Proprietary Trader (PT) aka stockist are day-traders that employed by brokerage firms to trades on their behalf. They don't have clients and they make their own decision on which stock to buy or to sell. Some of them have the privileged of short selling but they always have to cover back their short position on the same day. The recent meltdown of the market on Aug 20 has put some spotlight onto the PT as they have been accused as the main contributor to the abnormal volume traded of the market as well as the meltdown of the market. Well I would like to lay out some facts regarding PT after I read the Star article on Aug 23:
- PT has one big advantage over retail trader, they trades with no brokerage fees but only the stamp duty and clearing fees to Bursa Malaysia. It is one advantage but they are employed by the brokerage and need to share their profit with the brokerage and has to absorb all the losses themselves thus I believe it is a fair arrangement. Retail investors not only do not need to share their profit but the capital gain also exempt from taxation. From what I know, PT do have to pay tax for their profit. Thus I believe the advantage do comes with a price.
- As for massive volume traded by PT, their jobs is to move in and out within the same day thus the only way to make money is to trade with volume or else with the tight daily range of local stock, it is impossible for them to make money. Again, the bigger volume they trade, the bigger risk they took as well thus it is a double sword thing. They can make big bucks but they can loss big bucks too. Don't you think?
- Do we need PT in the market? Well, I do believe that for every healthy market, there must be a market making mechanism in place so that buyer and seller can execute their trades with minimum spread. PT act as a market maker, provide necessary volume for retail investors and traders to buy or sell with ease. They also give the market some vibrancy to attract retail investors and traders into the market. Without PT, it is safe to say that our market will be as dull as some of our blue chip and mid cap stocks that hardly traded. Do we want a dull market like this?
- Was PT the sole contributor to last week abnormal volume? Well, from the star article, we know that the retail participation is huge with close to 40% of total volume traded compare to just 25% previously. Which means retail participation do play a big part of it.
- The article also did mentioned that there are few stockist 'gang up' to short sell certain counters to cause panic. Firstly, the acts of a few rogue traders can't represent everyone in the same position. Secondly, if they were to short sell certain stocks with fundamental, I'm sure there will be buyer support the stock and these short seller might end up cover their short with higher price and loss money. Thus the meltdown of certain stocks could due to their own fundamental weakness and the short selling activities is just simply accelerated it.
Personally, I think that as long as these PT behave according to rules and regulation of Bursa, I don't think they are a threat to the market. Unless they are breaking rules such as involve in market rigging and manipulation then they should be punished for that. Every PT are registered with Bursa thus the authority can and should subpoena their trading records regularly to make sure they are acting by the laws.
As a trader myself, I certainly hope that our market is vibrant and active. If I feels that particular stock is too hot and bubbly, I will choose to stay away from it. All the decision I made has nothing to do with whether PT exist or not. If PT breaks the law, then they should be punished like every one of us, if not, they are just another player in the market like us. This is just my view.
No comments:
Post a Comment