What the ATS upgrade taught us about the Colombo Stock Exchange

1330315881000 » Tagged as: BUKI , Manipulation , Millennium , Short

Asia's best performing stock exchange of 2010 achieved that milestone partly because it's an exchange where short selling is disallowed. That's right, the Colombo Stock Exchange happens to be one of the most primitive around, incidentally it's leader contender for the title of world's dodgiest as well. Their trading platform was upgraded on Friday the 24th after many delays. Some startling revelations were provided free of charge with the upgrade.

1) Brokers are obsolete.

Many users of online trading systems could not participate in the first few hours of trading. One would have thought these traders would have got on the phone to their brokers and asked them to carry out their transactions. The unusually low turnover levels reported during the first few hours is evidence of it not happening. The obvious conclusion to reach is that stock brokers are now obsolete.

2) MilleniumIT is over rated.

There were many delays in implementing the new version of the Automated Trading System and when it was finally released trading had to be delayed by 15 minutes. That's nothing compared to the embarrasing glitches that the London Stock Exchange suffered when they upgraded their systems (also provided by Millenium).

ASI Contributors
Biggest negative and positve contributions to the All Share Price Index. Feb 24

3) Manipulation just because a lot easier.

The typical retailer at the CSE is happy to buy anything at any price as long the indices are moving upwards. The players know this and on any given day they spend a great deal of time, money and effort to buy 100 shares each of JKH, SLTL, DIAL, BUKI and CARS at the ask price whenever someone sells a 100 or more at the bid price. All these are large caps that have a huge impact on the index. As of friday, manipulators still need to spend time and effort but not so much money. Because they can buy 1 share at the higher price instead of the 100 that used to be the norm. This is because the Odd lot and normal boards have been merged.

4) Scalpers have become obsolete.

Another consequence of the minimum tradable quantity because reduced to 1 share is that scalping is no longer worthwhile. What's the use buying 1 share of Bukit Darah at 900 and selling it at 1000? After paying the rediculously high brokerage (and there is a minimum charge) you will be left with Rs 10 profit. Earlier though if you scalped 100 Bukit Darah from 900 to 1000 you could make close upon 8% in a single trade (often intra-day)

5) If your portfolio is mostly illiquid shares; you are dead.

If you bought a few hundred shares of an illiquid counter you can say good bye to your money. There's no way that you will be able to sell them in a hurry because buyers will now by one share at a time. In the past some counters only had a single bid for 100 shares now we will start seeing single bids for a single share.

CDAX Short Selling
Short Selling using CDAX

6) Short Selling maybe introduced shortly.

Did I say at the start that short selling is not allowed at the CSE? Sorry that's a mistake. Short selling is in fact allowed (at least in the form of stock borrowing and lending) - but it has not been implemented even ten years after the regulator approved it. Maybe the new version of the automated trading system does have an implementation of short selling because CDAX now has an option for short selling.

Or it could possibly be that the Deliveray vs Payment and Central Counter Party systems are about to be implemented. When they are introduced, short selling will automatically become a feature.

7) Turnover levels will drop.

Average daily turnover which is currently about 1/3 of the levels seen in 2011 will drop further as implied by lessons 3,4 and 5. On the other hand if short selling is introduced quickly thousands of traders sitting out at the moment night re-enter which would more than comphensate for this scalpers disapearing

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