The Controversial of Proprietary Trader (PT)

Random Trading

Publish date: Sun, 24 Aug 2014, 05:32 PM

Proprietary Trader (PT) aka stockist are day-traders that employed by brokerage firms to trades on their behalf. They don't have clients and they make their own decision on which stock to buy or to sell. Some of them have the privileged of short selling but they always have to cover back their short position on the same day. The recent meltdown of the market on Aug 20 has put some spotlight onto the PT as they have been accused as the main contributor to the abnormal volume traded of the market as well as the meltdown of the market. Well I would like to lay out some facts regarding PT after I read the Star article on Aug 23:

- PT has one big advantage over retail trader, they trades with no brokerage fees but only the stamp duty and clearing fees to Bursa Malaysia. It is one advantage but they are employed by the brokerage and need to share their profit with the brokerage and has to absorb all the losses themselves thus I believe it is a fair arrangement. Retail investors not only do not need to share their profit but the capital gain also exempt from taxation. From what I know, PT do have to pay tax for their profit. Thus I believe the advantage do comes with a price.

- As for massive volume traded by PT, their jobs is to move in and out within the same day thus the only way to make money is to trade with volume or else with the tight daily range of local stock, it is impossible for them to make money. Again, the bigger volume they trade, the bigger risk they took as well thus it is a double sword thing. They can make big bucks but they can loss big bucks too. Don't you think?

- Do we need PT in the market? Well, I do believe that for every healthy market, there must be a market making mechanism in place so that buyer and seller can execute their trades with minimum spread. PT act as a market maker, provide necessary volume for retail investors and traders to buy or sell with ease. They also give the market some vibrancy to attract retail investors and traders into the market. Without PT, it is safe to say that our market will be as dull as some of our blue chip and mid cap stocks that hardly traded. Do we want a dull market like this?

- Was PT the sole contributor to last week abnormal volume? Well, from the star article, we know that the retail participation is huge with close to 40% of total volume traded compare to just 25% previously. Which means retail participation do play a big part of it.

- The article also did mentioned that there are few stockist 'gang up' to short sell certain counters to cause panic. Firstly, the acts of a few rogue traders can't represent everyone in the same position. Secondly, if they were to short sell certain stocks with fundamental, I'm sure there will be buyer support the stock and these short seller might end up cover their short with higher price and loss money. Thus the meltdown of certain stocks could due to their own fundamental weakness and the short selling activities is just simply accelerated it.

Personally, I think that as long as these PT behave according to rules and regulation of Bursa, I don't think they are a threat to the market. Unless they are breaking rules such as involve in market rigging and manipulation then they should be punished for that. Every PT are registered with Bursa thus the authority can and should subpoena their trading records regularly to make sure they are acting by the laws.

As a trader myself, I certainly hope that our market is vibrant and active. If I feels that particular stock is too hot and bubbly, I will choose to stay away from it. All the decision I made has nothing to do with whether PT exist or not. If PT breaks the law, then they should be punished like every one of us, if not, they are just another player in the market like us. This is just my view.

Discussions

3 people like this. Showing 12 of 12 comments

tjhldg

kikikikiiii ... pdt cannot " touch " pn17 counter like sumatec and ace counter la ... correct me if i m wrong ? thanks

2014-08-24 18:56

Random Trading

From what I know, it depends on the individual brokerage policy. So it is hard to say.

2014-08-24 21:08

connie

tj .... u are correcto, they cant trade ace counters ! but the letter did not mention pn17 :(

