Thursday, August 28, 2008

Pakistan Bans Falling Stock Market Prices

Here's one way to freeze up your stock market.

Pakistani stock exchange authorities set a floor of 9,144 points for the Karachi Stock Exchange index on Thursday, the exchange said.

The stock market has fallen for six consecutive sessions since Aug. 20 and has lost 43 percent since hitting a record high of 15,739.28 points on April 21.

"The continuous sharp decline in share prices can have implications for the wider financial system," the board of directors of the Karachi Stock Exchange said in a statement.

"With this in mind the board ... decided to place a floor based on closing prices of securities on Wednesday," it said.

"The individual security prices will remain free to trade within the normal circuit breaker limits, but not below the floor price level as mentioned," it said.

The measure will remain in place until further notice, it said.

What this really will do is speed up many price declines. If a stock starts heading toward a designated price floor, traders may start to sell sooner than they otherwise would, since they know that once a stock hits a designated floor price they will be frozen out of selling their stock, if a likely trade would only occur below the price floor.

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