Sri Lanka Newspapers Sunday 12/02/2012

SEC to tighten private placement rules
By Duruthu Edirimuni Chandrasekera

Tight rules governing private placements (PP) are being considered by the Securities & Exchange Commission (SEC) including a suggestion that such investors can sell their stock only a year after a connected Initial Public Offering (IPO) is floated, the SEC chief said.

Along with this the beleaguered institution is also strengthening its investigation arm to expand its probe against market manipulators and insider traders and restore public confidence. "We have to tighten the PP regulations. My personal opinion, which is also one suggestion is to permit PP investors sell their stock a year after a connected IPO comes to the share market," Tilak Karunaratne, Chairman SEC told the Business Times in an interview.

Current rules governing the PP say that the shares allotted on private placement shall be locked-in for a period of one year from the date of allotment of such shares. Mr. Karunaratne added that a company's PP should be imposed a lock in period from the date the firm goes public, which will prevent it's share price from falling after trading on the Colombo Stock Exchange (CSE). "This way the retailers are protected," he added.

Last year several small retailers burnt their fingers when IPOs came into the market - not realizing there had been a PP earlier (at a lower than IPO price). When trading opened after the IPO float, almost all these stocks fell below the IPO price as PP investors made a killing, an issue that was consistently raised by the Business Times on the unfairness of the system.

Mr Karunaratne also noted that SEC's investigations unit needs a lot of strengthening. "We need more staff at investigations as there are a lot of investigations which are ongoing and many more to be started. Therefore we need to strengthen the investigations directorate," he noted.
http://sundaytimes.lk/120212/BusinessTimes/bt03.html

Sri Lanka's upscale business community has put a damper on any buoyancy in economic growth this year with a new poll expressing concern over the deteriorating local and international business climate in 2012.

According to a Business Outlook Survey 2012 issued by the Ceylon Chamber of Commerce (CCC) in January, the situation regarding two critical areas - decision to invest this year and the economic environment - worsened in December 2011 against July 2011 when the previous study was done.

Respondents were asked whether they will invest, will not invest or are undecided. In December, 62 % said they will invest, down from 74% in July; 15% said they will not invest up from 8% while 23% were undecided against 18% (July). Asked about the economic environment in Sri Lanka for the next 12 months, 63% of the respondents said there was no change against 43% in July while only 21% said there had been an improvement against 57% earlier.

The internal survey, a copy of which the Business Times received unofficially, was aimed at obtaining an independent assessment of the business environment and the challenges encountered by Sri Lankan corporates. It covered key business sectors in Sri Lanka from Agriculture, Industry and Services such as Agriculture, Agro Processing, Banking & Finance, Food & Beverages, IT & BPO, FMCG, Plantation, Retail, Travel & Tourism, etc and was addressed to the business leaders covering SMEs to MNCs.

The mood worsened after notorious expropriation laws were introduced. Respondents asked for their perception of these laws, voted "Not Favourable (73%), Favourable (4%) and No Impact (23%)". Then asked about reconsideration of the business/investment decision based on these laws, 33% said they will reconsider, 40% said NO while 27% were undecided. Another revealing statistic was the ranking given to most positive (factors) and most negative factors. While there was hardly any change (from July to December) in the most positive factors (on a 1-5 scorecard) and comprising peaceful environment, improved infrastructure, cost of finance, improved access to finance and more transparent and consistent, the most negative ranking saw 'Abrupt/adhoc changes to laws and regulations' move one notch up to 1st place from 2nd place in July.

On average consumer prices, 69% of the respondents said it will increase (33% in July) while 31% said there was no change against 67%, six months ago. On interest rates, 51% said no change (95% earlier) while 47% said it would increase (3% earlier). The survey quoted 58% of the respondents saying salaries and wages in industry will rise (56% earlier), while industry profits would decline (27% respondents vs 55% earlier). On global economic conditions for the next 12 months, 2% of the respondents said it would improve, down from 14%; 29% said it would decline (47%earlier) while 57% said no change (51% earlier).

Commenting on the results of this survey, top economist, Prof. Sirimal Abeyratne from the University of Colombo said, the results were interesting but not surprising. He said there was a gloomy global economic outlook with the Euro crisis no more a crisis in the Euro Zone, but in the global economy.
He said the business environment of Sri Lanka needs to be strengthened through a reform process, but in practice it appears to have got damaged.

