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Tuesday, April 07, 2009

Kenol Share Price Shenanigans

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On 6 April 2009, there was a block trade of 1.4 million Kenol shares done 'across the books' by Dyer & Blair at 30/- on the prompt board. I believe the seller got a raw deal. This was an outlier trade yet it was used to calculate the Volume Weighted Average Price which was 30/- at the end of trading.

The prior closing price was 45/-. And the results for the year ended 31 Dec 2008 were decent (EPS of 6.66) & included a dividend of Kes 3.50. On the normal board there were bids at 49/- with few sellers.

On 7 April 2009, there is demand for 392,000 shares at 33/- (10% above the VWAP of 6 April 2009) but no sellers.

The problem is that liquidity in this counter has been 'killed'. Sellers (unless desperate) will not sell at prices below 45 (IMHO). The rules on the NSE only allow for a price increase if there is a trade. So until someone sells shares at the lower price thus short-changing themselves... the price will remain at below the market-price until the shares go ex-dividend.

Solution:

- NSE needs to exclude 'outlier' trades when calculating VWAP. Or at least the opening trading prices.
- In the event of slow/dead trading due to bid/offer mis-matches, allow for an auction that brings the price to a level that allows for normal trading.

In Kenol's case, I am sure there are buyers willing to pay higher prices (than the bid of 33/- allowed) but they are stuck at 33/-. There were buyers willing to pay 49.25 on Monday (6 Apr 2009) after the results were disseminated.

My Opinion - I may be wrong: I think the buyer may have been D&B or an affiliate. The CDSC takes 2 days or so to credit the account of the Buyer. The Buyer will then push up the price to the 'realistic' level & then start selling the shares... Sigh... to be a broker in the know...

4 comments:

MainaT said...

The system works in other markets, its only that in kenya its used to massage price esp during periods of anaemic volumes such as now. The solution is not to water it down. Rather target the manipulators.

coldtusker said...

Many markets do not use the outlier trades...
Others allow for prices bids to be increased...

Of course, the easiest option is to conduct a second auction.

After all... it is (supposed) to be a 'free' market. And in a vegetable/hawkers market, the goods are not thrown out or not sold... another round of negotiations start... and an appropriate price found.

In this case, the bidders are NOT allowed to increase their bid so sellers are stuck with accepting an artificially low price. And buyers can't offer more for what they want!

coldtusker said...

MainaT: Kenol suspended for trading today. The 10% limit will be lifted tomorrow. I would say the price will end up at or around 49.

BTW, mbaru can now sell his shares @ 50% gain.

MainaT said...

It was a circular trade and that is where the problem not the 10% rule lifting or the vwaap calculation.