Earlier this week, the SET said it would investigate whether insider trading or price manipulation had occurred in trading of International Engineering Plc (IEC) stock. It did not, however, prohibit net settlement and margin loans for this company's shares.

These cases are the latest in which the SET has tackled trading activities that might be unfair to retail investors and damage the bourse's stability.

It is questionable, however, whether the SET can do much to prevent or even curb abnormal volatility and price manipulation at present.

When large-capitalisation stocks do not move, short-term investors shift to speculative stocks.

Political uncertainty had cast a cloud over a market already restrained by global factors, including surging oil prices, uncertainty over interest rates and slower economic growth. The SET Index fell from 785.38 points on May 9 to 646.69 on June 14, its lowest level of the year.

Political tension, however, has subsided somewhat following Tuesday's ruling by the Criminal Court that resulted in four-year jail terms for the election commissioners.

Still, bearish sentiment overshadows the market and small caps remain in the spotlight. With the price of large-cap shares on a downward trend, manipulating small caps is more attractive.

As a result, speculation, price manipulation, and profit-taking on small caps becomes more prevalent. Small caps have fewer floating shares, so major speculators need less money to play with them. Once retail investors join in, the prices become even more volatile.

Small caps that have drawn the SET's attention so far this year include those of Agripure Holdings, Power-P, Diana Department Store, and IEC.

However, it has become more difficult for authorities to probe the trading of these stocks.

Suthichai Chitvanich, executive vice president of the SET, said last week the difficulty was that major speculators are using more and more nominees to manipulate prices. Previously, they used five to 10 nominees, but nowadays they use many more, he said.

"Considering investors' behaviour in Everland stock, it seems that [they] are able to know the SET's investigating methods," Suthichai said last week, referring to the speculators.

"They even know at what level the SET will step in. When the stock trading has heated up almost to the level that would trigger the SET's measures, these investors, then, reduce speculative activities. Then the prices and trading volume won't reach the criteria set by the SET," he added.

Price manipulation has not only become more difficult for the SET to probe, but some major speculators appear to be major shareholders or executives in the hot small caps.

In some cases, the SET cannot investigate the relationship of shareholders and executives as it mainly looks into individual stocks and investors, Suthichai said.

Retail investors have been repeatedly warned to avoid these hot stocks, but some not only ignore the warnings but increase their interest in the stocks once they have been warned that speculators are active in them.

All the SET can do issue warnings. Retail investors who think they can predict the activities of major speculators often suffer losses. Most often, the winners are major speculators as well as foreign investors - not retail investors.

Jiwamol Kanoksilp

The Nation