About settlement of trade in stock market
Sunday, 5 August 2007
A report in a newspaper, published on July 30, 2007, said: "The market regulator -- the Securities and Exchange Commission (SEC) -- also withdrew financial adjustment facility 'netting' from trading of A, B, N and Z categories' securities."
First of all there is no such thing as 'netting'. The correct term should be settlement of trade. Investors should be able to do anything with their cash once a trade is completed -- for example, buying a new stock right after selling. A trade should be settled in the next minute it is executed. For book-keeping maybe at end of day all trades can be recorded but an investor should not have to wait four days to settle a trade. Nowhere in the world there is such a system where investors have to wait such a long time, where usually a trade is settled by the end of day. Also, volatility is part of any trading system. Therefore, when an investor invests in the stock market he is in full knowledge of the volatility of the trading system.
Share prices do not go up in a straight line. There will be volatility where markets will fluctuate and this is healthy and does not call for SEC's efforts to control the volatility. Also since this new rule is implemented the volume has plummeted. The SEC also said that there would be no shortage of liquidity because of this new rule.
The main issue is not liquidity, instead they should focus on volume. Now the volume has become very low since the initiation of this new rule. When there is a large volume, that shows large investor participation. When there is low volume, there is more chance for manipulation and price fixing. Also why should investors have to wait for four days to settle a trade? Lots of things could happen that could materially affect the share price of a company. The director can die or the company can report bad earnings. The price of a stock can change due to these events. If investors have to wait four days to settle a trade, then why would they have to be punished due to some strange rule? Maybe instead of trying to control the market, the SEC should focus on market manipulation by the company using unscrupulous means. They should watch manipulation by watching large block trades.
Therefore, I suggest following proposals: Privatise DSE and CSE and offload those shares to public so that these organisations can be run more smoothly and serve the public interest, instead of some government organisation.
Revamp the SEC with adequate number of qualified manpower -- those with experience about how the capital market works. The current practices -- experimenting their way with the expense of investor's hard-earned money -- are no good sign about the regulator.
Some prominent persons can oversee the daily activities of the regulator. Governance is good. Good governance is also good. Bad governance in the name of good governance is very bad, indeed.
Md. Aftab Ahmed
94 Elephant Rd.
Dhaka
First of all there is no such thing as 'netting'. The correct term should be settlement of trade. Investors should be able to do anything with their cash once a trade is completed -- for example, buying a new stock right after selling. A trade should be settled in the next minute it is executed. For book-keeping maybe at end of day all trades can be recorded but an investor should not have to wait four days to settle a trade. Nowhere in the world there is such a system where investors have to wait such a long time, where usually a trade is settled by the end of day. Also, volatility is part of any trading system. Therefore, when an investor invests in the stock market he is in full knowledge of the volatility of the trading system.
Share prices do not go up in a straight line. There will be volatility where markets will fluctuate and this is healthy and does not call for SEC's efforts to control the volatility. Also since this new rule is implemented the volume has plummeted. The SEC also said that there would be no shortage of liquidity because of this new rule.
The main issue is not liquidity, instead they should focus on volume. Now the volume has become very low since the initiation of this new rule. When there is a large volume, that shows large investor participation. When there is low volume, there is more chance for manipulation and price fixing. Also why should investors have to wait for four days to settle a trade? Lots of things could happen that could materially affect the share price of a company. The director can die or the company can report bad earnings. The price of a stock can change due to these events. If investors have to wait four days to settle a trade, then why would they have to be punished due to some strange rule? Maybe instead of trying to control the market, the SEC should focus on market manipulation by the company using unscrupulous means. They should watch manipulation by watching large block trades.
Therefore, I suggest following proposals: Privatise DSE and CSE and offload those shares to public so that these organisations can be run more smoothly and serve the public interest, instead of some government organisation.
Revamp the SEC with adequate number of qualified manpower -- those with experience about how the capital market works. The current practices -- experimenting their way with the expense of investor's hard-earned money -- are no good sign about the regulator.
Some prominent persons can oversee the daily activities of the regulator. Governance is good. Good governance is also good. Bad governance in the name of good governance is very bad, indeed.
Md. Aftab Ahmed
94 Elephant Rd.
Dhaka