"Although the government's main policy document - Mahinda Chintana - presents a beautiful economic vision and conceptualization about the medium-term achievements of the Sri Lankan economy, there has been a huge vacuum in the mission and action plan. In certain instances, in fact, we could observe policy reversals as well as ad hoc policy changes, sending negative signals to the business community.
The business community wishes to see the policy direction of the country and, consistency and predictability of the policy environment," he said. A few bankers and industrialists polled by the Business Times had this to say:

- In addition to the macro economic issues, policy reversal is also a problem.
- Sri Lanka should have depreciated its currency two years ago and now the situation has worsened as the government failed to keep to its promises in the IMF SBA deal (flexible exchange rate policy/break-even in CEB and CPC)
- The market understands the situation much better (than the government) and is aware that the interest rates and foreign exchange rates are artificial.
- Policy reversals: the pensions pull back, the crates issue reversal, private university bill withdrawal and the expropriation law issues have sent negative signals and conflicting signals. The country can't attract investment under this environment.
http://sundaytimes.lk/120212/BusinessTimes/bt01.html

Stockmarket Review
By Elton P. Ebert
Only three days of trading was held this week including two days of a bash when the bourse wiped out 268 points from the ASI, which struggled to end just a mere 300 points above the 5000 mark. The turnover for the period was greatly assisted by the 8.5 million shares of Commercial Bank. Of late foreign buying has been on the rise probably due to the current levels.

This week foreign investors purchased 10 million shares in Expolanka, but their favourite is the No 1 in terms of market capitalization, JKH. However in line with the overall plummet in the market the next day, Expolanka declined to its lowest price of Rs.6.70, as was the case of the recent IPOs like Textured Jersey which dropped to Rs.7.70, Softlogic Holdings to Rs 13.80, and Free Lanka Capital to Rs.2.20. Companies which released very high growth figure like JKH, and NDB Bank were not spared by the weeks' devastation at the bourse. Commercial Bank which announced a final dividend of Rs.1.50, and a share scrip in the ratio of 1 for 56.33 for the voting shares and 1 for 47.22 for the Non-voting shares was slightly lower as trading ended for the week. The voting shares were at Rs.101. Some of the major declines were that of EB Creasy which was down to Rs 1000, and Lanka Ashok Leyland down to Rs 2201.

However moving against the depressed trend, Infrastructure Developers was up to Rs.127.90, PC Pharma to Rs.48.20 and Regnis rose to 332. The usual basket of active stocks was Renuka Agri, Panasian Power, Softlogic Holdings and Ceylon Tobacco - all traded in substantial quantities. Some local brokerages complained that the share prices were very high and that foreign Fund Managers would be interested if the market comes down. Accordingly we should witness some activity from these funds, because the prices of some shares are at unbelievable levels. Margin calls may be a benefit in this case, although many distressing statements were made over the margin calls issue. There is a category of retailers who prefer some of the export based companies in view of the recent developments and the current low levels.

Access Engineering Ltd is venturing out with a 20 million Ordinary Voting share issue at Rs.25, for which the opening date is 3rd March 2012.They must be hoping for a replay of the transaction style of Asia Asset Finance! A few investors who were trapped into Acme Printing & Packaging when it was almost nearing the peak of Rs. 34.50 last week when a massive 27 million shares were transacted, are somewhat perplexed as to why a price band is imposed now when the stock is trading at around Rs. 20.50.

Changes in directorates: Vidullanka PLC -Sattar Kassim was appointed a Director on 16th January.
The turnover for the three days was Rs.3 billion as against Rs. 4.9billion for the five days in the previous week. Both indices were lower with the All share Price Index losing 269.19 points or 5% to end at 5316.99, while the Milanka was also down 185.89 points or 4.60% to finish at 4627.14.
http://sundaytimes.lk/120212/BusinessTimes/bt19.html

By Duruthu Edirimuni Chandrasekera
The Securities & Exchange Commission (SEC) is gearing to help form an investors' association for the retailers under the auspices of the SEC in a bid to give a voice to the small and madcap investors, the SEC's top official said.

"We want to form an investors' association targeting the retailers. There're many such associations but we want to form one where they have a lot of 'clout'," Thilak Karunaratna, Chairman SEC told the Business Times.

He added that SEC will be a facilitator in this exercise. "This will help them fight for their rights," he added. Mr. Karunaratna said that SEC has called the stockbrokers for a meeting on Wednesday, on topics that they want to discuss. "So far they haven't sent us the topics on which they want to discuss," he added.

In response to a question whether the SEC is flexing its muscles pertaining to bringing market manipulators to justice, he said that SEC will do 'what it has to' in risk management. When asked about investors commenting on the SEC commissioners, he said that it's immoral 'to say the least'. "Also to gun (target) particular person/s simply because they are qualified at detecting wrongdoings has to be deplored," he noted.

He stressed that it's not the regulator's job to promote the stock market, an issue the Business Times has also consistently raised as a conflict of interest. "Many think that it's regulator's job to promote the market. The SEC's job isn't promotion, but protecting investors and maintaining a fair and orderly market. In the past we have gone beyond this mandate. Now we feel that SEC needs to educate both the stockbrokers and the investors," he explained, which the Business Times has also urged over the past year.

He added that retailers are mostly ignorant and in order to make a proper investment decision. "They need to be aware of the basics." Mr. Karunaratna noted that the SEC advertised for its director general's post as it could cast a wider net to catch bigger fish. "There were some good applicants, but the number was small (it was only seven applicants). Selecting from this pool wasn't the best."
http://sundaytimes.lk/120212/BusinessTimes/bt24.html

The Central Bank (CB), as the Sunday Times reported last week, is changing tack in its foreign exchange management direction and allowing free market forces to operate. Soon after depreciating the Rupee by 20 cents on Friday, February 3, the authorities have been pushing down the local currency against the US dollar this week and limiting its intervention compared to wide-scale pumping in of dollars in the past year.

