It is difficult to find a clear cut definition for “pump and dump” of equities, though it is a widely used term in the Sri Lankan markets since lately. Pumping of share prices could be argued as manipulation of market prices if done in an organized manner by a group of people whilst on the other hand could also be an incidental result of unrelated parties showing strong buying interest on the same stocks during a similar time frame, according to some industry analysis.
“As such the regulator's task of identifying buying behaviour which is artificial and manipulative, is rather difficult and proving the act of market manipulation beyond reasonable doubt is a tougher task," Danushka Samarasinghe, Director TKS Securities told the Business Times.
Raj Rajaratnam
He added that this issue is not unique to Sri Lanka and is present in many developed markets while the level of market manipulation in the so-called developed markets in the West is at a much organized and a larger level even beyond our imagination. “The conviction of Raj Rajaratnam in the USA is an example of the same and many are of the opinion that it is only the tip of the ice berg.”
Industry experts say that dumping of shares is not an offence; it is the call of the investor to either book his profits or to cut his position/loss. Nevertheless if the dumping of shares is subsequent to organized manipulative buying of the same shares, then it needs to be carefully scrutinized by the regulator in order to evaluate wrong doing.
Fast cash
On the contrary few selected individuals (with relative wealth) are in the position of benefiting from carefully engineered sequence of buying into selected counters and subsequent selling of the same, due to the gullible following of the market in pursuit of a quick buck. “As such the argument can also be levied against the victims of such market behaviour who had ended up in the losing side, since if it wasn’t for their blind following of shares at prices far beyond its justifiable value such a scenario may not have occurred,” Mr. Samarasinghe noted.
He said that escalating the issue is the fact of such speculative buyers buying on credit whilst part of the blame also is levied on the brokering community who encourage credit financing on speculative shares. “It is also saddening to note that some retail investors (in the present environment retail clients may be individuals investing up to even Rs 10 million) do put their money blindly, in specific shares which they even don’t know what the underline business is. They don't have an opinion regarding whether they are under paying or over paying for their investment,” he added.
Casino mentality
He encouraged the investing public to correctly identify the share market as an investment vehicle rather than a casino. "If this is the case, we as the Sri Lankan capital market community along with the regulator could spend more productive time developing the markets rather than addressing issues / complaints regarding pump and dump scenarios.”
According to an analyst, pump and dump has been happening in this market all the time and it will continue to happen as long as regulators take some strict action for it. “An announcement on Automated Trading System and the Colombo Stock Exchange web site regarding its net asset value and earnings will be useful,” he added. |
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