4 hours ago
1
I’m not a doctor, but the technical answer probably has something to do with the bid/ask spread. Sure, BNCOM is a universal bank in the massive San Miguel [SMC] orbit, but the sad truth is that it trades more like a tiny stock like Greenergy [GREEN] (except without all the alleged wash trading). It trades with very low daily trading volumes relative to its public float. What we see in our market and in stock markets around the world is that the more potential buyers and sellers there are for a particular stock, the closer the highest bid (buyer) is to the lowest ask (seller). The inverse is also true: as the number of buyers and sellers decreases, the further apart the highest bid gets from the lowest ask. That’s BNCOM in a nutshell. It is an illiquid stock with a huge bid/ask spread. You can even watch this happen in real time on most brokerages. Just pull up a quote for BNCOM and look at the order book. The highest bid will be something like P6.70, the lowest ask will be something like P7.10, and the situation just stays like that until either a buyer gets impatient and raises their bid to match the lowest ask (producing a massive uptick in price on one small trade), or a seller gets impatient and moves off their ask to accept the highest bid (producing a massive downtick in price). Of course, not every day is like this but it's more often as I've described than it is, you know, good.
MB bottom-line: Someone unfamiliar with trading in illiquid environments might look at this as a fun game to play. It feels tantalizingly easy—without the experience of trying to enter and exit meaningful positions without volume—to just repeatedly flip BNCOM as it cycles between these “buy low” and “sell high” states. But the super low volume of this stock produces the double-whammy problem: not only are buyers and sellers super far apart, but they’re also not particularly gathered at either of these distant positions. What I mean by that is that the lowest ask might be P7.10, but the number of shares available at that price is just like 800, and the next lowest ask after that one is matched is at P7.15. So for any position of consequence, the “true” bid/ask spread is even larger. This is what causes BNCOM to bounce around so much, despite being a universal bank that is part of a massive conglomerate.
Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.