Dealers said that on Monday when the money market opened, the CB depreciated the currency by a further 20 cents pegging the Rupee at 114.30 per $1 against 114.10 on the previous Friday. On Wednesday, it was unchanged but on Thursday, the CB depreciated the currency by another 30 cents to 114.60. In the open market the dollar was traded at Rs 115.70, edging towards Rs 116.00 and then ending the day at Rs 115.25, resulting in the largest-even depreciation (70 cents) in a week of the local currency in the past six to 12 months.

Dealers said the CB pumped in $25 million on Monday and again $15 million in early Thursday trading but quoted CB officials as saying that the Bank is moving away from its intervention tendencies and would sell dollars only when a petroleum bill comes to the market. But the CB officials didn't rule out completely any intervention (as a buffet against essential import.

commodities) if and when the Rupee was seen weakening against the US currency. The change in CB policy came after the IMF urged a more flexible exchange rate policy saying the CB was using valuable foreign exchange reserves to artificially sustain the Rupee.

More than $2 billion has been swallowed by the markets as the CB defended the local currency, sending reserves down to $5.9 billion in December from $8 billion in August. Faced with rising credit growth, essentially due to burgeoning (often, unessential) imports and few dollars to deal with, the CB brought in the new policy on February 3 of increasing interest rates by 0.5 % and devaluing the Rupee and announcing that it would minimise its intervention in the market.
http://sundaytimes.lk/120212/BusinessTimes/bt02.html

ආයෝජනයේ ප්‍රතිලාභ ලබන්නට වැදගත් වන ග්‍රන්ථයකි

කොටස්‌ වෙළෙඳපොළ ඉතා සරලව

කර්තෘ-ශ්‍යාම් නුවන් ගනේවත්ත

දශක තුනක්‌ පුරා මෙරට පැවති අභ්‍යන්තර ගැටුම්, 2009 මැයි මාසයේ දී අවසන් වීමත් සමග ආයෝජකයන්ගේ විශ්වාසය යළි තහවුරු වීම හේතුවෙන් පසුගිය දෙවසරක කාලය තුළ ශ්‍රී ලංකාවේ කොටස්‌ වෙළෙඳපොළ ඉතා ඉහළ ක්‍රියාකාරීත්වයක්‌ පෙන්නුම් කළේය. ලොව විශිෂ්ටතම ක්‍රියාකාරීත්වයකින් යුත් කොටස්‌ වෙළෙඳපොළවලින් එකක්‌ බවට පත්වෙමින්, 2010 වසරේ දී කොළඹ කොටස්‌ වෙළෙඳපොළෙහි කටයුතු ඓතිහාසික ලෙස ඉහළ යමින්, ප්‍රධාන දර්ශක සියල්ලම පාහේ ශීඝ්‍රයෙන් වර්ධනය විය.

2010 වසරේදී සමස්‌ත කොටස්‌ මිල දර්¨ශකය සියයට 96 කින් ද, මිලංකා මිල දර්ශකය සියයට 83 කින් ද ඉහළ ගියේය. මෙම වර්ධන ප්‍රවණතාවට දායකත්වය සපයමින් සියලුම උප අංශයන්හි මිල දර්ශකද ඉහළ ගියේය. ගනුදෙනු කළ කොටස්‌ සංඛ්‍යාව සිව් ගුණයකින් වැඩි වූ අතර, 2010 අවසානය වන විට, වෙළෙඳපොළ ප්‍රාග්ධනීකරණය රුපියල් ටි්‍රලියන 2.2 ක අගයකට ළඟා විය.

වෙළෙඳපොළ ප්‍රාග්ධනීකරණය අනුව, විශාලතම උප අංශ පහ ලෙස ගැනෙන බැංකු , මූල්‍ය සහ රක්‌ෂණ, විවිධාංගීකරණ, ආහාරපාන සහ දුම්කොළ, හෝටල් සහ සංචාරක මෙන්ම විදුලි සංදේශ යන අංශ සමස්‌ත වෙළෙඳපොළ ප්‍රාග්ධනීකරණයෙන් සියයට 74 කට පමණ දායක වෙමින්, කොටස්‌ වෙළෙඳපොළෙහි වූ ශීඝ්‍ර දියුණුවට නොමඳව දායකත්වය සැපයීය.

