Thursday, July 28, 2011

And So OSK Explains It Has Nothing To Do With The NICE Fat Fingers That Crush DRB-CE To Bits

On the Edge Financial:

  • OSK clarifies on DRB-Hicom shares Written by Financial Daily
    Thursday, 28 July 2011 11:15

    KUALA LUMPUR: OSK Investment Bank Bhd said it is not involved in the substantial decline in DRB-Hicom Bhd’s share price on Monday.

    The investment bank’s clarification came amid market talk that the unusual sharp drop in DRB-Hicom’s share price in the final minutes of trading on the day was linked to the conglomerate’s call warrants. OSK Investment Bank is the issuer of the call warrants (DRBHCOM-CE CW).
    “We, the bank, would like to clarify that we were not involved nor did we have any prior knowledge as to the purported ‘trade error’ reported in the article,” OSK Investment Bank said yesterday in a statement in response to a report by The Edge Financial Daily.

    On Monday, DRB-Hicom shares fell 14% or 33 sen to close at RM1.95, making the counter the biggest loser on the local bourse.

    The sharp decline in the stock’s price occurred within 10 minutes prior to the close of trading and involved about three million DRB-Hicom shares transacted at RM1.95. Prior to this, at 4.48pm, the stock had changed hands at RM2.28.

    The call warrants were issued on Feb 2, 2011, at 17 sen each, and are due to expire next Monday. They have a strike price of RM1.95.

    According to the investment bank, the first valuation date for the DRBHCOM-CE CW was on July 25. There are five valuation dates and the settlement price which is used to determine the maturity cash settlement amount is the average of the closing prices of DRB-Hicom shares for the five valuation dates.
    As the closing price of the shares on Monday was RM1.95, OSK said there might “be a direct implication on the determination of the settlement price of the call warrant”.

    Yesterday, the warrants ended unchanged at 12 sen while DRB-Hicom shares added one sen to close at RM2.25.Since the warrants’ listing on Feb 8, they have traded between a high of 29.5 sen on April 8 and a low of 11.5 sen on March 2.

    During the last six months, DRB-Hicom shares had traded between a high of RM2.48 on April 6 and a low of RM1.73 on March 3.

    This article appeared in The Edge Financial Daily, July 28, 2011

So OSK says it is not involved.

Well no matter what's said, this trading error or fat fingers just so happened on the very first valuation date used to calculate DRBHCOM-CE settlement price.

No matter what happens after this fat fingers day or 25 Jul 2011, with the first valuation date price of 1.95, the DRBHCOM is screwed.

It's dead.

Yes, it's dead for those 'investors' who had bet on DRBHCOM-CE prior to 25 Jul 2011.

Think about it....

Just one fat finger day and the game is over for the call warrant.


Well OSK claims it has nothing to do with this trading error.

Let's have faith and believe them.

Ok... no problem.

So what's next?

The fat fingers day has killed the warrant. DRBHCOM-CE is dead and no matter what OSK will benefit from this fat fingers day.

Now since OSK claims it has nothing to do with it, so why can't OSK show good faith to the market and strike out that valuation day? Yes remove 25 Jul as a valuation day. Replace it with the previous day (22 Jul) as the the first valuation day.

After all it's a trading error and after all OSK says it's not involved.

How about it OSK?

Comeon... show us some faith.

Be a gentleman and do the right thing.

I hope this is not asking too much. How can OSK win in this call warrant and everyone else lose?

I hope this is not a lousy suggestion from me. :/


K C said...

I punt on call warrants including DRB CE using Black Scholes option pricing. Studied its gearing, effective leverage and Greeks (delta, gamma, vega, Theta and whatnot), compute tables and draw charts using Excel to see the payoffs with different prices of the underlying share at expiry date. I thought I could make at least 10% profit already by looking at the price performance of DRB. However, I overlooked that the settlement price was based on the closing prices instead of the weighted average prices of the last 5 days. Certain party, hard to believe that it was not OSK, pushed the first day closing price down below the exercise price. I sold off DRB CE at 12 sen on 27th, afraid that somebody will manipulate the closing price of DRB again.There gone my hope and dream despite all the hard work. sigh. Yes, I agree with MOO, if OSK is not involved (hard to believe again, especially they purposely use closing prices), ignore the closing price on 25th for the settlement price computation. "People count cannot beat heaven counts"

Moolah said...

The one other fact that needs to be repeated is...

the following trading day...

DRB share price practially recovered from the said trading error.

DRB-CE which was IN the money.. tanked 20%.


I think OSK should be a gentleman and strike out that closing day price.

ps: Yeah.. these bankers are issuing call warrants left, right and center. And for Bursa, this means more business. And as a business entity, how can Bursa say no to more business?

And with more call warrants.. each banker comes out with their own play rules.

And OSK one is certainly funky... the last 5 closing day prices are crucial.

Go figure.

ninja turtle said...

How do you play call warrants? How does it works ?

Richard Cranium said...

uhm, Mr Moolah, do you want me to repeat my well-worn comment about market integrity of our Mickey Mouse Exchange?

I guess not, hor?

Moolah said...

Richard: LOL!

But... something needs to be done.

Moolah said...

Actually I don't understand why ppl wanna 'play' these call warants.

Let's see... these FRIENDLY bankers set up these wonderful tradeable 'stocks' for what reason?

Aren't they out to win money?

And if that's the objective, obviously these bankers would price and make all the necessary rules (calculations) so that they will win. Yeah, priced so that they got a good chance to win and profit from the issuance of the call warrants.

That's gotta be the reason hor cos no bankers would create such call warrants if they stand no chance to win.

And sometimes... certain bankers are crafty...

They use stuff like closing day prices to calculate the Settlement Price.

And for this example, one 'bad' closing day ... caused by one 'bad' trading error.... killed all the punters of the call warrant.

Nice game hor...

But then... ppl still want to trade them.


K C said...

Moolah, I agree with you in general that people should not punt on call warrants, especially when they are first issued. Like any other capitalist, investment bank wants to make money from the naive public. They are always issued at high price, ie, issue warrants at high implied volatility. Also call warrants are usually quite illiquid and often one is betting with the market makers, who of course are having an upper hand with their bid-ask spread. However, often after some time since issuance of the CW, and especially for more liquid CW when one can bet against the public. One can be handsomely rewarded if he is well verse in the pricing of the CW and be patient and seize the opportunity when there is mis-pricing available, like the individual punters panic and sell the CW at low price etc. Sometimes I also notice that when the underlying share goes up a lot but the market makers are slow in revising their bid and ask. Keep our mind open. There is opportunity evere where.

Moolah said...

K C: Oops! My early post did not turn out right. It wasn't meant to be an advise.

ps: Very much agree with what you had written.

ronnie said...

If investors don't like it, they should avoid OSK originated call warrants. Better still, avoid all call warrants. Buffet calls them weapons of mass destruction.