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July 28, 2014 (LBO) - Sri Lanka's securities regulator has asked margin providers and stockbroker to reduce loan interest rates as overall lending rates fell in the broader economy.
SEC Deputy Director General Dhammika Perera in a letter to stockbrokers and margin providers said Sri Lanka's average weighted prime lending rate had "decline considerably in the recent past" but some brokers and margin providers had not reduced lending rates.
"Hence the Securities and Exchange Commission of Sri Lanka (SEC) is of the view that it is essential for the lending rates on credit extension be aligned with the policy rates prescribed by the CBSL (Central Bank of Sri Lanka)," the letter said.
"While thanking those who have already adjusted their lending rates, we urge all margin providers to act accordingly so that lending rates of credit extension would be brought to a justifiable level in line with the prevalent policy rates of the country.
"In view of the above, all stockbrokers are expected to ensure responding forthwith to the above request made by the SEC in a positive manner."
Margin loans played a big role in the last stock market bubble, helping boost prices of fundamentally weak stocks which later collapsed as Sri Lanka's interest rates rose.
Persistent low interest rates boosts the present value of (long term) assets encouraging speculation, helping create asset bubbles.
http://www.lankabusinessonline.com/news/sri-lanka-sec-asks-for-lower-interest-on-margin-credit/1929677766
SEC Deputy Director General Dhammika Perera in a letter to stockbrokers and margin providers said Sri Lanka's average weighted prime lending rate had "decline considerably in the recent past" but some brokers and margin providers had not reduced lending rates.
"Hence the Securities and Exchange Commission of Sri Lanka (SEC) is of the view that it is essential for the lending rates on credit extension be aligned with the policy rates prescribed by the CBSL (Central Bank of Sri Lanka)," the letter said.
"While thanking those who have already adjusted their lending rates, we urge all margin providers to act accordingly so that lending rates of credit extension would be brought to a justifiable level in line with the prevalent policy rates of the country.
"In view of the above, all stockbrokers are expected to ensure responding forthwith to the above request made by the SEC in a positive manner."
Margin loans played a big role in the last stock market bubble, helping boost prices of fundamentally weak stocks which later collapsed as Sri Lanka's interest rates rose.
Persistent low interest rates boosts the present value of (long term) assets encouraging speculation, helping create asset bubbles.
http://www.lankabusinessonline.com/news/sri-lanka-sec-asks-for-lower-interest-on-margin-credit/1929677766
