SUSPICIOUS OF 'PUMP AND DUMP' PRACTICES, US EXCHANGE REGULATOR TIGHTENS SUPERVISION OF MINI'S IPO SHARES

SUSPICIOUS OF ‘PUMP AND DUMP’ PRACTICES, US EXCHANGE REGULATOR TIGHTENS SUPERVISION OF MINI’S IPO SHARES

US exchange tightens supervision. The United States (US) stock market regulator is increasing supervision of stock trading activities involving new issuers with very small initial public offering (IPO) values. Last week’s public acknowledgments by regulators and exchanges of this year’s unusual trading patterns signal a crackdown is imminent. “The next step is likely to be the SEC or the Department of Justice, which could pursue bad actors with civil or criminal charges,” said University of Michigan law and business lecturer Erik Gordon.
US exchange tightens supervision. This increase in oversight is related to a statement by the US Financial Industry Authority (Finra) that the New York Stock Exchange (NYSE) and the Nasdaq have observed the potential for a pump and dump scheme to be carried out on issuer shares with an IPO value of below US$25 million on US exchanges. In addition, the NYSE and Nasdaq also issued separate warnings that day. The pump and dump scheme is a manipulative activity by presenting a fictitious analysis with the aim of raising the stock price. Pump and dump actors try to “fry” certain stock prices, then sell these shares, other market players know about it. Pump and dump players take advantage of market dynamics from supply and demand to make investors see price movements as a normal trend.
Georgetown University professor James Angel said Finra and US exchange authorities issued a simultaneous warning that authorities would act increasingly aggressively. “This is sending a signal to everyone in the industry that they are fed up with the pump and dump game and they can’t take it anymore,” he said. However, spokespersons for the NYSE, Nasdaq and Finra declined to comment beyond their statements. Based on the data, a wave of issuers that IPO US stock exchanges with very little value is starting to bloom. At least six IPOs of US$25 million or less occurred in November. IPO plans of this kind started to dwindle after the Nasdaq started asking new questions about smaller companies planning IPOs, including details about allocation, buyers, marketing, and IPO timing. As a result of increased scrutiny, the return on the rise in the number of small IPOs is far worse than the IPOs that escalated earlier this year with extreme and frequent price spikes. Small IPO shares this month have experienced an average decrease of 37 percent from the initial offering price on the first day of trading. This decrease is far compared to new issuers that had IPOs at the beginning of the year, which averaged a 597 percent increase. This latest wave of smaller IPOs are trading 34 percent below the offering price on average.

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