Member views on new Rules & Regulations to be introduced by the SEC

1. General Rule Changes

• Prohibit employees and Directors of all market intermediaries to trade (buy shares and sell within six months of buying) except in the case of IPO purchases. Investments (over 6 months) are allowed.
• Crossings transactions to have 20% upper limit unless exceptionally allowed by the CSE on a case by case basis. Clarification in this regard to be communicated to the CSE.
• Current 15% margin before trade execution to be strictly enforced including for NSB.
• To have a more robust enforcement mechanism with clearly defined punitive measures for violations of rules by stockbroker firms, CEO’s, Directors and investment advisors. Clarification in this regard to be communicated to the Market shortly.

2. On future transactions where NSB is a party

• All large (defined as transactions with a total value of Rs. 20 Mn and over) NSB orders to have a certified Board Resolution.
• NSB to use a third party custodian bank.

http://forum.srilankaequity.com/t18235-sri-lanka-regulator-tightens-broker-trading-settlement-rules#119704

Moderators can merge these threads no?

New Rule
Prohibit employees and Directors of all market intermediaries to trade (buy shares and sell within six months of buying) except in the case of IPO purchases. Investments (over 6 months) are allowed.

View
This is a good rule. SEC should not only cover directors and staff of the intermediaries but also their spouses and proxies. Otherwise all brokers will start trading using their spouses and other proxy account. SEC should also verify the source of fund in relation to purchases by staff and directors of stock brokering companies.

New Rule
Crossings transactions to have 20% upper limit unless exceptionally allowed by the CSE on a case by case basis. Clarification in this regard to be communicated to the CSE.

View
Crossings transactions should be totally removed from the market as it will only do harm and injustice to the minority shareholders. Also 20% limit could be significant on high value share. Further this limit should not be applicable in case when the buyer is making a mandatory offer under the takeover and merger code.

Redbulls wrote:http://forum.srilankaequity.com/t18235-sri-lanka-regulator-tightens-broker-trading-settlement-rules#119704

Moderators can merge these threads no?

The intention of this thread is to get a feedback from the members and therefore it may be different from a news item.

GMNet wrote:

Redbulls wrote:http://forum.srilankaequity.com/t18235-sri-lanka-regulator-tightens-broker-trading-settlement-rules#119704

Moderators can merge these threads no?

The intention of this thread is to get a feedback from the members and therefore it may be different from a news item.

Understood.
Thanks for the clarification.

I got derana news alert as mentioned below,

Market sources say trading restriction in the stock market for 6 months will only be applicable to stock brokers and dealers.

What does this mean ? Have they changed the rule even before it is properly implemented ?

Regarding rule 1
1st question on "employees and Directors of all market intermediaries",
Who are market intermediaries Please Define (SEC Dirctors & Officees, CSE Directores & Offices, Custodian Bank Dirctors & offices, Broker firm Drictors and offices and are there spouses.)

Regarding rule 2.
If you are talking about maket forces every thing must go through maket. No crossing must be allowed. if crrosing is to be allowed it should be with related party that Subsidery and asssosate company. This also need to be agued.

if trading like nsb(a) & tfc(b) deal to be done (a) & (b) must inform CSE about there intention. With CSE annoucment Trading must be stoped Immidiatly . order books must be purged. Every one must be give equal oppertunity to trade the stock. if some on want to sale below the price they must allowed.

Rule No 1 : Prohibit employees and Directors of all market intermediaries to trade (buy shares and sell within six months of buying) except in the case of IPO purchases. Investments (over 6 months) are allowed.

SEC has not clearly defined who are the market intermediaries. According to the list which they have published on their web, market intermediaries (licensed by SEC) are, credit rating agencies, margin providers, investment managers, CDS and under writers.. But my understanding is this should be Stock brokers and dealers in order to avoid conflict of interest and insider trading. Most of the investment companies after analyzing the potential they do short term investments on CSE. It is proven that we dont have a fundamental driven market and therefore it should have easy to entry and exit for investments.. merely im not mentioning about the trading.. I dont believe all market intermediaries are harmful to ordinary investor in the market. Because of this rule I'm sure all the finance companies who are doing margin trading will be get affected.. Therefore it should be clearly defined who belongs to such category...

Rule No 2. Crossing
Crossing should be removed

Sandstorm wrote:New Rule
Prohibit employees and Directors of all market intermediaries to trade (buy shares and sell within six months of buying) except in the case of IPO purchases. Investments (over 6 months) are allowed.

View
This is a good rule. SEC should not only cover directors and staff of the intermediaries but also their spouses and proxies. Otherwise all brokers will start trading using their spouses and other proxy account. SEC should also verify the source of fund in relation to purchases by staff and directors of stock brokering companies.

The best way to catch the spouses' and proxies' accounts is checking the bank accounts. Most of the brokers are opening CDS accounts with their relations or friends making unable to reveal their real identity.

But the bank accounts are running join basis to withdraw money for CSE.

• Prohibit employees and Directors of all market intermediaries to trade (buy shares and sell within six months of buying) except in the case of IPO purchases. Investments (over 6 months) are allowed.

VIEW: I think its the right intention but a little hasty. It doesn't specify if it applies to non-exec directors or standby ones. I heard that its applied to the brokers and the broking firms which is going to be very bad for this market. Brokers shouldn't front run but they do and should be caught through other filtering techniques, not a general rule like this. Besides everybody this applies through will trade through nominee accounts.

