Bursa has finally declared ICON & ICON-OR as designated securities (here). This means that you need to have sufficient cash balance in your trading account before you can buy any one of the securities, or conversely, you need to have sufficient free balance of the securities in your CDS account before you can sell any one of the securities.
Bursa took this drastic action in order to reduce excessive speculation, and to ensure a fair and orderly market. I can only say that this belated action should have been taken after the market close on Jan 22. In fact, a more pro-active course of action would have been to suspend the counter on Jan 22 for 30 minutes to caution market players about the effect of a 50-to-1 share consolidation on their shareholding.
By failing to take timely action, Bursa has allowed market players to carry on trading in a highly risky manner for another 2 more trading days. To add to this risky situation, Bursa allowed ICON-OR to be traded on Jan 24 at a ridiculously high reference price of RM0.69!! This gave market players the wrong impression that the value of the stock could be as high as RM0.795, which is arrived at by adding the reference price of ICON-OR to the subscription price of ICON Rights share of RM0.105.
Who are the losers in this unnecessarily debacle?
They can be divided into 2 groups. The first group are the unfortunate shareholders of the company, which have seen their investment declined in value by almost 100% from its opening price of about RM6.50 in 2014 to its recent low of around 3.5 sen. They are victims of the 2-day delay in the implementation of the 50-to-1 share consolidation. As a result of the delay, they oversold their shares in their CDS account on either Jan 22 or Jan 23.
Unless you are well-informed about your stock's upcoming corporate exercises, you might not know that the correct share balance should be only 2% of the balance stated in your CDS account until Jan 24.
On Jan 22, these hapless shareholders would jump at the opportunity to sell ICON at 20-40 sen as compared to only 3.5 sen the day before. Alas, they would live to regret their quick action. Their losses can be computed the difference between the last done price on Jan 23, plus 5 sen (being additional 10 bid on top of the last done price on Jan 23) and their selling price on Jan 22.
Those who oversold on Jan 23 will be subject to market buy-in on Tuesday (Jan 28), which is the difference between the last done price on Jan 24, plus 5 sen (being additional 10 bid on top of the last done price on Jan 24) and their selling price on Jan 23.
The second group of losers are your typical market players who would be drawn to any speculative play in order to make trading profit. Just because they are speculators, that doesn't mean that they are any less a victim who deserves our support. They could have been misled by the potential fair value for ICON based on the high reference price set for ICON-OR.
What will likely happen to ICON & ICON-OR next week?
If you had read my first posting on Jan 22 (here), you may recall that the theoretical ex-right price of ICON is about 12 sen. Since you need to pay 10.5 sen to subscribe to subscribe for the Rights share, then ICON-OR should be about 1.5 sen. When you compare these values against the closing prices of ICON and ICON-OR of RM0.815 & RM0.39 respectively last Friday, you can see the potential losses if you have bought into these securities.
What lesson can BURSA take away from this sad debacle?
It is high time to cut off the 2-day delay in the implementation of non-cash share exercises, such as share consolidation, bonus issue, etc. There may be good reasons for a short delay in the past in implementing a cashless share exercise but those reasons must now be weighed against the risk that some market players may take advantage of the situation- resulting in untold damages to innocent investors. The alternative would be to suspend a stock during the 2-day period between the ex-date and the entitlement date to allow for the implementation of the non-cash share exercises. Now is the right time for Bursa to act decisively in the interest of orderly market and the protection of innocent investors and players alike.
http://nexttrade.blogspot.com/2020/01/icon-icon-or-designated-securities.html
