blobbles
11-12-2012, 05:04 PM
Hey everyone, I aren't too much of a newbie, but its a bit of a newbie question so I thought I would ask it!
I am wanting to know if there is regulation or if it is simply market regulation regarding the influencing of the share price of a company. Take this example:
Person A has 1,000 shares in a company. Person B has 1,000 shares in a company.
The company has 10,000 shares and is barely ever traded. The share price is 50c.
Person A meets person B and they decide to drive up the share price. Person A says "I will sell you 50k shares for $3 each one day, then the next day, you sell me 75k shares for $3.15, the next day I will sell you 100k shares for $3.25 and we will create a buzz and some big paper profit". (simplistic but you get what I mean)
As Person A and B have only sold 100k out of 1000k, they haven't really made a huge loss. At this point others enter the market thinking that the companies sudden rise in share price must have some cause and therefore start buying in at above $3. This sets up person A & B who then sell their 1000k shares for $3+ and make a huge profit. In reality, during this time, the company hasn't changed any of its fundamentals and therefore the price should still be 50c.
Does that happen? You don't really hear about it, but it seems like it could easily happen and be difficult to regulate. If you had a sharemarket full of "buzz" investors (those that didn't really look at financial reports, just bought into companies at the start of the companies getting good buzz), I am sure that would happen often. Is there any regulation that prevents such actions?
Cheers!
I am wanting to know if there is regulation or if it is simply market regulation regarding the influencing of the share price of a company. Take this example:
Person A has 1,000 shares in a company. Person B has 1,000 shares in a company.
The company has 10,000 shares and is barely ever traded. The share price is 50c.
Person A meets person B and they decide to drive up the share price. Person A says "I will sell you 50k shares for $3 each one day, then the next day, you sell me 75k shares for $3.15, the next day I will sell you 100k shares for $3.25 and we will create a buzz and some big paper profit". (simplistic but you get what I mean)
As Person A and B have only sold 100k out of 1000k, they haven't really made a huge loss. At this point others enter the market thinking that the companies sudden rise in share price must have some cause and therefore start buying in at above $3. This sets up person A & B who then sell their 1000k shares for $3+ and make a huge profit. In reality, during this time, the company hasn't changed any of its fundamentals and therefore the price should still be 50c.
Does that happen? You don't really hear about it, but it seems like it could easily happen and be difficult to regulate. If you had a sharemarket full of "buzz" investors (those that didn't really look at financial reports, just bought into companies at the start of the companies getting good buzz), I am sure that would happen often. Is there any regulation that prevents such actions?
Cheers!