Stocks Buyback as Penalty

Some information I would like to share about shares buyback through a remiser’s service so we are able to learn and don’t make the same mistake. There are 2 types of buybacks, one is a company privatization, and another term of buyback is when your remiser over traded what you have. The remiser of your DO NOT know how many stocks unit you are holding, neither do they know about how many accounts you hold from different investment banks (it’s against their policy). When you trade a stock unit, make sure you understand how many units you would like to trade and confirm with that remiser of yours on how many units you actually have before trading. If you have 1000 units in a particular stock, the remiser can actually trade 5000 units for you. If you have missed out on this, you would have to bear the penalty of 5000 units, even there is a short fall of 4000 units.

The penalty price depends on the cost per unit of the shares. For example, a stock price of RM5 per unit will earn you 0.05 cents penalty charge every 100 units held by you; RM10 per unit will make you even poorer by 0.10 cents; penny stocks will be half a cent. If you have 1000 unit on hand, and your remiser over traded (*be at your fault) another 9000 units, you will have to bear the consequence of 10000 units penalty. Penalty goes in 100 units – 10000 units of a RM5 p/u share means you have to pay a penalty of RM5 increase is a stock cost price.

Your initial purchase for a particular stock was RM6K with 1000 units. Today you sell your stocks at RM6 p/u assuming you don’t make or lose on price fluctuation, service charges, stamp duty and clearance; on the clearing day (T+3) say stocks price shoot up to RM7, you have got to bear RM7+5 (this is the penalty for 100 lots of over traded stocks) which is RM12. The company charges you RM12 p/u for the penalty. Your remiser traded 10000 units for you at RM6 which earns you RM60K. But your shares penalty cost is RM120K.

The balance value of over traded stock cost minus deduction of shares penalty cost will make you lose (RM60K-RM120K) RM60K. You don’t lose all of this 60K because this is the loss amount of 10K units, you only have 1K units, which made you lose 6K. Not forgetting, when you are being charged at a penalty, you have got to bear the clearance fee of 0.03% and stamp duty of RM1/RM1000 traded. There is no remiser fee.

Basically you will lose the whole investment cost of RM6K after paying the whooping hefty penalty. Depending on the amount of over traded shares and fluctuation on the clearance day.

Remiser is like a sole proprietor, they do not have a boss and just work on their own, so you can’t complain to anyone if your stocks were over traded. One good way to avoid this scenario is to trade shares on your own using M2U (Shares Investment Center). You may want to forward to relevant party if they are into the stocks market. I only get to talk to a remiser from Maybank Investment Center – and this applies only if you are using a remiser service.

Note: The values and figures used here is an example only. Information was retrieved from a remiser.