Stock Market Books

Wednesday, November 13, 2013

Contra plays not the villain

Contra plays not the villain -- SPORE STRAITS TIMES 16 OCT 2013

CONTRA plays are not the evil in our stock market ("Time to fix flaws in local contra trading system"; Monday). Instead, they are a proven source of liquidity that keeps our market going. During quiet periods when foreign funds are grossly absent, liquidity from contra plays becomes even more significant for our bourse's survival.
It is dangerous to take international practices (for example, disallowing contra plays) as the standard for determining the correct structure of our exchange. Each stock market must be considered on its own strengths and weaknesses.
In the case of Singapore and Malaysia, our well-being has been deeply rooted on contra plays.
One should not dream that a tiny market like Singapore would be converted into a financial hub overnight simply by imitating established markets in all their practices.
Most losses by retail clients in our market are due primarily to an uneven playing field between such clients and institutions.
The Singapore Exchange has a crucial role in addressing this problem.
Group manipulation of our share counters does not come about because there is contra play that, unfortunately, still involves a change in ownership during a trade, against cash-upfront trades.
A stock can also be rolled from one hand to another to be snowballed by having the principal sum paid up each time.
The issue is how to track down such manipulative plays before a bubble is blown beyond proportion. Sheer rules covering corporate governance without necessary and prompt enforcement will not work.
It is justifiable for broking houses to resort to controls restricting the trading of certain stocks entering hazardous levels. However, over-restriction should not be encouraged. Such riskiness has nothing to do with contra plays.
The notion of designated stocks can be applied to emergency stocks only when the T+1 cash market platform is still available. Removing the T+3 settlement (which facilitates contras) across the board is not the solution.
For designated stocks, it is recommended that the Central Depository balances of clients be linked to their control to allow only sales from free balances, where necessary.
Jimmy Ho Kwok Hoong President
The Society of Remisiers (Singapore)-

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