03 March 2008

Global Trader Impact on Bursa

Below is an article published in TheEdgeDaily today regarding the recent heavy selling on certain Mesdaq, Main Board and Second Board counters:

The fall from grace of UK-registered financial institution, Global Trader Europe Ltd, has had a far-reaching impact on certain Malaysian stocks and sparked off investigations of possible manipulation of these counters, sources said.

It is understood that at least nine companies on Bursa Malaysia have been adversely impacted by “forced selling” of stocks that are pledged to Global Trader in return for a leveraged line of credit.

The heavy selldown of these stocks is said to have caused the authorities to start investigation on possible manipulation. Towards this end, several brokers have been quizzed by the authorities.

“It is not known how many more companies have shares pledged with Global Trader, which had been actively dishing out lines of credit to Malaysian investors last year,” said a source.

Shareholders of the affected companies are said to have pledged their shares to Global Trader’s office in Bangkok. Following the liquidity crunch faced by its parent company in the UK, the administrators scrutinised the accounts of its clients, especially in its Bangkok branch. It sold the pledged shares and other assets of accounts that had a margin shortfall.


This in turn triggered a massive forced selling of the stocks that were pledged. Companies affected are said to have included

H-Displays (MSC) Bhd

Ygl Convergence Bhd

My EG Services Bhd

Reliance Pacific Bhd

Aturmaju Resources Bhd

Liqua Health Corp Bhd

Cymao Holdings Bhd

Axis Incorporation Bhd


All these stocks had seen heavy trading, and tumbled amidst the market volatility in the last few weeks.

The most noticeable casualty is H-Displays, a Mesdaq-listed company which saw some RM270 million of its market capitalisation wiped out in three days. Last Monday, the stock was trading at RM1.57 and had a market capitalisation of RM329.7 million. Last Friday, it closed at 29 sen, with a market capitalisation of RM60.9 million.

H-Displays shares hit limit down on Tuesday, losing 53 sen to close at RM1.04, and continued to tumble till Friday.

A check on H-Displays’ annual report shows that Hitech Ventures Pte Ltd, the controlling shareholder of H-Displays with some 51.2% equity, had pledged about 13 million of its 107.6 million shares.

It is understood that Merrill Lynch, which had been hired to assist Global Trader in its asset recovery process, had been involved with the sell order.

My EG Services meanwhile, tumbled some 22% over the past two weeks, shedding close to RM67 million in market capitalisation.

Yet another Mesdaq-listed company, Ygl Convergence lost 69% in market capitalisation through last week, after its price fell from 57 sen on Monday down to 17.5 sen last Friday.

Several brokers involved in the selldown were said to have been questioned by the authorities, with a view of getting a clearer picture of what went wrong.

“The authorities are investigating if the stocks have been manipulated. The selldown by Global Trader itself would not have caused a big impact on the shares. Obviously, others with some inside information have also sold their position in the companies, exacerbating the situation,” said a source.

The selldown is reminiscent of a similar fall in several speculative stocks in mid-2006. Then, stocks bought by two funds based off the US namely, PB Priam Capital and Aeneas Capital Management, came under heavy selling pressure after their investments in certain stocks deteriorated significantly. Among them were Iris Corp and Farm’s Best Bhd.

There are many financial institutions like Global Trader which offer services to clients trading in derivatives and other sophisticated financial instruments. But unlike Global Trader, the majority only serve institutions and not private investors.

Global Trader was placed under special administrators in mid-February after one of its clients defaulted on a margin call, which resulted in Global Trader having a deficiency in its capital requirements.

A fund manager said that the main concern was if there were other such institutions holding pledged shares and facing similar financial problems, which could lead to more selldowns and adverse impact on the market.

My Take: This type of margin financing is unheard of until in recent times. (Not even sure it is allowed by the SC) Generally, investors on margin take their credit facilities from either the brokerage firms or banks that offer margin facilities. These local firms/banks are usually very selective on their clients and the counters to be accepted as collaterals. Mesdaq counters, loss making counters, illiquid counters, suspended counters etc are generally not accepted as collaterals and even if accepted, it will be offered with low cappings. I believe most of the above counters will not be accepted as a collateral if source locally. So, under such circumstances, Global Trader in Bangkok has an offer that is attractive as they are willing to margin such counters. As the selldown comes in, the less liquid counters(Mesdaq counters) under margin call will be at the receiving end as there are not enough buyers to support it, as such there was this hugh drop in the share prices. Although it will be difficult to detect, the authorities clearly have to look into such kind of margin financing which could be hidden in any form of normal trading accounts.

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