OCT 5 — Markets rise and fall and fortunes are built and lost.

Penny stocks, trading below RM0.50, present opportunities for significant returns and quick gains but also carry substantial risks i.e. high volatility and possibility of price manipulation.

Companies may start with a bang and progressively wither to become penny stocks.

They are characterised with poor track records, frequent fund-raising exercise and selling to market via ESOS, undertaking rights issue (often with free warrant as sweetener and diluting minority shareholding percentage), large assets but small revenues, auditing issues, large insider ownership and may include trading suspension.

However, some penny stocks originated as lean, scrappy startups have morphed into sizable companies with big profits as the companies’ governance and innovations matured.

There are clear, comprehensive and accessible rules and obligations which govern the listing of issuers in Bursa Malaysia (Bursa) including post-listing, trading, clearing and settlement.

But how about addressing market misconduct? Considerations such as business prospects, corporate conduct and adequacy of internal control should be monitored.

There can be abusive activities such as "pump and dump”.

Unsuspecting investors are convinced to invest and large coordinated purchases drive the price significantly higher in a short time.

Once prices rose, other investors jump in to follow the momentum.

Those who pumped would then sell or dump their shares while making sizable profit. This leads to a frenzy of selling by legitimate investors realising there was no fundamental reason(s) for the price rise. The victims were usually average investors.

These manipulators could be individuals/companies who control some companies on Bursa and may siphon out funds via numerous cash calls and the subsequent acquisition of assets. It may include "asset-shuffling exercises”. There were also allegations on legitimising of ill-gotten gains or money-laundering activities.

Bursa as the frontline regulator of the capital market have a duty to maintain a fair and orderly market. It includes investor protection, transparency, high standards of conduct and governance including market integrity and a more reliable trading environment.

The Penny Stock Reform Act enacted by the US Congress in 1990, aimed to clamp down on fraud in non-exchange-listed stocks or penny stocks (traded at or below US$5 per share).

There are some penny stocks on the New York Stock Exchange (NYSE) but are traded over-the-counter (OTC) and not on the trading floor.

Recently, Nasdaq proposed new rules to expedite penny stock delisting if the stock falls below certain threshold and for a certain number of consecutive trading days.

In addition, companies that have conducted a reverse stock split of any magnitude within the past year would be subject to immediate delisting upon falling below US$1.00 minimum bid price.

Nasdaq’s rationale is to address risks associated with penny stocks and to reduce the time that problematic stocks remain on the exchange. Hence, protecting investors from potential losses and market manipulation.

I think it is about time Bursa have a look at high standards of conduct and governance on penny stocks.

As we aspire to become a high-income and inclusive economy hinges on quality and high-value investments, we also need quality and high-value stocks in our capital market.

After successfully outlining the conditions for single family office vehicles (SFOVs) and working on a regulatory sandbox framework for testing innovative products and services, I trust the Securities Commission (SC) can also assist to promote and facilitate the orderly development of an innovative and competitive capital market. It will reduce systemic risks of penny stocks while ensuring investor protection.

Both SC and Bursa, with the assistance of stockbroking houses should constantly educate investors on penny stocks.

It helps to improve technology through Artificial Intelligence (AI) to analyse data on penny stocks and possibly identify manipulators.

We must avoid "hidden hands” and take a leaf from Singapore on how to tackle stock market manipulation.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.