Selling and purchase of Share
Can there be a situation where I don’t find a seller for shares that I want to purchase?
It is possible that shares will not be available in the market when you want to buy it, This will be the case where the scrip is having very low floating stock and most of it is held by promoters or a few individuals or entities who do not want to sell. In such case the demand for the scrip will be far higher than the supply and price may go up to any level. The recent spike in the price of scrips such as MMTC, STC is an example of this phenomenon where more than 95% shares of the company are held by promoters (in this case the Government of India) and a few institutions and there is no liquidity available. The price of MMTC touched a whopping level of more than Rs. 50000/- because of this. It is also seen that these scrips are prone to price rigging and manipulation as a few operators control the supply situation and play the market as per their convenience. Thus in these cases, there is very thin trading happening on exchanges and these shares are called thinly traded scrips.
Can there be a situation where I want to buy or sell shares but the stock market does not allow any transactions in the shares?
In order to curb excessive speculation and volatility, stock exchanges have a system of circuit filter on scrips which are not available for trading in the derivative segment of the exchange. This may be fixed at different percentage levels say 20%, 10% or 5% for different scrips. It means that based on yesterday’s closing price of the scrip, the price today may move within this range. Let us understand the concept by way of an example. Suppose the scrip ABC limited closed at levels of 100 yesterday and it has a circuit filter of 20%, today the price of the scrip may go to the maximum of Rs. 120 and a minimum of Rs. 80. Now as actual price movement depends upon demand and supply, if the demand is more than supply and price moves up to Rs. 120, price can not move beyond that today. Thus trading will not stop but if it happens it has to be at or below Rs. 120. if some sellers are willing to sell shares at these levels, trading will be there, otherwise no further price movement in upward direction. Tomorrow again, the price can go up to Rs. 144 (say if it closes at Rs, 120 today, Rs. 120+20% maximum of Rs. 120.) This way the position will continue for all future days.
Stock exchanges also have the system of index based circuit filter where the upward or downward movement in index such as Nifty and Senses beyond a fixed percentage of 10, 15 and 20% within a predetermined time period will lead to trading halt for a fixed amount of time or for the day depending upon the time when these triggers were reached. This happened as recently as January 22, 2008 when Sensex and Nifty saw a downward movement of 10% within a matter of 1 minute and there was a trading halt for 1 hour immediately after that.
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January 2nd, 2009 at 10:14 pm
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