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Sri Lanka’s Stock Market In The Doldrums
By Mandana Ismail Abeywickrema - The Sunday Leader
http://www.thesundayleader.lk/2011/12/11/manipulations-and-insider-trading-at-cse/
The country’s stock market remains flat while regulators have come under pressure for trying to regulate the market that is driven by insider dealings and manipulations. An unfortunate scenario given that the post war benefits could have otherwise pushed the stock market higher.
The recent activities at the stock exchange has prevented a level playing field for all investors and has even discouraged many small time investors who were beginning to invest monies in stocks.
The Sunday Leader reliably learns that the Colombo stock market is currently manipulated by a cartel that includes a few high net worth individuals who trade on large volumes and a few stockbrokers.
These individuals, including some new comers to the market, have wielded political powers to remove any obstacle to their trading and safeguard their personal interests.
The names of a few businessmen and investors have been publicised in the media recently as being involved in manipulating the market. The key names that have figured in these reports are of businessmen deleted Perera, deleted deleted and deleted Silva.
A source attached to the Colombo stock market confirmed these reports by saying “the reports in the media are not wrong.”
They say that while the real traders in the market amounted to around 20,000 to 30,000, the decisions made for the greater good of the entire country have come under pressure.
However, sources from the Securities and Exchange Commission (SEC) told The Sunday Leader that there is no solid evidence to back allegations of insider dealings and manipulations despite it taking place in the stock market.
“It is all circumstantial evidence, but it does take place,” sources said.
The cartel is said to have entered the stock market only to increase their portfolios and not to benefit the economy.
Attempts by the SEC to regulate the Colombo Stock Exchange (CSE) have been a much discussed topic in the past few weeks. The regulations and investigations into insider dealings finally resulted in the removal of the SEC Director General Malik Cader and the resignation of the Commission’s Chairman Indrani Sugathadasa.
One of the main criticisms levelled against the SEC by the stock brokering community is that the SEC was trying to control the stock exchange.They believe the stock market should be allowed to function freely in order to bring in more investments to the country.
A senior stockbroker told The Sunday Leader that the brokering community has worked hard to bring in investments to the market.
He accused the senior officials of the SEC and CSE of trying to apply certain regulations practised in overseas markets to the Sri Lankan stock market.
“It is not practical for a small market like in Sri Lanka. The mechanism needs to be put in place before trying to regulate the market,” he said, adding that there was in fact no need to regulate the market.
“There are instruments used in other markets like derivatives and short selling that have not been introduced to Sri Lanka.
The stockbroker claimed the SEC shouldn’t be concerned about credit given by stockbrokers. “Most stockbrokers are under holding companies or high net worth individuals. Therefore the monies will come in. If a broker goes bankrupt that is his problem,” he observed.
When asked about manipulation in the stock market, he noted that it was not illegal.
According to him, it is up to the buyer to be prudent when purchasing stocks.
“The SEC should not be concerned to know from where the money has come in as long as settlements are made,” he said. Nevertheless, the stockbroker pointed out that the bottom line is for the SEC to stop interfering in the stock market.
While the stockbrokers argue that the SEC should refrain from regulating the market, the Commission maintains that it is concerned over creating a stable market. The argument then is whether the regulator, in this case, the SEC, should regulate the stock market.
As pointed out by sources in the SEC, a market without SEC’s regulation would be like a cricket match played without an umpire.
Former SEC Chairperson, Indrani Sugathadasa said the Commission is mandated to protect the investors and a stable market needed to be established in order to do so. The stock brokering community was critical of the SEC’s regulations like the price band and the minimising of credit.
She observed that the SEC had imposed several regulations, which were later eased, when the market was experiencing high volatility.
“We cannot have a risk free market without maintaining systematic stability. We were working on it,” she told The Sunday Leader referring to the role played by the SEC in the stock market.
The SEC was working with McKinsey & Company, Inc. branch office in India to set up what is called a central counter party system, which would prevent any settlement failures.
“A stable system would safeguard the interests of the investors as well as the brokers,” Sugathadasa said.
She noted that the brokers played an important role since they ran the stock market. However, she explained the regulator in Sri Lanka has to develop and promote the market while regulating it.
“But can we promote the market when there is manipulation?” she asked, adding that it would be the poor people who would fall victim to the situation. She observed that while manipulations in the stock market happened in all parts of the world, it could affect the performance of the Sri Lankan stock market since it is still a developing market.
“We want to have a stable market where more foreign investors could be invited,” she said.
When asked if manipulations and insider trading could be proved, Sugathadasa said it could not. “It is difficult to prove insider trading and manipulations.”
Sugathadasa, however, refrained from speaking about insider dealings and manipulations in CSE.
It should also be noted that it is the lack of financial literacy among the people that has also posed a problem with regard to the stock market. If the investors were educated to look at the fundamentals of stocks they would not fall prey to manipulations in the market.
Sugathadasa admitted saying that the stock market has been confined to a small group since the financial literacy levels were not at a satisfactory level.
“The Capital Market Education and Training Division of the SEC is engaged in educating persons already involved in the stock market as well as those outside the system,” she said. Meanwhile, many attempts made by The Sunday Leader for a comment from the President of the Stockbrokers’ Association, Sriyan Gurusinghe, failed. Gurusinghe failed to respond to the questions e-mailed to him even at the time of going to press.
Be that as it may, the stock market continues on a weak note. When trading closed for the week on Friday, the main All Share Price Index had fallen by 0.51 per cent (30.75 points) to 5,996.44, while the Milanka index had dropped by 0.34 percent (17.85 points) to close at 5,231.12. The turnover had fallen to Rs. 464 million from Rs. 517 million on Thursday.
http://www.thesundayleader.lk/2011/12/11/manipulations-and-insider-trading-at-cse/
By Mandana Ismail Abeywickrema - The Sunday Leader
http://www.thesundayleader.lk/2011/12/11/manipulations-and-insider-trading-at-cse/
The country’s stock market remains flat while regulators have come under pressure for trying to regulate the market that is driven by insider dealings and manipulations. An unfortunate scenario given that the post war benefits could have otherwise pushed the stock market higher.
