Small-cap stocks under review
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Small-cap stocks under review

Outsize returns draw hit-and-run investors

The Stock Exchange of Thailand (SET) has been urged to narrow price increments and enlarge the board lot size of penny stocks in a bid to curb speculative activity, which is apparently rampant despite the recent announcement of tougher measures.

Small-cap stocks, penny shares in particular, have offered enormous returns to shareholders even if their prices tick up only one spread, making them ripe for speculation, said Kongkiat Opaswongkarn, chairman of Asia Plus Securities.

An investment can be doubled if a stock priced at one satang rises by only one spread, he said, adding that large-cap stocks priced at 400 baht yield less than a 1% return for every one-tick spread.

At present, shares priced at less than two baht have a tick size of one satang, while those priced at 400 and above can rise or fall by two baht for every one-tick spread.

Share prices can rise by two satang for prices between two and 4.99 baht, by five satang for prices between five and less than 10 baht, by 10 satang for prices between 10 and less than 25 baht, by 25 satang for prices between 25 and less than 100 baht, by 50 satang for prices between 100 and less than 200 baht, and by one baht for prices between 200 and less than 400 baht.

"I've proposed that the SET focus on increments of small-cap stocks," Mr Kongkiat said. "If it becomes more appropriate, it will help reduce speculation. Once tick size is narrowed, returns will decline."

He said an increase in the board lot size of speculative stocks is another way to reduce such activity, as it requires a greater amount of money for a minimum transaction.  

According to SET rules, each trading unit or board lot contains 100 units of each security. But for those priced at 500 baht or more for six consecutive months, one board lot is 50 units.

Narrowing increments and widening each board lot are measures adopted by the US exchanges for stocks that appear to be involved in speculation.

In the meantime, SET president Kesara Manchusree said the exchange wants to evaluate the effectiveness of tougher measures announced before.

"These methods should be supplementary measures," she said. "It is a good thing that brokers make suggestions, and we welcome their recommendations, but we want to see the outcomes of the measures first."

The SET in November announced more stringent trading alert measures to curb stock speculation. The measures, pending approval by the Securities and Exchange Commission, will come into force in 2015.

The SET index has risen more than 20% year to date, while the MAI index has more than doubled.

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