මෙවැනි වාතාවරණයක්‌ තුළ "කොටස්‌ වෙළෙඳපොළ ඉතා සරලව" මැයෙන් ශ්‍යාම් නුවන් ගනේවත්ත කතුවරයා විසින් රචනාකොට ඇති මෙම ග්‍රන්ථය මගින් කොටස්‌ වෙළෙඳපොළ පිළිබඳ උනන්දුවක්‌ දක්‌වන පාර්ශ්වයන්ට, නවක ආයෝජකයන්ට මෙන්aම මේ පිළිබඳව හදාරන සිසුන්ට ඉතා වැදගත් තොරතුරු රාශියක්‌a සම්පිණ්‌aඩනය කොට ඉදිරිපත් කර ඇත. කොටස්‌ වෙළෙඳපොළ පිළිබඳව න්‍යායාත්මක කරුණු මෙන්ම ප්‍රායෝගිකව කොටස්‌ වෙළෙඳපොළෙහි ආයෝජනය කිරීම පිළිබඳව ඉතාමත් සරල පැහැදිලි කිරීම් මගින් පාඨකයාට පහසුවෙන් තේරුම් ගත හැකිවන පරිදි විවිධ මාතෘකා යටතේ පරිච්ඡේද 17 කින් ශ්‍රී ලංකාවේ කොටස්‌ වෙළෙඳපොළ පිළිබඳව පුළුල් දැනුමක්‌ ලබාගැනීමට අවශ්‍ය පසුබිම සැකසීමට කතුවරයා විසින් දරා ඇති උත්සාහය ප්‍රශංසනීය වේ.කොටස්‌ වෙළෙඳපොළක්‌ පිළිබඳ සරල හැඳින්වීමකින් ආරම්භ කොට විවිධ පැතිකඩ ඔස්‌සේ යමින් ඉතාමත් සරල ආකාරයට සහ පහසුවෙන් ග්‍රහණය කර ගත හැකි වන ආකාරයට කරුණු ඉදිරිපත් කිරීමට කතුවරයා සතු සහජ දක්‌ෂතාව මෙම කෘතිය තුළින් මොනවට පිළිබිඹු වේ. කොටස්‌ වෙළෙඳපොළ තුළ ආයෝජනයේ ප්‍රතිලාභ මෙන්ම අවදානම් පිළිබඳව ද පුළුල් විග්‍රහයක්‌ ඉදිරිපත් කරන කතුවරයා කොටස්‌ වෙළෙඳපොළ ආයෝජනය සූදුවක්‌ද ? යන පැනයට ඉතා සාර්ථක පැහැදිලි කිරීමක්‌ ප්‍රශස්‌ත ලෙස ඉදිරිපත් කිරීමට ගෙන ඇති උත්සාහය අගය කළ යුතු වෙයි.

එබැවින් කොටස්‌ වෙළෙඳපොළ තොරතුරු පිළිබඳව නිරතුරු අවදියෙන් සිටින ඒ පිළිබඳ පැහැදිලි වාර්තාකරණයක්‌ වඩාත් සුමට ලීලාවෙන් ඉදිරිපත් කරන ශ්‍යාම් නුවන් ගනේවත්ත කතුවරයාගේ මෙම කෘතිය කොටස්‌ වෙළෙඳපොළෙහි, ආයෝජනය කිරීමට කැමැත්තෙන් සිටින පිරිසට මෙන්ම මේ පිළිබඳව හදාරන ශිෂ්‍යන්ටත් මීට සම්බන්ධ විෂය කරුණු උගන්aවන ගුරුවරුන්ටත් එකසේ වැදගත් වේ යෑයි මම කල්පනා කරමි. එබැවින් කොටස්‌ වෙළෙඳපොළ පිළිබඳව ආයෝජක විශ්වාසය වඩාත් තහවුරු වී පවතින මෙවන් අවධියක ඒaa පිළිබඳව ආයෝජනයට කැමැත්තෙන් සිටින පුද්ගලයන් මෙන්ම සෙසු පාර්¨ශ්වයන්ද දැනුවත් කරමින් ඔවුන්ගේ ආයෝජන ඉඩ ප්‍රස්‌ථා පුළුල් කිරීම සඳහා මෙවැනි කෘතීන් තව තවත් එළිදැක්‌වීම ඉතාමත් වැදගත් වන බව මාගේ හැඟීමයි.
http://www.divaina.com/2012/02/12/news07.html
PS:- Please note that I do not have contact with author of this book and I am not responsible for the content of this book.My sole intention of this post is to mention a source to get some knowledge about stock market specially to ppl who are not very fluent in english.

by R.M.B Senanayake

The Central Bank recently raised the policy interest rates by 50 basis points because the credit expansion by the banks had exceeded 34% year-on-year with a part the expanded credit going to fund the imports of vehicles and other consumption goods. The CB support for the rupee required the sale of dollars for rupees in the foreign exchange market and this was causing a liquidity shortage in the market. To keep the interest rates low the CB had to sell rupees and buy Treasury securities. But this is an indirect form of printing money and it would increase the Reserve Money which the banks have to hold against their deposits - the Statutory Reserve Ratio.

The banks hold excess Reserves and do not lend up to their full capacity. The full capacity is over ten times the Reserve Money holding. But the strict insistence on collateral in the form of real estate has meant that the banks screen creditworthy borrowers who lack real estate collateral, although there is a crying need for bank credit among the small and medium scale enterprises and farmers. These people are shut out from bank credit. The banks prefer to invest their surplus funds in the low return zero risk Treasury securities. But when inflation or the expectation of inflation rises they demand higher rates of interest on Treasury securities when quoting for them in the primary auction market.

