Posted by jpleow > 2014-08-23 13:14 | Report Abuse

http://www.thestar.com.my/Business/Business-News/2014/08/23/Dont-be-fooled-by-the-high-trading-volume/ "The large trading volumes of stocks should not be a reason for retail investors to invest in stocks. Fundamentals should be the primary reason. The large volume is a game for a select group of market participants called proprietary day traders, or better known as stockists. There are about 80 of them attached to various brokerages in Bursa Malaysia. Their job is to trade for the brokerage as principals. They don’t have any clients. The stockists can buy and sell as much as they want in a day. There is no limit imposed. They are not imposed any brokerage fees but have to pay stamp duty and clearing fee to Bursa Malaysia based on the value of trades done. The duty is capped at RM250 or less, while the clearing fee is minimal. A brokerage will normally place their stockists in a room where they conduct their buying and selling operations with minimum disruptions. Even phone calls are restricted. The stockists can short-sell stocks without having the shares in hand. But they have to cover their positions by buying back from the market before the end of the day’s trading. The profit from buying and selling are shared between the brokerage and the stockist. Normally 60% goes to the brokerage and the trader gets 40%. However, an “ace stockist” can command up to 90% of the profits. But the stockist has to absorb all the losses. Normally, the brokerage will hold the profits of the stockist and pay out only after a year. An ace stockist can earn RM10mil or more a year by just being a principal stockist for the company. But there are limitations to what a stockist can do to generate the volume of stocks. They generally shy away from stocks that are more than RM1 and that have a small paid-up capital. Apart from having to incur a higher clearing fee, normally stocks that are held tightly tend not to have enough shares in the market to generate the volume without causing a substantial rise in the price. The typical targets for a stockist are stocks that are priced at less than RM1 and that have a large share capital. For instance, Globletec Formation, which is an amalgamation of three stocks that were involved in manufacturing automotive components, has a capital of more than 5 billion shares. Some companies like to see the activities of the stockist because it supposedly adds excitement to the market, not to mention to the stock as well. But there is also a view that the stockists hold an unfair advantage over the normal investors because they can short a stock or take long positions several bids higher. This allows a few stockists to “gang up” and deliberately cause a panic sell-down of a particular stock. "