Serge Pun calls meeting with brokers over FMI volatility

First Myanmar Investment’s chair Serge Pun called a meeting of securities companies this week following a volatile day’s trading in his company’s shares, while Yangon Stock Exchange officials said securities firms must make more effort to explain trading risks to their clients.

After launching its shares on March 25, FMI – the first and only company to list on the Yangon Stock Exchange – enjoyed three consecutive trading days during which its shares hit the upper price limit.

The firm listed at K26,000, and opened on March 30 at K41,000.

But at the 11am matching session on March 30 – the first of two daily sessions – FMI’s shares sank K10,000 to hit the floor price of K31,000. At the 1pm matching session the shares rebounded to K41,000, meaning FMI lost and then regained over K200 billion in value in just two hours.

That afternoon, Mr Pun went to the Yangon Stock Exchange and called a meeting of the securities companies, according to two officials at separate securities firms that attending the meeting. Both asked to remain anonymous.

Mr Pun was “diplomatic” but made it clear that he was unhappy at the movements in the share price and said it was bad for the market, one of the officials said.

Asked about the volatility, Mr Pun told The Myanmar Times it would “be prudent to give the new exchange and the industry some time to settle down before we make any comments”.

The second official who attended the meeting said the gathering was aimed at making sure all the participants understood the trading mechanism, what caused the drop in share price and how such situations could be avoided.

The drop had occurred, he said, because one or two large market sell orders – which have no specified price – met with too little demand.

Limit orders specify a maximum or minimum price at which the shares are to be traded. Market orders do not. The potential daily trading range of the shares – K10,000 in either direction for shares trading above K41,000 – leaves investors with market orders exposed to large price movements.

Some sellers on March 30 had expected enough demand to allow them to sell their shares well above the K31,000 daily price floor, said the security company officials.

But because there were more sell offers than buy offers, and no specified limit on the price at which those shares could be sold, the sellers ended up being matched at the lowest possible daily price, said U Thet Htun Oo, executive senior manager at the YSX administration department.

Kensuke Yazu, an adviser at the YSX and Myanmar representative for the Japan Exchange Group, which co-owns Myanmar’s stock exchange, noted that some sellers may have been happy to sell at the price floor, which was more than double where FMI shares were being traded over-the-counter in January 2015, according to FMI data.

But regardless of investors’ motivations, the first securities company official said that although the securities firms were explaining the difference between market orders and sell orders to their clients, they were not adequately explaining the risks.

Security firm officials who make trades on behalf of clients are called brokers, and are required to pass a brokers exam. But many of these brokers remain “undertrained” and “inexperienced”, the official said. Some were unable to explain trading mechanisms properly, and individuals at his firm were accepting clients’ orders and making trades without a broking licence, he added.

This risks leaving investors without the information necessary to make informed trades.

Mr Yazu said YSX officials on March 30 had asked the securities companies to make sure to explain to investors how an order would affect the overall order book, and potentially the share price.

All securities firms have access to the same order book data, and YSX officials had explained this obligation to securities companies “many times”, he added.

The sheer volume of new investors opening accounts at securities companies and wanting to trade has also made it difficult for security company officials to take the time to adequately explain to each individual investor how their bids and offer would affect the order book, said U Thet Htun Oo.

But the fact that securities companies are already struggling with market demand does not bode well. When FMI listed on March 25 it had 6800 shareholders.

Myanmar Thilawa SEZ Holdings is the next company scheduled to list, and is likely to do so in April. It has around 15,000 shareholders, said Mr Yazu, and if they were all to turn up to one of the main securities firms there would be problems.

Securities firms “have to hire more people and update [their systems]”, he said.

FMI’s shares dropped K2000 on March 31 to finish at K39,000. Trading resumes on April 4.

Source: Myanmar Times

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