Effects of Higher Interest Rates

Changes in interest rates affect the general demand for goods and services in the economy. When interest rates are lowered, people tend to spend more and save less. When interest rates are raised the reverse happens. Decreased consumer spending as a consequence of higher interest rates leads to a reduction in the demand for the goods and services provided by the corporate sector or by imports. But this assumes that other things remain constant. If the budget deficit increases then incomes will rise and offset the price effect of higher interest rates.

Increases in interest rates have a direct effect on the sales of automobiles, commercial vehicles, two-wheelers, tractors, agricultural equipment, consumer durables (television sets, washing machines and kitchen appliances) and housing since the demand for these items is highly dependent on borrowed funds. Higher interest rates also act as a disincentive to construction activity through an increase in the cost of construction finance. Therefore, rising interest rates are bad for sales of motor vehicles, two-wheelers, tractors, farm equipment, cement, construction, steel, consumer durable and construction companies.

Higher interest rates also alter the relative attractiveness of competing financial assets like shares, bonds, and fixed deposits. When interest rates go up bond prices fall and those who buy into them get higher yields. So there could be a shift of investment funds from stocks to bonds and fixed deposits. Higher interest rates dampen the stock market and also affect the financing of companies. Since interest rates are higher, they would prefer to raise funds through equity issues by way of rights issues and new issues. The new issue market was crippled by brokers and companies overpricing such issues based on the high price earnings ratios of the speculatively driven stock market rather than the attractiveness of the issue to long term investors. In sum, raising of interest rates generally dampens the stock market and the stock market tends to slip down as interest rates rise.

Optimal intervention in foreign exchange market

The Central Bank is faced with the problem of determining what the optimal foreign exchange market intervention is. There is a distinction between price-setting policies (or exchange rate management policies) and quantity setting policies or reserve management policies. With price setting or exchange rate management policies, the Central Bank decides first on a value for the exchange rate at which it then buys into or sells from its reserves in amounts required to realize that exchange rate, given the behaviour of the domestic private sector and the external sector. The fixed exchange rate is a special case where the exchange rate is set at the same level each period, which has been given up by all countries. This means that the Bank will run down its Foreign Exchange Reserve when market demand exceeds supply and the Bank restores the balance at the given rate.

With Reserve Management policies, the Central Bank decides each period how much it wishes to add or subtract from its stock of foreign exchange Reserve and provides the market only that amount of dollars irrespective of whether it meets the shortfall in market demand or not. The exchange rate is then left free to find its own level. In the present circumstances of demand exceeding market supply, the rupee will then depreciate. A freely floating exchange rate is a special case where the amount of reserves bought or sold each period is zero or no Central Bank intervention at all. This issue of price management versus quantity management needs to be examined within the context of risks and uncertainties in the world economy, particularly for a small open economy like ours.

Econometricians have built stochastic models to simulate the risk and uncertainties and decide what would be the better option. Even without them it would be prudent to assess the current risks and uncertainties in the external sector both on current account and capital account. What is the likely balance in the trade account, the services account and in the capital account for this year in the light of changing global circumstances? The adequacy of foreign Reserves depends not only on how many months’ imports they can fund but must take into account the foreign debt repayment falling due during the year and also the probability of a flight of foreign capital from the bond and stock markets where foreigners still hold substantial amounts of investments.

Although we do not have full convertibility of the rupee on capital account, we allow foreigners to invest in the stock and bond markets. We also allow foreign direct investment. The Real Rate of Interest which is the nominal interest rate less the rate of inflation affects the flow of foreign capital to the country. If the real rate of interest rises then foreigners will find it attractive to invest in the local bond market. With the reduction of interest rates to near zero in the developed countries, foreign investors and Sri Lankan expatriates found local interest rates attractive, other things being equal such as a fixed exchange rate. But when the exchange rate is floating foreign capital would be attracted only if they have confidence in the strength of the economy and its economic policies.

Sanction on Iranian Oil

U.S. persons are prohibited from providing financing for prohibited import transactions. There are restrictions on letter of credit transactions involving the government of Iran. Exports of goods, technology or services may not be exported or re-exported, sold or supplied directly or indirectly from the USA or by a U.S. person based outside, to Iran or the Government of Iran. For example a U.S. person anywhere may not broker off shore transactions that benefit Iran or the Government of Iran including sales of foreign goods or arranging for third country financing or guarantees. This would mean that U.S. banks will not provide any financing or guarantees for goods exported to Iran. We may have to depend entirely on our locally owned banks to finance the foreign trade in goods and services with Iran.

Even the incorporation of U.S. goods in manufacturing other goods is prohibited if they are for Iran. U.S. persons may not trade in Iranian oil or petroleum products refined in Iran nor may they finance such trading. Similarly U.S. persons may not perform services including financing services or supply gods or technology that would benefit the Iranian oil industry.