PDTS operate under controlled environment
Posted on 5 April 2012 – 09:08pm
WITH reference to “Proprietary traders must also pay fees” (Letters, March 28), we wish to thank the writer for his views.
Proprietary Day Traders (PDTs) were introduced in January 2007 with the aim of increasing liquidity in the market and reducing the imbalance of long-term investors and short-term traders. Their introduction was also part of Bursa Malaysia’s effort to facilitate a more robust price discovery mechanism. Proprietary traders exist in markets around the world, and in Malaysia, anyone who has passed the exam for a Dealer’s Representative Licence and has five years trading experience can apply to become a PDT.
While PDTs enjoy incentives such as clearing fee rebates if they trade a certain amount in a month and can conduct intraday shorting, it is important to note that there are also restrictions imposed upon them and they operate under a controlled environment as licensed professional traders. For instance, PDTs must close off their short positions within the day. Unclosed short sold positions are deemed to be in violation of the rules. PDTs are not allowed to acquire the shares and all purchase positions must be closed within two days of the transaction date. PDTs are not allowed to trade on the ACE Market and they are strictly prohibited from carrying out trades for clients of brokers.
These restrictions are vigilantly monitored to ensure that the benefits enjoyed by PDTs are appropriately used. Action will be taken against those found to have breached the rules.
Elaine Mariman
Acting Head
Strategic Communications
Bursa Malaysia

2014-08-24 21:10

Random Trading

Ya Connie you are right. They can't trade Ace market but I'm not so sure they can't trade PN17 stocks. As matter of fact, I know some retail traders trade with even bigger volume than PDT with their own money. Can you imagine that. With property sector slowing down, I believe that there will be more liquidity in the market in the near future.

2014-08-24 21:29

tjhldg

hi random trading , got aar ? got broker house allow pdt to short pn counter ar ? which broker ? can let tj know ? damn curious leh ... u ada check bo b4 u say this ....

" Random Trading From what I know, it depends on the individual brokerage policy. So it is hard to say.
24/08/2014 21:08

dont simply say leh ... if ada then tj owe u a big apology and thanks for the information . really appreciate .

and fyi is not difficult to be a pdt and the money that require to be a pdt also not much , any how small or big not the matter la .. the only problem i think is they need to go to the broker house and cannot perform short or long out side la ... happy trading

2014-08-25 00:17

tjhldg

hi connie .. cause sumatec is under pn 17 and that day big plunge in penny stock is lead by sumatec la , till here wish u get what i mean and understand y i mention this la ... wish u huat huat and happy trading la

2014-08-25 00:18

tjhldg

kikikikii .. jimmy 123 .. go ask your remiser or investment bank what is PDT or PT and what they can do cannot do that mention in this article first , ok ?

2014-08-25 01:01

tjhldg

aiyo jimmy 123 , u r good man lai ... but why not u go and ask your remiser or investment bank first what is proprietary day traders ( PDT ) that mention in this article ? ok ? the more u explain here the more u let people feel the more apa tu la u ... ok ? happy trading la

2014-08-25 02:12

Random Trading

Hi Tj, yes from what I know there r firms allow their PDT short selling PN17 stocks. Of coz I can't b 100% sure so if anyone from compliance dept can shed some light here would b great.

Hi jimmy, PDT is different. Like Tj said, you will know more if you ask your remisier abt them.

2014-08-25 07:27

ogre

http://www.bursamalaysia.com/misc/system/equity_market_statistics/securities_equities_rss.pdf
@tjhldg @Random Trading
Yes, PN17 co can be traded short selling.
The latest listing by Bursa included Sumatec in RSS list beginning March '14 (if I'm not mistaken).
However, as per the link above, prior to Black Wednesday up until 29/8, no record of Sumatec being traded RSS.
The list is updated daily after market hour and has a history of 10 market days.
So I believe PDT was not the cause for Sumatec Black Wednesday.

2014-09-01 23:35

tjhldg

u ada check betul betul bo ? sumatec in short sell list ? and fyi pdt dont need borrow ticket dulu then sell aeh ... dia suka suka tenggok tu counter from main board and not under pn status then he can sell already .. the term and condition is pdt need to buy back same day or hearsay the most is next trading day early morning at whatever price ... and as sumatec uplift from pn 17 this tuesday so some of the pdt may take action on it la .. think they wait upliftment from pn17 for this counter till neck long long liau :)... or if u know any pdt from any broker short this sumatec b4 today ... pls let tj know .. thanks

2014-09-02 00:10

ogre

@tjhldg.....
fyi
http://www.bursamalaysia.com/misc/system/assets/10889/securities_equities_bm_cir_rr6_140814.pdf

2014-09-02 02:24

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