Rigging: BSE cautions investors

The abnormal rise in prices of many penny stocks has prompted the Bombay Stock Exchange to step in and caution investors.

The abnormal rise in prices of many penny stocks has prompted the Bombay Stock Exchange (BSE) to step in and caution investors. Though the Sensex has remained more or less steady in the last one month, prices of over two dozen small companies have shot up by 50-180 per cent during the period.

Warning investors against such companies, the BSE said, “It has been observed that there has been a sudden spurt in trading of scrips which were either not being traded at all previously or had very thin volumes.”

Many of these companies are listed in Z-category of stocks, which are settled on a trade-to-trade basis, which means that no netting of trade is permitted. It is also observed that prices of such scrips have moved to higher levels with small quantity being traded. Further, as per the prevalent policy, on the opening day of trading of the scrip post revocation of suspension, there are no price bands in order to allow the market to discover the price of the scrip, the BSE said.

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According to the exchange, while some companies may have improved fundamentally and financially, there may be companies that may not have any such improvement in their business activity to support the significant price rise. “The investing public is requested to note the quality of companies especially the group in which the scrip is placed at the exchange before dealing in such scrips. If a sudden spurt in the volume/price is noticed, please exercise caution while dealing in such stocks,” the BSE said.

The exchange will take appropriate action including suspension of trading in the scrips if the companies are found to be involved or acting in collusion with any person to defraud investors, it said.