Tuesday, October 28, 2008

T&T Stock Exchange implements rule change

Published: Tuesday October 28, 2008

The T&T Stock Exchange yesterday implemented a rule change to prevent small transactions from affecting the prices of stocks.

The change to Rule 207 will set volume thresholds at which price changes can take place.

For some time there had been consternation in the investing community over the ability of small transactions to cause big changes in the price of a stock.

The transaction which triggered the rule change happened four Mondays ago on October 6, when three trades in shares of Republic Bank Limited amounting to 365 stock units caused the price of the bank’s stock to fall by $9.20 cents (9 per cent), wiping out $1.5 billion of the bank’s market capitalisation.

In a statement, the TTSE said those kinds of price movements were “a phenomenon common to most small illiquid markets,” but “There is little doubt that such transactions erode public confidence in the exchange and the market.”

Under the new system the price of a stock costing up to $4.00 can only be changed up or down on a volume of at least 5,000 shares of that stock. The price of a stock costing between $4.01 and $10.00 can only be changed after 3,000 stocks are traded; for a stock priced between $10.01 and $20, the volume which would trigger a price change would be 2,000; for a stock priced between $20.01 and $50.00, there must be trades of 1,000 stocks before the price can change and in the case of a stock priced at $50.01 and above, 500 shares must change hands before a price change is registered.

This system is called the “board lot” and the exchange said it will not affect how shares are traded, only the closing price of the stock. It said a broker can still trade as little as one share, if necessary, but that such a trade will not be able to change the closing price of the stock.

Source: Trinidad Guardian Newspapers

No comments: