Brokers open to random closing time plan for PSE

Member-brokers of the Philippine Stock Exchange (PSE) are open to the proposal of the Securities and Exchange Commission to adopt a random closing time for the local bourse, according to SEC Markets Regulation Department director Jose P. Aquino.

Aquino said PSE brokers did not object to the proposal of the SEC as long as the necessary safety nets are put in place. "In my recent dialogue with PSE brokers, they seem open to it. We will work on it," he said.

He said PSE president Ernest Leung was also receptive to the idea and even promised to conduct studies about the planned method.

The SEC said that by adopting a random closing time, illegal trading activities will be curbed. The method is patterned after the Australian Stock Exchange which does not have a fixed trading schedule.

Under the PSE’s existing trading rules, the market opens at 9:30 a.m. and closes at 12 noon with a 10 to 15-minute extension to allow brokers to settle all pending trades.

"The Australian Stock Exchange does not have a permanent trading schedule. It can close anytime. It’s in the system. We want to propose it to avoid price manipulation like the marking the close scheme. I think that this will be good for investors and the market as well," Aquino earlier said.

Marking the close is a technique often used in a classic manipulation scheme. It involves purposefully buying stock at or near the close of the trading day in order to affect the closing price – usually to try to push it but there can be special situations where someone is trying to manipulate the market price down.

Aquino said studies showed that trading at the exchange would be brisk only on the last hour of trading or even near the closing time of 12 noon. "You notice during the first two hours of trading, there is no action – nobody wants to buy because most of them are waiting for the market to close before they buy to make it appear that there is active trading," Aquino said.

Marking the close can be an effective manipulative device because the closing prices receive wide media coverage. Matched trades and marking the close often go hand-in-hand with the manipulator using matched trades at the end of the trading day to mark the close.

The Securities Regulation Code makes it unlawful to create a false appearance of active trading in a listed security.

Aquino said he has yet to talk to Leung on the matter.

Marking the close has been found to be part of the overall manipulative scheme to create a false or misleading appearance of active trading in BW Resources Corp. shares in 2002. This scheme caused the phenomenal rise in the share prices of BW from only P1.98 per share to a peak of 107 per share in just a short period of time. The shares have since fallen below the P1 level.

The BW scandal is the most celebrated stock manipulation case in the history of the Philippine equities market.

In its complaint filed with the Department of Justice, the SEC said the erring parties had committed at least six violations, including wash sales, matched orders, marking the close or painting the tape, the abuse in the use of private placements, EQ trade and done through transactions.

Wash sale is a transaction that leaves no change in beneficial ownership while marking the tape refers to trades executed at or near the closing time of trading for the purpose of pegging the closing price of shares for the day. EQ trades, on the other hand, refer to the transfer of shares to one broker who in turn will distribute these to numerous clients to create a semblance of active trading.