What Is a Price Band?

Panduka1988 · 1 What Is a Price Band? Wed May 25, 2011 3:20 pm

Panduka1988

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Please explain me what is a price band? Is it good or bad for share trading?
What are the Advantages and disadvantages?

traderJack · 2 Price Bands Wed May 25, 2011 3:48 pm

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When a share price moves by a large amount in one day, for eg: like CLND did (around 55%) the SEC imposes a rule called a price band on that counter.

Assume share X closes on 20.00 on Monday. The price band is applied until Friday. Then on Tuesday, the price will have to be between 18.00 and 22.00 which is + or - 10%. Then if it closes at 22.00 on Tuesday, it can only trade between + or - 10% of 22.00 which is the last traded price on Monday, and so on until the band is removed on Friday.

My personal view is that price bands are a good thing. People might like it if a share appreciates by huge amounts continuously, but it can come down as fast as it went up too. So when a price band is imposed it can only come down a maximum of 10% which gives a certain level of security to the investors who bought it once it appreciated.

I hope this explains it well enough.

Panduka1988 · 3 Price Bands Wed May 25, 2011 4:00 pm

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Ohh!

Thank you very much dude.. !!! I got a very clear idea about Price band.. Thank you very much..

Antonym · 4 Re: What Is a Price Band? Wed May 25, 2011 4:10 pm

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@traderJack: Good explanation, dude. Just replace Monday with Tuesday in "+ or - 10% of 22.00 which is the last traded price on Monday".

Fresher · 5 Re: What Is a Price Band? Wed May 25, 2011 4:20 pm

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not quite. the review period last known is 5 days.
it has now been revised to last 5 days from the initial 15.

SEC Directive

xhora · 6 Re: What Is a Price Band? Wed May 25, 2011 4:24 pm

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Price band is applied on security no just because it appreciated by a huge percentage. Actually SEC has a undisclosed "goni-billa" formula to check for counters.

E.g:
Today CSEC goes up 60% but price band was not imposed