There is no clear global leadership by any one country today. The U.S. can no longer impose its will as it is in relative, if not absolute, decline, and the EZ and Japan are insular and concentrated on their own problems. The USA does not want the oil trade with Iran to be carried out in U.S. dollars. Our banks have dollars with U.S banks in USA. The Central Bank too has its Official Foreign Exchange Reserves mainly in U.S dollars and U.S Treasuries. We should have diversified our Reserve holdings. Recently the Central Bank recognized the Chinese Yuan as an international trading currency. The Chinese yuan has convertibility off shore and outside China. The extent to which the Yuan is convertible may have to be studied and it may be desirable for us to invoice oil imports in Chinese yuan or Indian Rupees. Traditionally the Central Bank has accepted only fully convertible currencies for purpose of international trade and payments. We are perhaps a little late to accept the Chinese yuan as an international mode of payment and an international Reserve currency. We should do so now and use the yuan to finance the oil trade with Iran. We may also have to use Chinese overseas banks to finance our trade.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=45110

SEC to help retailers form Association
He stressed that it's not the regulator's job to promote the stock market, an issue the Business Times has also consistently raised as a conflict of interest. "Many think that it's regulator's job to promote the market. The SEC's job isn't promotion, but protecting investors and maintaining a fair and orderly market. In the past we have gone beyond this mandate. Now we feel that SEC needs to educate both the stockbrokers and the investors," he explained, which the Business Times has also urged over the past year.

Points to be noted.

Thanks a lot CSE.SAS doing a good job.

[quote="CSE.SAS"]SEC to tighten private placement rules
By Duruthu Edirimuni Chandrasekera

"Tight rules governing private placements (PP) are being considered by the Securities & Exchange Commission (SEC) including a suggestion that such investors can sell their stock only a year after a connected Initial Public Offering (IPO) is floated, the SEC chief said."

I think a year is too long. 90 days or 180 days would be better. BTW it is a good move.

by Sunil KARUNANAYAKE
"The ten commandments or the Dhammapada alone cannot make a human being complete. It is the true practise of the tenets by that individual that would make him succeed.

It is thus the ethical behaviour of companies that can make the difference. At the end of the day, the company, the stakeholders and the society at large should be happy that the company is a clean house and not a dirty one. In a nutshell these are golden rules to be followed by any board, listed or otherwise"

(Duties of company Directors and corporate governance in Sri Lanka- Dr Harsha Cabraal)

Corporate scandals in the developed world and its consequent effects on investors and public have seen the emergence of new laws and tightening of the regulatory regimes and formalising corporate governance.

Insider dealing or the "white collar crime" is one of the commonest crimes committed in the stock market activities. In Sri Lanka prohibition on insider dealing was first introduced by the companies Act No 17 of 1982 but now it is imposed by the Securities Exchange commission(SEC) Act. Insider dealing comprise a process of obtaining price sensitive information by people who have access to such information from the organisations. Those who possess such information will be in an advantageous position in the ultimate situation in trading in securities that is considered an offence.

It was not long ago, that Sri Lankan born Raj Rajaratnam, former head of the multi billion dollar Galleon group hedge fund was sentenced to a prison term of 11 years by the US High Court after having been found guilty of " Insider dealing". Prosecutors has pushed for 25 year sentence after convicting Rajartnam in the biggest insider trading investigation ever conducted by US authorities.

Legal experts said that while prosecutors may have been disappointed with the decision, the sentence was still the highest ever given for insider dealing.

Prosecutors found that Rajaratnam had used a network of insiders to gain illegal tips on some of the world's biggest companies including Goldman Sachs,Google, and Hilton.The scandal also dragged a former Director of Goldman Sachs, a Director and a former head of Mckinsey management consultant group who are now said to be facing criminal investigations.

One of the key signs in the post war scenario was a booming a stock market with many IPO's and new players entering the fray. In Sri Lanka, recently there was much concern on stock market activities that prompted the state agency Securities exchange commission (SEC) to move in for punitive action. Consequently two eminent former- public servants were among those who had to face charges for disclosure lapses and pay hefty fines.

The SEC also had to warn some members of the broker fraternity for misdemeanors.. But to date no prison sentences have been delivered. The SEC was also forced to take action to ensure that just and equitable schemes to ensure are in place and all applicants in public share issues are given a fair deal depriving total dominance by few big players.

Risks
"Under the influence of delusion and greed, greater and greater risks are taken by financial institutions and investors and investors to bring in greater and greater profits in shorter and shorter time spans.

Thus, a financial institution or business which only functions for the benefit of its Directors or shareholders, desiring to grant them ever greater bonuses and dividends, and shirk responsibility to wider society and the environment can turn out to be parasites". (Protest against greed)

Corporate governance has been defined in many ways, it's recognised as a set of mechanisms through which firms operate when ownership is distinct from management.

Corporate governance is also identified as the manner in which companies are directed, controlled and managed. It is the responsibility of the board of directors to ensure that governance principles are observed. It is also being reported that if a country's overall governance systems are weak voluntary governance mechanisms could fail. Corporate governance once confined to board rooms, academics and policy forums has now become a buzz word in the corporate circles.

