THERE ARE TWO questions, one a why question and one a what question, that have puzzled me for some time about this proposal by the stock exchange to de-list penny stocks. The answers are now becoming plain.
Why do it? Well, because penny stocks are cheap little stocks, you see, and we do not want a reputation for being a cheap little market. New York does not have many of them and therefore neither should we.
Do not ask me to plumb the depths of this thinking. There are no depths to it, only the confusion of a stock-exchange management taken over by civil servants.
Gentlemen, if you please, why are you now so opposed to share prices denominated in cents when earlier you favoured them on the grounds that board-lots would be smaller and retail investors could then buy them more easily?
And now to the what question, a bigger one. What happens to those retail investors who hold penny stocks if their stocks are now de-listed? Answer: they lose. They lose everything. They now become small shareholders locked into private concerns run by strangers who could not give a fig for their small shareholders and are no longer answerable to the stock exchange for them in even a small way.
As long as these shares remain listed there is at least some value for their small shareholders in the listings themselves. The listings can conceivably be sold as shell companies. De-list them and the small shareholders have nothing and no way to get out at all.
So is it a surprise that they were all tumbling out of penny stocks at a furious pace on Friday, getting out while they still had a chance of getting anything back from their holdings and sending those share prices down to the floor? It is only a proposal, said the stock exchange. Yes, well who wants to take the risk?