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All trades in DIB shares cancelled

Babu Das Augustine
Filed on August 29, 2005

DUBAI — Widespread manipulation of Dubai Islamic Bank stocks by two operators prompted the Dubai Financial Market to cancel all trades in the bank’s shares yesterday. Following an investigation, DFM has found that most of the transactions on DIB were from two investors who manipulated the share prices. Although the DFM has not identified the two operators, market sources said these are two large institutional brokers — one of them closely linked to a leading bank.

The cancellation of trading will mean Saturday’s closing price is the last price of DIB share. The bull-run on Dubai Islamic Bank (DIB) counter yesterday saw its turnover hitting a new record high of Dh9.34 billion, 55 per cent higher than the highest ever market turnover reported in UAE and one of the highest ever daily turnovers in the world recorded on a single counter.

Khaleej Times, had termed the massive surge on the DFM turnover on Saturday as a one-stock bull run, and the DFM administration has moved quickly to correct the market distortions.

The massive surge in volumes and turnovers on the DIB counter on August 27 and 28 has prompted the DFM authorities to order an enquiry into the trading activities. In a faxed statement yesterday, DFM said that its investigations into the activities of the market found that two investors were involved in manipulating the price and demand trends affecting the market.

“In line with the rules and regulations of the market to protect the interests of all investors, the DFM administration is cancelling all trades contracted on August 28,” DFM statement said.

Investors had gone on no-holds barred buying spree on the DIB counter, driving up the share price by 7.4 per cent to Dh34.85. The scrip had hit an intra-day high of Dh37.30.

Triggered by market rumours of a rights issue DIB counter had been trading huge volumes from August 24. The DFM reported a massive turnover of Dh11.12 billion while the combined market turnover of both bourses hit a massive Dh11.6 billion.

Market sources said, the pattern of trading has been in the form of creating artificial demand by these two operators, while the rest of the market was forced to move along with these big players. “When a big institutional player places huge orders, it creates a major impact on the rest of the market as the small investors and day-traders will start buying the stock triggering a big increase in demand and hike in share prices. When the prices are high, the big players will start unwinding their positions making big profits, while the small players are left high and dry,” said a market analyst.

In the case of DIB, the surge in demand and price began with a rumour that the bank was about to float a rights issue. DIB had officially denied the rumours on August 24. Through a faxed letter addressed to Essa Kazim, Director General of Dubai Financial Market, Mohammed Saeed Al Sharif, Deputy CEO, Financial Affairs, DIB, said the bank has not taken any decision to expand its capital. However, the rumours continued to drive the market as most day-traders believed that DIB will eventually announce a rights issue as it happened in the case of Amlak.

“We had seen the Amlak shares rising on rumours of an impending rights issue. Initially the company officially denied its plans to expand its capital, but a week later it confirmed the market rumours through an official announcement. All those who had the privileged information and those who followed the market rumours made huge sums of money. We did not see any action taken on the source of such information or the company which initially denied the rumour and then went ahead with the issue,” said an investor.

In the past, there have been a number of allegations of insider trading and price manipulations taking place on the market.

However most these allegations were dismissed as baseless because of the lack of concrete evidence.

“It is an open secret that a lot of price sensitive information is available in the market weeks prior to their official announcements.

Although rumours and sentiments play a big role in markets around the world, here, news is selectively leaked prior to any major corporate action such as quarterly results, capital expansion, bonus or rights issues etc. It is time the market authorities took some tough action against the perpetrators of such crimes,” said an investment banker.

Many investor feel the action has come at a right time and tough action needs to be taken against all those involved in manipulating the market. While voicing concern about the unethical practices in the market, some investors said similar activities, which occurred in the past, also should be investigated.

“The UAE market is facing a strange phenomenon of high liquidity and very low level of market sophistication. While on the one hand the there is huge potential for growth, the investors and brokers are not adequately educated to deal with a situation such as these. Low level of business ethics in the market can also work against the credibility and future growth of investments,” said P. Krishanamurthy an investment analyst.




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