Shares of Avon Products, Inc. (NYSE:AVP) stock went on a wild ride today, roaring as much as 20% higher before pulling back to just a 6% gain … all in a matter of a couple hours.
A fake tender offer to buy out Avon stock holders at $18.75 per share, nearly three times yesterday’s $6.67 closing price, drove the action.
Avon stock triggered three separate trading halts over that time period due to excessive volatility. Those measures, instituted as a result of the Dodd-Frank Act’s attempt to shore up pronounced short-term market swings in the wake of the 2010 “Flash Crash,” stipulate that a stock will be halted any time it moves 5% or more in a five-minute period.
Here’s how the events unfolded:
Intraday Timeline of AVP Stock Volatility
11:34 a.m. — SEC Filing Appears
AVP stock price: $6.60
A form known as a TO-C, which reports a “written communication relating to an issuer or third party,” appears on the SEC’s website in its EDGAR database. Here is the market-moving excerpt from the file, which you can view in all its glory here (note that the primary source doesn’t seem to care for conventional spacing rules):
“PTG Capital Partners LTD. (‘PTG Partners’) announced today that it has submittedan offer to the board of directors of Avon Products,Inc.(the’Company’) (NYSE:AVP) proposing to acquire all of the Company’s outstanding stock, and outstanding options to acquire such shares, in a recommended cash tender offer at a price per share of US$18.75 (the ‘Proposed Offer’).”
Upon further examination, the name and number of the lawyer in the filing would turn out to be bogus, and several erroneous mentions to “TPG” instead of “PTG” would stick out as red flags.
11:35 a.m. — Stock rises 1.3% in one minute
AVP stock price: $6.68
11:36 a.m. — Stock rises 5.4% in one minute, halted for volatility
AVP stock price: $6.97
11:43 a.m. — Bloomberg reports on PTG filing and rally
AVP stock price: Halted
11:44 a.m. — Stock resumes trading nearly 10% higher. Volume reaches 1.54 million shares in one minute.
AVP stock price: $7.60
11:45 a.m. — Stock halted for second time after another 5% rally in less than a minute. 2 million shares are traded in this short time.
AVP stock price: $7.98
11:53 a.m. — Stock resumes trading for second time
AVP stock price: $8.00
11:53 a.m. — Stock halted for third time after a 5% drop in less than a minute on volume of 4 million shares.
AVP stock price: $7.60
11:56 a.m. — Business Insider calls takeover “bizarre”
Says the filing party, PTG Capital Partners, “may not exist,” quotes Avon as saying the company has not communicated with such an entity.
11:59 a.m. — Stock resumes trading for third time, reaches 3.25 million in volume in first minute of resumed trading.
AVP stock price: $7.20
12:01 p.m. — Shares settle down, volume still 2.2 million shares in a minute. The stock would not trade meaningfully lower from these levels for the remainder of the day.
AVP stock price: $6.95
Total volume for the day? 69.41 million shares, or more than five times AVP’s average daily volume.
So, what’s an investor to make of all this?
The Takeaway: Still Flaws in the System
Today’s snafu in AVP stock reveals a couple deeper problems with the market mechanisms and regulatory agencies overseeing daily trading.
- First, should the SEC wield power to halt a stock if there’s highly unusual and suspicious activity surrounding it, as there was today? A halt triggered by a 5% move in five minutes didn’t do the trick today, as evidence by the three separate halts.
- Second, and far more important: What gives with the SEC filing system? Did someone hack into the EDGAR database? Was this an inside job? Is it that easy to manipulate the system? There’s clearly a flaw in the process somewhere, and that’s simply not acceptable in today’s stock market.
As for AVP stock, the fact that it held on to some of its speciously gotten gains to close up 6% today is mind-boggling. I wouldn’t touch Avon going forward.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
