questions about Bursa Malaysia’s current share trading system and the integrity of the market.
While there is no proof that any intended manipulation did take place, there is also no proof to the contrary, leaving sceptics to doubt if the newly-modified trading system is yielding the correct result.
What fuels the conspiracy theory is this: that the so-called erroneous trade had resulted in the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) being boosted by almost six points.
Secondly, the transaction took place towards the end of the trading day, just after the pre-closing phase. Ironically, this trading period is intended to mitigate price manipulation.
And yet the shares were allowed to be crossed at RM17 apiece, well above the last transacted price of RM13.70. While the system may be effective in halting the syndicates from ramming up share prices towards the end of the trading day, it does not seem to cater to or perhaps even facilitates the artificial rise of a stock’s price via this so-called error trade situation.
This has given rise to theories that certain quarters have devised a way to prop up the FBM KLCI under the guise of an error trade. Consider this: What if two large funds had instructed the broker involved to carry out such a trade and then make it look like an error?
While this theory is far-fetched, it does seem possible. Many others think a mere technical glitch allowed the erroneous trade to go through.
The current situation is not helped by Bursa Malaysia sticking to its guns of not overturning any transaction that it deems to be a legitimate one carried out by market participants.
To be fair, Bursa is at least consistent. In 2005, when a dealer had mistakenly keyed in a “sell” instead of a “buy” for the rights to IJM Corp Bhd’s warants, thereby resulting in millions of ringgit of losses for the dealer, Bursa didn’t budge either. It said then that market players should manage their own risks proactively.
But to err is human. So it does seem logical that Bursa should consider allowing such trades to be reversed if they are found to be genuine mistakes. Indeed, a reversal of the KLK trade would also lay to rest all conspiracy theories. Bursa should also explain how the KLK transaction could go through during a period that has been devised to prevent the artificial inflation of stock prices.
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