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By Guardian Market, Guest Columnist
SLReports.net  Regulators often believe that through new rules they can produce a positive or more correct influence on the markets, when in reality they wind up doing the exact opposite with their regulations. Such is the case with the World Stock Exchange (WSE) price controls on Ginko Perpetual Bonds (GPB).
For the uninitiated, Ginko bank’s former deposits have been converted to GPB traded on the WSE, and the WSE has forbidden Ginko CEO Nicholas Portocarrero from purchasing these bonds back at any price less than L$1 each. (Announcement: https://www.wselive.com/research/announcement_detail/2212 ). The only reasoning I can see for this action is that the WSE powers-that-be feel Ginko investors should be compensated their full amount, and nothing less, for their former deposits. If someone else has another good-faith reason in mind, please comment below.
For some time after the announcement of this new regulation was made, a poll showed up on the WSE homepage asking users whether or not Portocarrero should be able to buy back GPB at prices under L$1. The response was overwhelmingly no, at about a 2:1 ratio. WSE never released any details as to whether this poll was justification for the regulation, but I still have problems with that method of deciding the issue. Most obviously, this is a GPB concern, which should be decided by the shareholders of GPB and not the general WSE users. Also, being a shareholder issue, those who control more shares of GPB should have more influence than those who do not. I daresay that should this type of vote have been carried out, the responses would have looked much different. Unfortunately, this WSE regulation is not helping the former Ginko depositors, but rather harming them. When Ginko deposits were brought onto the WSE (and before these price controls), Portocarrero made an announcement of a GPB buyback plan, saying “Ginko Financial will be actively purchasing these bonds in order to help keep prices at as high a level as possible” (Announcement: https://www.wselive.com/research/announcement_detail/2185 ). However, in the face of the new regulations, this cannot be done. Now, there is little incentive for new money to come into GPB (although it still yields 30% every three months at current prices, I suspect there is lingering doubt in the market as to whether or not this will be paid). With little new money coming in, GPB is batted back and forth by the day traders, and is slowly sinking lower and lower, meaning Ginko depositors are seeing their WSE portfolio balances slowly shrink. Therefore, what I see as the WSE’s goal, to protect Ginko investors, is not being achieved. The proof is in the pudding, so to speak: https://www.wselive.com/research/charts/256?period=month These low prices, lower even than Ginko desires, are truly salt in the wounds of the Ginko depositors. There is also the issue of communication. Every time I venture into the WSE website chat room, I find some poor Ginko depositor waking up from a sleep like Rip Van Winkle, very confused about why their investment is now worth about 10% of the value they’re used to seeing in their portfolio. The well-meaning regulators at the WSE should post somewhere convenient (perhaps on the GPB trading page) their regulations and reasoning for them, as to help alleviate this communication issue. So what solutions might exist in this treacherous situation? The obvious solution would be to remove Portocarrero’s restriction, allowing him to buy back bonds either at market or at limit prices. To those who might not trust such freedom to an institution that changed dollars to shares compulsorily, I offer a few other ideas: - Allow Portocarrero to buy GPB, but under no conditions to sell any shares of GPB.
- Allow Portocarrero to buy only at market prices, not at limit orders
- Prohibit any transactions of GPB below L$1 (Why should Portocarrero be the only one prohibited from cheating Ginko depositors out of their money?)
Or perhaps some combination of the above would be appropriate. Regardless, I hope that the falling price of GPB and level of investor confidence would be enough to shake the WSE from its dream that this price control is benefiting Ginko depositors. Something needs to be done to rectify the situation, and the WSE must take action, or risk further investor alienation.
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