Look at all the trading shares and most shares, you will see the broking firms names in the shareholders list. If they collect all the shares when the market's coming down (their own clients margin calls..which is really unethical in my opinion) and they are unable to sell it in a short period of time then they won't buy. But then the market will collapse even further with margin calls.... This rule needs a lot more clarity.

I'm not sure but i was told that INDIA has a similar rule so if anyone knows about it or how it is different. Maybe it'll help our fellows clarify this.

Don't forget, this has got a lot of ramifications for institutions and companies where employees buy into their own companies.


• Crossings transactions to have 20% upper limit unless exceptionally allowed by the CSE on a case by case basis. Clarification in this regard to be communicated to the CSE.

VIEW: Don't see anything wrong with this... there will be occasions where the value price might be a lot higher than trading price and if they CSE allows the price ceiling to be cleared on a case-by-case basis then it isn't a problem. TFC was not worth LKR 50 but one may argue that a crossing of GLAS at LKR 6.60 or something might be worthwhile if you have a 3-4 year bullish outlook on the company. Just an example, i would not buy GLAS at 6.60!!

• Current 15% margin before trade execution to be strictly enforced including for NSB.

VIEW: I don't fully understand this.

• To have a more robust enforcement mechanism with clearly defined punitive measures for violations of rules by stockbroker firms, CEO’s, Directors and investment advisors. Clarification in this regard to be communicated to the Market shortly.

VIEW: Definitely. White collar crimes need stricter enforcement. I don't feel they necessarily deserve jail term unless there is case for consistent fraud over the years, however an immediate reversal of any fraudulent deal and a fine or compensation as determined by the damage done. In some cases it need not be a very bad punishment depending on how reversible the damage is and the consent of the aggrieved parties and stakeholders.

2. On future transactions where NSB is a party

• All large (defined as transactions with a total value of Rs. 20 Mn and over) NSB orders to have a certified Board Resolution.
• NSB to use a third party custodian bank.

VIEW: I thought all transactions and investments need to go through board approvals???!!!

Before introducing new rules, the SEC should strictly enforce currently available rules. ?Have they shown their ability to do this. I doubt.

First, they should show that they have spines and guts to do this. Recent public statements that SEC's hands should be free are ample evidence to the premis that any amount of rules will do no good. They bring in new rules just to calm down public criticism for the moment. Fraudesters continue with impunity despite new or old rules. This is common now to all the three organs of the Govt.

K.Haputantri wrote:Before introducing new rules, the SEC should strictly enforce currently available rules. ?Have they shown their ability to do this. I doubt.

First, they should show that they have spines and guts to do this. Recent public statements that SEC's hands should be free are ample evidence to the premis that any amount of rules will do no good. They bring in new rules just to calm down public criticism for the moment. Fraudesters continue with impunity despite new or old rules. This is common now to all the three organs of the Govt.

Current rules are very vague. thus very difficut enforce.

VISA wrote:

K.Haputantri wrote:Before introducing new rules, the SEC should strictly enforce currently available rules. ?Have they shown their ability to do this. I doubt.

First, they should show that they have spines and guts to do this. Recent public statements that SEC's hands should be free are ample evidence to the premis that any amount of rules will do no good. They bring in new rules just to calm down public criticism for the moment. Fraudesters continue with impunity despite new or old rules. This is common now to all the three organs of the Govt.

Current rules are very vague. thus very difficut enforce.

Vague rules create the best environment for SEC to expand on their mandate & act in the interest of the industry. I love such situations and I know the courts will always uphold any genuine effort to do so. Of course if they are incompetant, that is a good excuse to muddle through.

All rules are just OK apart from crossings that drag the market price drastically up or down.I dont know that CSE can ban the crossings,
And more importantly parties involved in TFC-NSB case should be severely punished and need to include a clause that high light the need of every transaction should be transparent and done with utmost good faith.,Which is very important rather keep enforcing rule after rule once,every time, you come across a case like this.,

K.Haputantri wrote:Before introducing new rules, the SEC should strictly enforce currently available rules. ?Have they shown their ability to do this. I doubt.

First, they should show that they have spines and guts to do this. Recent public statements that SEC's hands should be free are ample evidence to the premis that any amount of rules will do no good. They bring in new rules just to calm down public criticism for the moment. Fraudesters continue with impunity despite new or old rules. This is common now to all the three organs of the Govt.

YES THIS IS THE POINT. THEY ARE NOT IMPLEMENTING THE EXISTING RULES. WHY?

They want to rescue their henchmen. Without throwing new rules they should take action on existing rules.
No point of having rules, rules and rules without implementing.

I think these rules were in existence and nothing new. Even in the past these intermediaries were buying shares under proxies.
So need of the hour is setting up a level playing field, not new rules.

1. Crossings should abolish completely
2. If crossings are needed for strategic blocks, then the buyer should buy the all available quantities in the open market bellow the buying price, as otherwise it's an act of discrimination against minority holders.

ie :
1. In TFC deal strategic blocks were purchased when there are other sellers with substantial quantities at much lower prices
2. In the JKH deal share price was taken up from Rs.169/- to Rs.194/- before the deal.

SEC website says that they are there to protect minority holders. But I never heard of any act from SEC to protest minority holders.

In my opinion cancellation of crossing is some what extreme.I do not think it is a good idea and there would be some practical difficulties.