Manipulation involving low-cap stocks

The stock market saw a mayhem in the final months of 2010 when the bubble created by skilful manipulators had burst. Losing investments worth billions of Takas, aggrieved investors took the street and clashed with law enforcers. The government of the time had to swallow lots of criticism for its alleged indifference to acts of manipulation.
As the market went into a kind of slumber following the bubble burst, the government initiated a probe to find out 'reasons' for the collapse. The probe report was out, but appropriate actions against the people who were blamed for the 'slaughter of the innocent' did not come by, apparently, for lack of sufficient 'proof'.
However, a few packages were announced to help the small investors who were badly affected by the collapse. But the purpose of floating the packages has remained largely unmet.
The years 2011 and 2012 proved to be very difficult ones as all efforts to buoy up the market failed to deliver the desired results. Meanwhile, the government made piecemeal efforts to reform securities laws and rules and turn the regulator concerned dynamic.
The just-concluded 2013, however, witnessed a relatively stable stock market. There were usual ups and downs in stock prices. Most market players heaved a sigh of relief following the return of normalcy in the market. In fact, the market went back to pre-2007 days with least stock price volatility.
However, there were a few developments during the year which might be noted as 'disturbing'. The craze for new stocks, their high prices and abnormal gains in prices of low-cap stocks are a few of such developments.
The craze for new stocks was also noticed all through the dull and drab period of the market. The trend still persists. However, market analysts find nothing abnormal in the investors' interests in new stocks.
But what is being viewed as 'very disturbing' is the abnormal rise in prices of low-cap shares, ranging between 50 per cent and 328 per cent in 2013 when the average gain in all stock prices was only 4.3 per cent.
The low-cap stocks that saw abnormal price gains included a good number of companies, including Bangas, Chittagong Vegetables, Rahima Food, Northern Jute, Al-Hajj Textiles, Kohinoor Chemicals, Rahima Textile, Desh Garments, Olympic Industries and Usmania Glass.
A section of investors shows greater interest in investment in low-cap stocks for the better performing ones in this category because they distribute attractive dividends among their shareholders notwithstanding the fact that those are not capable of withstanding any adverse and abnormal internal and external shocks.
But the heightened interest in low-cap stocks in the Bangladesh market is somewhat different and unusual. Here the interest, seemingly, defies logic for the track record of most of these stocks has been dismal.
For instance, Bangas that generated the highest price-gain, 328.5 per cent in 2013, did not declare any cash dividend in the past four years and offered its shareholders some stock dividends. The share is over-priced having a price-earnings ratio of about 92 per cent. Rahima Food which saw a price rise of 287 per cent is a non-operating entity. The situation with some other high-priced low cap issues remains the same.
When the stocks of many large and medium companies having strong fundamentals are still below their 'justified' level of prices, the craze among a section of investors about low-cap and poorly performing stocks seems something unusual. Why should traders pour in large funds in such stocks?  An answer to this question remains shrouded in mystery.
It is the job of the securities regulator, which received a 'facelift' following the collapse of the market in 2010, to unravel that mystery and do the needful. Unfortunately, it has failed in its task.
However, the Bangladesh Securities and Exchange Commission (BSEC) has only recently asked the Dhaka Stock Exchange (DSE) to put in use its surveillance system to detect manipulation, if there is any, in trading of low-cap stocks. The DSE reportedly has submitted a report to the BSEC in this connection.
But what has happened to the BSEC's own surveillance system? It had installed surveillance software in 2012 which is reportedly capable of detecting any manipulation in stock trading.
Though there are a number of media reports on unusual transactions involving low-cap and non-performing issues in the early months of 2013, the BSEC did not feel the urgency of taking necessary actions in this connection.
On occasions, the regulator does its job by serving show-cause notices on errant listed companies or imposes paltry financial penalties. Such steps in most cases do not work.
Large-scale manipulation is now absent in the stock market since the prevailing circumstances are not conducive to carrying out the same. However, small-scale manipulations are still at work and the same is gaining momentum in the absence of proper regulatory attention. But such regulatory indifference might embolden the manipulators to indulge in even bigger offence. The 1996 and 2010 stock market episodes are two glaring examples.
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