A new way of manipulating stocks

On June 23, buy orders were placed in the early hours of the trading day at the Dhaka Stock Exchange (DSE) to purchase around seven crore shares of Malek Spinning. The targeted scrips accounted for about 80 per cent of the total tradable securities of the company.

Seeing such a high demand for the share, general investors were reluctant to sell because any sensible person would take that as a signal that the price is going to go up.

So, as expected, they held the shares and tried to buy more, sending the stock higher.

On the day, buyers were ready to offer a 10 per cent higher price at Tk 31.6 compared to the previous day's last trading price. Ten per cent is the maximum limit a stock is allowed to go either up or down in a single day at the premier bourse.

Malek Spinning's stocks started sliding just after two days and declined to Tk 29 on June 29. Although the price fell, no heavy buy order was placed again, surprisingly.

Actually, this was the latest ploy of the manipulators to draw unsuspecting investors into the game.

As a part of the strategy, a vested group quotes to purchase a large volume of shares. When general investors see the elevated demand, they begin to buy even at higher prices.

And the group, who bought shares earlier at lower prices, swings into action and starts dumping their holdings. Soon, the investors who have bought the shares at higher prices witness their funds get stuck as prices decline. Malek Spinning was not the lone target of the vested group.

On May 23, buy orders for one crore shares of NRB Commercial Bank were placed. The buyers wanted to purchase them at Tk 28.4 against the previous day's closing price of Tk 25.9.

On the day, the total sale order was only for 18,600 shares, and the highest expected price was Tk 28.2. A day earlier, orders were placed to buy 64.45 lakh shares.

The same happened to the stocks of Delta Life Insurance, Beach Hatchery, Fortune Shoes, and Genex Infosys at the DSE in recent days.

"Normally, these types of abnormal buy orders come from manipulators," said Faruq Ahmed Siddiqi, a former chairman of the Bangladesh Securities and Exchange Commission (BSEC).

"The regulator should investigate and find out who did this and for what reasons. Exemplary punishment may rein in the trend."

The shares of many small-capitalised companies had been manipulated, but no concrete action was yet to be seen from the regulator, Siddiqi said.

Using the trick, some people dump low paid-up capital-based shares and earn money, whereas general investors incur losses.

"It is the responsibility of the regulator to curb artificial price mechanisms," said the former secretary.

A vested quarter places such an aggressive buy order to create an artificial demand for a stock and send a message to general investors to buy it, said a former director of the DSE.

"This is a new style of manipulation."

In order to buy the big volume of shares of Malek Spinning, at least Tk 210 crore was needed to be kept in the beneficiary owner's (BO) account. "The question is whether the amount was kept in the account," he said.

A few individual investors have such a huge amount of funds at their disposal, and the institutional investors are not involved in buying these shares, said the veteran stockbroker.

The vested quarter either had insider information or placed the buy order to manipulate the stock because such orders could not be normal, the broker said.

In most cases, the order is not executed as general investors opt not to sell shares as they expect the stock to go up further.

Stocks of NRB Commercial Bank soared 224 per cent to Tk 39 in one month. Delta Life Insurance stocks surged 97 per cent to Tk 154. Beach Hatchery's shares advanced around 40 per cent to Tk 18 in the span of one month.

"There might be an ill-motive behind the buy order, so the regulator should look into it," said Sharif Anwar Hossain, president of the DSE Brokers Association.

Md Nazrul Islam Mazumder, CEO of MTB Securities, blamed investors' behavioural problems for the placement of such massive purchase orders by the manipulators. 

"There is no point to chase these stocks because they have no potential. Some people are just playing with the general investors."

Some investors like to run after the stocks that see abnormally high buy orders despite knowing that they are being manipulated, in the hope of making a profit from the gamble, he said.

In order to make a quick buck, some people bid for shares at higher prices for the companies that did not see sellers on the previous day, said Rahmat Pasha, CEO of UCB Stock Brokerage. 

"They think if the stocks rise for three days, they will sell off and make some profits on the day the shares mature," he said.

When general investors start buying shares, the vested group discontinues the order and starts selling, he said.

"This is nothing but wickedness. The regulator can easily identify the manipulators, and it should do it because the investment of many general investors gets stuck."

"Anyone can place a buy order. But we have to see whether they have enough money in the BO account," said Mohammad Rezaul Karim, spokesperson of the BSEC.

"We are getting information that some people are placing these orders with a motive to increase the price of stocks," he said.

The BSEC had taken steps against such orders for the shares in case of an initial public offering, bringing down the incidences of false bids, Karim said.

"But steps have not been taken for other companies. We will take measures if this happens again for any low-performing companies where such a buy order is abnormal," said the executive director of the commission.