Forerunner to the priority for corporate governance were the financial crisis in Asia, Russia and Brazil in the late nineties that was threatening the global financial stability equilibrium, then the corporate scandals in USA and Europe in the new millennium further aggravated the situation. This did create awareness for formalizing good governance principles to minimise corporate scandals.

Recent global financial crisis too was attributed to poor governance particularly in the financial sector. With the deregulation, growing free trade, collapse of totalitarian regimes global integration has been strengthened providing for investment and fund flows freely across the barriers. This fact too was another reason for the emergence of corporate governance

While in UK a committee headed by Sir Adrian Cadbury on financial aspects of corporate governance proceeded to set up corporate governance process, in the early nineties, in Sri Lanka Institute of Chartered Accountants of Sri Lanka played the pioneering role in introducing the first ever code in 1997. Later in 2005 together with the Securities Exchange Commission (SEC) ICASL set up a process to revise the code.

Thereafter SEC and ICASL worked together in drafting the corporate governance listing rules applicable to listed companies through the Colombo stock exchange that became mandatory from 2008. ICASL has gone further to give priority to compliance on corporate governance through the Best annual report competition that that is being eagerly awaited by the corporate sector.

It has been proved that companies practising good governance principles benefit from access to financing. Low cost capital, more favourable treatment to all stakeholders and public acceptability. Historical evidence also proves that when a country's overall corporate governance systems are weak voluntary corporate governance mechanisms too deteriorate. It could also be argued that poverty and suffering is less in countries that practise good governance principles Sri Lanka came up with a new company legislation in 2007 that provided for shareholder safeguard by ensuring adequate representation of non- executive directors are appointed thus maintaining a proper board room balance.

The corporate governance code defined the necessity for audit committees and its composition. In addition provision was also made for director's responsibility on duties of directors in insolvency and serious loss of capital. To date, probably only one court case invoking this section has been reported. Perhaps this reflects that directors have not contravened the section 219; 220 of the Companies Act.

Developed countries have been moving swiftly on fraudsters with appropriate legislation and have been able to prosecute them. Investigators tasks are made difficult with the new breed storming in to the IT areas.

Bribery
While white-collar crimes are in the increase organized crimes in terrorism, bribery and corruption have not slowed down providing enormous economic gains to criminals. Legal and prosecution machinery in the third world are still behind times and the cost to the citizens of these could be significant.

Sri Lanka in 2006 formalized legislation on terrorist financing and Money laundering two areas where fraudulently earned money is channeled. It is most common for criminals who engage in fraud to slip out of the home country to escape prosecution.

It was not long ago that a VAT scam involving over RS 3 billion of public funds hit the headlines and some of the suspects are said to have escaped from the country.

Accord to research based information UK frauds cost the country over 14 billion pounds annually with the majority of the losses borne by the public.

The UK government is taking a serious view of the alarming increase in crime and particularly the IT related cases prompting the government to introduce a Fraud Bill in the Parliament. A few years back there was some euphoria when there was some speculation that Sri Lanka Government was going to appoint an anti Corruption commission but this thought never saw the light of the day.

The Permanent Commission for Bribery and Corruption, declaration of Assets by Public officers and Parliamentary select committees for Parliamentarians, Ombudsman are some of the existing checks in the Sri Lankan system, unfortunately these instruments to date have failed to meet the growing civil society demand and confidence for corrupt free society.

In the developed west and the industrialised East Asia, corruption is treated with all seriousness with prosecutions and punishment to the guilty.

Countries in the region such as India (Central Vigilance Commission), Hong Kong (Independent Commission against Corruption), Bangladesh (Bureau of anti Corruption) and Singapore and other countries like Australia (ICAC), UK, USA and even some of the African countries have already enacted legislations to give strength to " Fight against Corruption", a priority need.
http://www.sundayobserver.lk/2012/02/12/fin05.asp

By Gamini WARUSHAMANNA
The Ministry of Plantation and the Rubber Research Institute (RRI) has taken steps to extend rubber cultivation to non traditional areas in the country, especially in the dry zone, said Dr V.H.L.Rodrigo of the Adaptive Research Unit of the RRI.

He said that with the liberalised economy, rubber-based industries are booming in Sri Lanka targeting local and export markets.

There is a huge international demand for raw rubber. By the end of the next four years, the country would need 150,000 MT per year to meet the escalating demand from local rubber -based industries according to predictions.

Considering the global demand for raw rubber exports, 200,000 MT of natural rubber will be produced per year by 2016, according to the Minister of Plantation Industries, Mahinda Samarasinghe.

Lands in the traditional rubber growing areas, i.e. in the wet zone, is virtually insufficient to meet this demand.

Therefore, with the directions of the line ministry, rubber cultivation is being extended to the drier non-traditional areas of the country. Research on issues in the rubber cultivation has been carried out by Dr. V.H.L. Rodrigo and Dr. S.M.M. Iqbal of the Adaptive Research Unit of the RRI.

