Monitor
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?
It gets even worse. The big appeal to listing on the market if you are a salivating wolf who owns a small company (most of them who want listings actually) is an instant one. You cash in right away. The punters pay you immediately, you work the share price for a few months to get some more before the stock dies, and it all lands in your hands.
However, you then also get the nuisance of publishing annual reports, reporting to the stock exchange and having to hide questionable dealings between your private companies and your public one. What better solution could possibly offer itself than that the stock exchange should de-list your company after you have fully achieved your purpose of bleeding the public dry with it?
So it was not only penny stocks that the punters fled on Friday but all stocks that could become penny stocks on the reasoning that if the wolves in control of them can make them penny stocks and thus remove the nuisance of their public obligations with an easy de-listing, they will.
It is so easy to do as well. Instead of making full provisions for known losses in one year, spread them over three years and you are out. Convert all your assets to cash and you are out. Manipulate your price down below 50 cents or your market capitalisation below HK$50 million for 30 days and you are out.
And it is so wonderfully convenient. If your small shareholders complain you just hold out your hands and blame the stock exchange. You got all your money on the way in, they lose all on the way out and the stock exchange did it all for you without a prompt.
Praised be the name of exchange chief executive Kwong Ki-chi. What a man. Give him a bauhinia.
Yes, it has taken me a little while to puzzle it out. My mind is not wired like a civil servant's. Short-circuited thinking is just not my specialty. Sorry about that.
