Friday, November 27, 2015   

Penny stocks hit by sell frenzy

Anthony Tran

Saturday, July 27, 2002

Hong Kong Exchanges and Clearing's proposed delisting mechanism

triggered a big hit on penny stocks yesterday, with 17 companies

vaporising more than 30 per cent of their shares prices.

About HK$6 billion in market capitalisation was wiped off 105 listed

companies whose share prices fell below 50 HK cents, the minimum level

required for continued listing under the new proposals.

Multimedia electronic product maker Terabit Access Technology posted

the biggest fall yesterday, diving 87.65 per cent to 2.1 cents on a

trading volume of 2.58 billion, followed by leather product trader Dah


Hwa International, which tumbled 53.64 per cent to 5.10 cents on

volume of 748,000 shares. The Lai Sun Garment International slid 48.37

per cent to 7.9 cents.

Retail investors sold off their shares in small companies fearing they

would lose the chance to cash in if the stocks were delisted.

Friedmann Pacific Securities executive director Ross Yuen said the

sell-off was a rational move and the proposal was backed by good


"But the watchdogs should look into details, instead of just

imitating the delisting arrangement in the US superficially," he


"The US retail investors can dispose of their delisted shares on the

OTC [over-the-counter] market, but I can't see any similar facilities

mentioned in the consultation paper."

HKEx chief executive Kwong Ki-chi said on Thursday the exchange would

not set up an OTC-style market to trade the delisted shares. The OTC

refers to broker-dealers who negotiate directly with one another over

computer networks and by telephone for securities not traded on an


Research director at Phillip Securities Lois Wong said there had been

a "selling frenzy" yesterday with penny stocks.

"But I advise investors not to panic because the proposals are just

in the consultation stage."

The Secretary for Financial Services and the Treasury Frederick Ma

sought to calm nervous investors, saying the proposals were not in use


"They will not be implemented until the end of this year or early

2003, and there'll be a 12-month transitional period for companies

even after the new mechanism is in place," Ma said.

Ma said the proposed measures would enhance market transparency and

safeguard minority shareholders, beefing up the quality of the stock

market in the long run.

But Growth Enterprise Market listing committee member Gary Chan was

concerned that the interests of minority investors would suffer under

the sweeping reforms.

So was small investors' advocate David Webb, who said distressed

companies generated very little revenue for the exchange but took up a

disproportionate amount of staff resources. As a result, the HKEx

could make better profits by delisting "difficult companies", he


"That demonstrates the (HKEx's) conflict of interest and is another

reason why we should move regulation to the SFC," Webb said.

On Thursday, the HKEx proposed delisting main board companies with an

average market capitalisation of less than HK$30 million, or an

average volume-weighted price of less than 50 HK cents, for 30

consecutive trading days. Companies posting three straight years of

after-tax losses, and having an average market capitalisation of less

than HK$50 million over 30 trading days may also be delisted.

Main board listing committee member Peter Wong said: "The main board

is a capital market, not a milking machine for these poor companies to

raise funds by consolidating their penny shares repeatedly."

Nearly half of the 781 listed companies on the main board at the end

of May were trading at or below the 50 cents level.

Editorial: Page 16

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