The first effort, rubber cultivation in the intermediate zone of the Uva province, particularly the Moneragala district, has been successful with the ultimate aim of cultivating 40,000 ha of rubber.

Very recently, scientists of the RRI have shown the potential of cultivating rubber in another 10,000 ha in the intermediate zone of Eastern province; hence the Rubber Development Department (RDD) has assisted small-holder development program under Nagenahira Navodaya with the assistance of local government authorities.Regaining the North drove the Minister of Plantation Industries to investigate the feasibility of growing rubber in this region under the Uthuru Vasanthaya.

The mission given in this regard to the RRI was successful with the assistance of the RDD.

The joint effort made by the staff of RRI, RDD and Ministry of Plantation Industries has been successful. Interim recommendations have been issued on the working protocol for rubber cultivation in North, he said.*
http://www.sundayobserver.lk/2012/02/12/fin01.asp

Despite the Government allowing the exchange rate (ER) to “free float” (see lead story found on this page), the bourse continued to fall steeply at Thursday’s (February 9)* trading as well.

It fell by 125.26 points (2.30%) on the benchmark ASI and by 94.65 points (2%) on the more sensitive MPI (over the previous day’s close) to finish the week at 5,316.99 points and 4,627.14 points respectively on a Rs. 862.6 million turnover.

However the only glimmer of light in an otherwise depressing day was the bourse recording a net foreign inflow (NFI) of Rs. 103.74 million on a foreign purchase figure of Rs. 299.72 million and a foreign sales figure of Rs. 195.98 million. A stockmarket source told this reporter that a free float of the ER augurs well to lure foreign investments into the economy, both in the form of foreign direct investments (FDI) and foreign portfolio investments, whereas in the latter case they would be able to buy stocks and shares cheap from a depressed market.

He further said that the free float of the ER would also relieve pressure on interest rates, thereby making the bourse once more an attractive investment proposition.

The source added that Thursday’s fall was caused by margin calls and retail investors clamouring to exit from the bourse.

Meanwhile on the previous day Wednesday too the stock market continued on its depressing run, losing 119.18 points (2.14%) on the ASI and 84.20 points (1.75%) on the more liquid MPI on a Rs. 868.7 million turnover, with market capitalization slipping below the Rs. two trillion mark to end the day at Rs. 1.9923 trillion (market capitalization in the week ended Thursday slipped further to Rs.1.9464 trillion).

Another source prior to Thursday’s free float of the ER said that the largely retailer dominated Colombo bourse; in a scenario where interest rates are rising, have now seen a new avenue of investments opening up before them, which had been previously closed, hence the reason for the market’s decline. “As such they are getting out of the market at whatever the cost and reinvesting their earnings in the fixed income market.” The market last witnessed a high interest rate regime 2½ years ago when the 26 year old terrorist war was still continuing. A high interest rate regime dampens the market’s appetite to make investments in the real economy, thereby stultifying job creation, an environment which is not conducive to maintaining socio-economic stability in the country.
Meanwhile the source, in his further commentary of the stockmarket said, “The bourse has also lost its credibility due to its dominance by manipulators, another reason for its dismal performance.”

The bourse’s declines will also have to be looked at in the context of operating in an environment which is impacting on the export and manufacturing sectors, yet another source said.

But despite this “gloom and doom” scenario, the silver lining witnessed by the bourse was a NFI of Rs. 239.45 million received on Wednesday on the back of a foreign purchase figure of Rs. 359.73 million on selected foreign buying in stocks such as blue chip John Keells Holdings plc (JKH), Expolanka, Softlogic and Distilleries.
However there is no direction, the source contended.

But another source said that local high networth individuals (HNWIs) were looking at the market, waiting to buy with the hope that the bourse would fall further, so that they could make their purchases cheap. He was however not sure when the market would bottom out. “If I knew that answer I would be a millionaire,” he said.
“Retailers who went after fundamentally unsound stocks are now exiting, as to when this would finish, your guess is as good as mine,” the source said.
Having said that, there are banks with a low price to earnings ratio (PER) and which are growing at the double digit ratio, which stocks HNWIs have been buying, but on the other hand there are stocks which have no value, which however have unrealistically high PER ratios in the 2-3,000 range, the source said.

He also said that due to the smallness of the market, it was difficult to attract foreign investors. Unlike the girl on the beach JKH, which has a market capitalization of well over US$ ($) one billion, there are no other stocks to match the same, he said.

The other issue is liquidity, with most of the top 20 stocks, of which majority shares are being tightly held by a few, give no room for trading of those top tier stocks, the source said. And foreigners for the past three years have been exiting from the market at a profit, he said, the most recent being the sale of a sizeable stock of a blue chip bank which was held by a Japanese fund, being sold to HNWIs the Captains, the source said.

They may have had made a tidy profit from this sale in an environment where in the developed markets where they may have had possibly made their other investments, they have however seen the values of those investments diminishing, the source said.
* Friday was a holiday for the bourse
http://www.thesundayleader.lk/2012/02/12/down-the-gadarene-slope/