Stock Market Manipulation at NSE

 

On a cold April 1st 2014, as the bullish run at the Nairobi Securities Exchange was peaking at 4913 Basis Points, a small little known company called Kenya Orchards Ltd. (ORCH) came to life after having stagnated at a share price of Ksh. 3.00 for over 5yrs without a single trade; all the daily stickers till that April Fool’s Day of 2014 morning had been marked with a DNT indicator. Then, just like all April Fool’s Day gimmicks that sometimes sound too good to be true by refusing to go away, the counter started trading, gaining 53.3% as the share price moved from its cozy Ksh. 3.00 bed to a VWAP of Ksh. 4.60 with thin volumes of 600 shares traded by close of business at the bourse. The NSE’s +10% price change cap rule was understandably broken; the company was making a corporate announcement. And that was the start of what would become the year’s most “bullish” run on a counter. By 31st October 2014, exactly 6 months after the stock traded for the first time on April 1st, the share price peaked at Ksh. 190 having registered a gain of Ksh. 187.00 or a percentage gain of 6, 233.33%

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Data from financial research company Relic Capital describes Kenya Orchards Ltd. as a small company in terms of market capitalization that does nothing more than farming; distributing processed foods, vegetables and other food products. It is listed at the NSE with 12.87M issued shares, a market capitalization of Ksh. 1.42B and extremely mean with dividends. By the time ORCH share price peaked at Ksh. 190 on the last day of October 2014, the market was still in a bull run so not many people probably paid much attention again, even as the share price started recoiling back with a bearish move into oblivion. Just as inconspicuously as it had gained, it started losing. But the intended gains had certainly been achieved by the architects of the bullish run. The thin volumes on offer ensured supply was constricted so that demand could push up the price by the conventional supply-demand laws.
The Nairobi 20-Share Index had been on a robust bull run that started in Jan 2012 so it didn’t raise much questions that a company that had been literally off-radar for so long could suddenly spring to life, make such astronomical gains within such a short period of time on pretty thin volumes (the company mostly traded volumes of less than 500 shares, presumably a single trade or two in a day).

The weird thing about ORCH’s ascent to returns of 6,233% to ‘shareholders’ in 6 months is that during all that period, only 44,500 shares were traded.

How CMA never bothered to look into this counter or at least give an explanation to the public still remains a mystery. This is a classic case of market manipulation; releasing few shares at higher prices so that traders and speculators who are traditionally the stock market hyenas can pounce on the opportunity to make a quick cash kill, only to realize who the real hyenas were. The trick is that once the hype has caught on, keep the supply suppressed even more so that the buyers want more and the more they want, the higher they will be willing to pay for it. In a civilized market with controls, a neon sign would certainly trigger a red flag on a securities fraud office computer screen and put into motion some investigations but well…this is Kenya and the work of the regulator has its own definition.

Maybe someone is guilty or culpable in the ORCH share manipulation saga and needs to be questioned, or maybe not. I am no stock markets crimes analyst so I wouldn’t know that. All that’s clear is that in 2014 the NSE saw a serious manipulation and nothing was done. The report on the issue just came out this year, 2 years after the crime was committed. The fact that the counter has only traded thrice this year (400 speculative shares only) at a stagnant price of Ksh. 97 yet in 2014 it was the darling of the bullishness should make someone somewhere scratch their heads with some tough questions.

Maybe some deep investigative report will finally unearth the real cobwebs behind the highly conspicuous manipulation that was hidden from regulators in broad daylight. In the meantime, at the NSE we will just keep being the ordinary law-abiding citizens with exposure both to volatile market forces and fraudsters. Hopefully the regulators won’t turn a blind eye on our portfolio safety especially when fraudsters knock at the market doors like they did in 2014.

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