Liberty Telecoms (LIB) stock price rises 1,375%

James Ryan Jonas

The Philippine Stock Exchange (PSE) approved in August 2009 rules to exempt certain stocks from the price trading band or the limit in the increases or decreases of stock prices within the day.

Price trading bands: 50% max price increase; 40% max price decrease

Stocks traded on the PSE currently have a limit of 50% in terms of price increases (price ceiling) and 40% in price decreases (price floor). This trading band is supposedly installed to protect investors from price volatility.

With the August 26 memorandum, the PSE agreed to lift the trading band in the following scenarios:

  1. When trading resumes for securities that have been suspended for a period of one year or more;
  2. When the Exchange determines that: (a) there has been an event or occurrence that may cause the price of the security to change drastically; or (b) the application of the trading band on the price may render impractical the trading of the security upon prior notice by the Exchange as may be warranted under the circumstances.

Stockbrokers see a benefit to the trading band exemption primarily with regard to the first scenario because, according to them, a stock suspended for more than a year will have to catch up with its fair market value upon resumption of trading.

Liberty Telecoms: 1,375% price increase in 1 day

This was seen in the case of Liberty Telecom Holdings (Stock Code: LIB) whose stock price rose 1,375% to P2.95 when it first traded again in July 8, 2009 after a 4-year hiatus. The stock closed at P0.20 on its last trading day in August 16, 2005 following the company’s announcement it is seeking rehabilitation.

Prior to the resumption of LIB’s trading, the Ramon Ang-led San Miguel Corp., also the group supposedly responsible for the stock price rally of Meralco (MER) and Philex Mining (PX), acquired 32.7% of Liberty Telecom in the conglomerate’s bid to enter the telecommunications industry.

New trading band proposal: 50% price increase and decrease

The PSE is also proposing to raise the price floor limit from 40% to 50%. According to PSE President Francis Lim, the new trading system to be implemented in October only allows one figure for the price ceiling and price floor. Thus, the maximum price decrease is proposed to be set equal to the maximum price increase of 50%.

The exchange is giving interested parties to submit their comments regarding the trading band proposals on or before September 15. After that day, the proposals will be submitted to the Securities and Exchange Commission (SEC) for review and approval.

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.