The recent activities at the stock exchange has prevented a level playing field for all investors and has even discouraged many small time investors who were beginning to invest monies in stocks.
The Sunday Leader reliably learns that the Colombo stock market is currently manipulated by a cartel that includes a few high net worth individuals who trade on large volumes and a few stockbrokers.
These individuals, including some new comers to the market, have wielded political powers to remove any obstacle to their trading and safeguard their personal interests.
The names of a few businessmen and investors have been publicised in the media recently as being involved in manipulating the market. The key names that have figured in these reports are of businessmen deleted Perera, deleted deleted and deleted Silva.
A source attached to the Colombo stock market confirmed these reports by saying “the reports in the media are not wrong.”
They say that while the real traders in the market amounted to around 20,000 to 30,000, the decisions made for the greater good of the entire country have come under pressure.
However, sources from the Securities and Exchange Commission (SEC) told The Sunday Leader that there is no solid evidence to back allegations of insider dealings and manipulations despite it taking place in the stock market.
“It is all circumstantial evidence, but it does take place,” sources said.
The cartel is said to have entered the stock market only to increase their portfolios and not to benefit the economy.
Attempts by the SEC to regulate the Colombo Stock Exchange (CSE) have been a much discussed topic in the past few weeks. The regulations and investigations into insider dealings finally resulted in the removal of the SEC Director General Malik Cader and the resignation of the Commission’s Chairman Indrani Sugathadasa.
One of the main criticisms levelled against the SEC by the stock brokering community is that the SEC was trying to control the stock exchange.They believe the stock market should be allowed to function freely in order to bring in more investments to the country.
A senior stockbroker told The Sunday Leader that the brokering community has worked hard to bring in investments to the market.
He accused the senior officials of the SEC and CSE of trying to apply certain regulations practised in overseas markets to the Sri Lankan stock market.
“It is not practical for a small market like in Sri Lanka. The mechanism needs to be put in place before trying to regulate the market,” he said, adding that there was in fact no need to regulate the market.
“There are instruments used in other markets like derivatives and short selling that have not been introduced to Sri Lanka.
The stockbroker claimed the SEC shouldn’t be concerned about credit given by stockbrokers. “Most stockbrokers are under holding companies or high net worth individuals. Therefore the monies will come in. If a broker goes bankrupt that is his problem,” he observed.
When asked about manipulation in the stock market, he noted that it was not illegal.
According to him, it is up to the buyer to be prudent when purchasing stocks.
“The SEC should not be concerned to know from where the money has come in as long as settlements are made,” he said. Nevertheless, the stockbroker pointed out that the bottom line is for the SEC to stop interfering in the stock market.
While the stockbrokers argue that the SEC should refrain from regulating the market, the Commission maintains that it is concerned over creating a stable market. The argument then is whether the regulator, in this case, the SEC, should regulate the stock market.
As pointed out by sources in the SEC, a market without SEC’s regulation would be like a cricket match played without an umpire.
Former SEC Chairperson, Indrani Sugathadasa said the Commission is mandated to protect the investors and a stable market needed to be established in order to do so. The stock brokering community was critical of the SEC’s regulations like the price band and the minimising of credit.
She observed that the SEC had imposed several regulations, which were later eased, when the market was experiencing high volatility.
“We cannot have a risk free market without maintaining systematic stability. We were working on it,” she told The Sunday Leader referring to the role played by the SEC in the stock market.
The SEC was working with McKinsey & Company, Inc. branch office in India to set up what is called a central counter party system, which would prevent any settlement failures.
“A stable system would safeguard the interests of the investors as well as the brokers,” Sugathadasa said.
She noted that the brokers played an important role since they ran the stock market. However, she explained the regulator in Sri Lanka has to develop and promote the market while regulating it.
“But can we promote the market when there is manipulation?” she asked, adding that it would be the poor people who would fall victim to the situation. She observed that while manipulations in the stock market happened in all parts of the world, it could affect the performance of the Sri Lankan stock market since it is still a developing market.
“We want to have a stable market where more foreign investors could be invited,” she said.
When asked if manipulations and insider trading could be proved, Sugathadasa said it could not. “It is difficult to prove insider trading and manipulations.”
Sugathadasa, however, refrained from speaking about insider dealings and manipulations in CSE.
It should also be noted that it is the lack of financial literacy among the people that has also posed a problem with regard to the stock market. If the investors were educated to look at the fundamentals of stocks they would not fall prey to manipulations in the market.
Sugathadasa admitted saying that the stock market has been confined to a small group since the financial literacy levels were not at a satisfactory level.
“The Capital Market Education and Training Division of the SEC is engaged in educating persons already involved in the stock market as well as those outside the system,” she said. Meanwhile, many attempts made by The Sunday Leader for a comment from the President of the Stockbrokers’ Association, Sriyan Gurusinghe, failed. Gurusinghe failed to respond to the questions e-mailed to him even at the time of going to press.
Be that as it may, the stock market continues on a weak note. When trading closed for the week on Friday, the main All Share Price Index had fallen by 0.51 per cent (30.75 points) to 5,996.44, while the Milanka index had dropped by 0.34 percent (17.85 points) to close at 5,231.12. The turnover had fallen to Rs. 464 million from Rs. 517 million on Thursday.
http://www.thesundayleader.lk/2011/12/11/manipulations-and-insider-trading-at-cse/
