Financial Times

Share price manipulation eases after SEC probes
Stock prices on the Colombo bourse eased last week and fell to normal levels after market manipulators apparently got cold feet following moves by regulators to probe those responsible for fixing share prices at unrealistic levels, brokers and analysts said.

The Securities and Exchange Commission has written to listed companies whose prices were subject to unusual movements in recent weeks as well as brokers, seeking information about the share transactions.

The SEC has identified three listed firms whose prices were manipulated and plans to summon them for further investigations, SEC director general Channa de Silva has said. Brokers said trading patterns changed last week and that price manipulation ceased as news of these developments spread and it became know the regulators had placed under close scrutiny some investment advisors who were engaging in excessive transactions.

"We can see a clear change in the market - there's no manipulation," said a broker. The three companies being probed by the SEC are believed to be Nawaloka, Asian Cotton Mills and Hotel Reefcomber.

Brokers Asia Securities said in a recent report that well-organised buyers were targeting illiquid, low-priced shares with low free floats, with the demand and supply imbalance resulting in exaggerated share price appreciation.

They pointed out that with most of the companies listed on the CSE having low free-floats of under five million shares, there is no shortage of potential targets for such manipulators, with the herd instinct and gambler mentality of the average retail investor adding to the momentum.

"While the laws of demand and supply apply to shares as well as any other market, it is critical that investors appreciate that although short term diversions from fundamentals can occur, in the long term, fundamentals do matter," the brokers said. "While speculative shares, not well backed by fundamentals, remain 'in play', sharp gains are possible, but the downside risk is also high once such shares fall out of favour, with poor investor capital protection."

Stock market analysts said that the managements of some companies with low value shares were aware of their share prices being pushed up.

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