Barefoot Investor: Malaysia Market: DRB-HICOM's late slump raises alarm bells

Kuala Lumpur: DRB-HICOM Bhd's last-minute drop on Friday had investors, especially the call warrant holders sweating again.

Within the last couple of minutes, the market closed for active trading and DRB-HICOM mother shares slumped almost eight sen, after an investor dumped the stock.
It ended the day 10 sen lower at RM1.74 a share, with the buyer spread and seller spread trading wide apart.

The buyers wanted the share at RM1.74, while the sellers wanted it at RM1.81.

DRB-HICOM call warrant holders are worried, as one of the warrant expires in five days' time, while another has 18 days left.

Their concern is understandable because in late July, DRB-HICOM shares slumped to RM1.95 a share from RM2.28 in a single day.


The slump happened in the last couple of minutes of trading, after an investor keyed in to sell the DRB-HICOM mother shares some 30 bids lower than the market value.

The trading error happened just before the DRB-HICOM CE call warrants issued by OSK Investment Bank was going to expire.

The DRB-HICOM CB call warrants issued by OSK at 17 sen expires in five days' time. The strike price is set at RM1.29 for the mother on a one-for-one basis.

The DRB-HICOM CC issued at 15 sen by CIMB, with a strike rate of RM1.15, on a basis of five call warrants for one mother share, expires in the middle of this month.

The final settlement price of call warrants are calculated by using the last five days' closing price, and as such any sudden drop in prices of the mother share will affect the settlement price.

As such, there were suggestions that to even the playing field, instead of fixing the final settlement price through the last five days' closing price, the average weighted price over five days should be used instead.(Business Times)

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