SEC to hold fast

Moved to talk section for further discussion.
* Politics comes first, regulator reminded

No breathing space for market manipulators; possibility of relaxing broker credit for purchase of fundamental stocks only

Top officials of the Securities and Exchange Commission (SEC), headed by Thilak Karunaratne, and the Colombo Stock Exchange met with Treasury Secretary Dr. P. B. Jayasundera yesterday to discuss the prevailing situation at the stock exchange and its future.

Sources said Dr. Jayasundera was sympathetic and understood the SEC’s position on market regulation, but there was political pressure for a compromise, especially with regard to limits on broker credit.

After a lengthy presentation by the SEC and a shorter presentation by the CSE, the Treasury reminded the officials that at the end of the day, political considerations received precedence over everything else in any country and since there was pressure on the government to relax regulations, the SEC was asked to look at a possible compromise.

SEC officials told the Treasury Secretary that the SEC was willing to consider a compromise, but within the expected regulatory norms.

SEC officials mulled over the possibility of relaxing credit restrictions for trades involving fundamentally strong stocks, and these stocks only, and Dr. Jayasundera was told the SEC would look into this possibility.

Sources said a few broker firms had exceeded their credit limits by huge margins and that certain high net worth individuals were saddled with dud stocks, therefore these two parties were keen to see an end to credit restrictions.

Sources said the SEC explained to the Treasury Secretary that it would under no circumstance relax credit restrictions for investments in illiquid stocks, which certain savvy investors manipulated and then dumped on unsuspecting retail investors.

The broker system has unutilized credit amounting to Rs. 6.9 billion sources said, an indication that there were broker firms who were cautious. Some broker firms are of the view that credit risk was contagious and could upset the entire system.

President Mahinda Rajapaksa last week told the capital market industry that he would no longer intervene. His intervention last year destroyed the credibility of the country’s broker community after top officials of the SEC who had begun to take tough action against market malpractices were removed from office or resigned.

Analysts are critical of the SEC for not being tough enough on market manipulators.

"A few jail sentences would send the right message. But this is unlikely to happen. The issue is not with the broker credit or the falling stock exchange, this is what we are led to believe. The real problem is that the SEC is trying to stamp out market offences and some influential groups do not like this one bit.

"Perhaps the President should intervene. He can order the SEC to relax credit restrictions and other trading related restrictions if he likes, and at the same time, push the SEC to conclude its investigations and send a few crooks to jail, perhaps then the stock exchange would blossom. Simple fix really, enforce the law!" a concerned analyst said not wanting to be named.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=57651

Boy so many good points in there about politics ( the ultimate reality over possible justice).

I like most of what has been said specially by SEC. Not sure how they are going to determine "fundamentals". This will create a division there itself. Hope they are not going to target SP Blue chips only. There so many companies now that has become "fundamental" from being overvalued.

I hope they consider the company earnings, YoY growth and influence to the country in determining these fundamanetals. Actually if these fundamental theiry works , it is not a bad things at all. Then index hikes and share hikes might be more permanent than trading to see it drop back after few days.

Let hope for the best. SEC over to you to do a good job

A very good article, some times a simple fix is only required .......? most people tend to ignore. Put few guys involved in malpractices nad inside trading to send the right signal and like the article says relax some of the tight regulations on credit restrictions......

but is it too much of asking from this govt.....mahinda mahattayo api gena poddak hittanako

If they target fundamental stocks then why they listed in the CSE unfundamental stocks they can remove from the CSE.

Gainer wrote:If they target fundamental stocks then why they listed in the CSE unfundamental stocks they can remove from the CSE.

Some companies , especially rather new/start up , would take time to establish them selves. Also once overvalued companies can become fundamentally attractive after a major correction. Also these should always be room for some speculation. Else share market will die.

What ever illiquid stocks should be go for the split then only good for investors.

Gainer wrote:What ever illiquid stocks should be go for the split then only good for investors.

I like your split idea on illiquid stocks which is presently not favourable for CSE.

slstock wrote:

Gainer wrote:If they target fundamental stocks then why they listed in the CSE unfundamental stocks they can remove from the CSE.

Some companies , especially rather new/start up , would take time to establish them selves. Also once overvalued companies can become fundamentally attractive after a major correction. Also these should always be room for some speculation. Else share market will die.

There will be a fundamental right violation if they want to segregate and treat like this!

Thanks Shri for sharing a well balanced article of Island paper. Island seems to be a news paper worthy of reading compared to crap pps like FT. I like their sincere approach towards the issue.

It shed sufficient light not only over the shady deals of some speculators very close to the powers that be and their "real problem" which led them make power point presentations recently but also what is likely to happen if SEC is not smart enough to navigate through this stormy period. Our duty at this crucial period is to shed whatever petty diferences aside & strengthen the hands of SEC because they are under real threat.

At the same time this article should be an eye openner to the Government as it has deplomatically unearthed the real issue without fear or favour. I take this opportunity to thank H.E. the President for not taking the side of manipulators.

It is good if these things happen and continue the monitoring but problem in our country is all these pep talks MAY disappear when real bull starts.

If SEC move to a such a stand, Further relax broker credit to fundamentals

IMHO SEC need to publish the list of fundamental stocks periodically. So this will improve the transparency and it will easy for us also..

Based on key performance indicators (KPIs) fundamentally strong companies could be tracked down taking into account non recurring income & expenditure. Moreover monitoring system should be in place to ensure those companies are operating within certain covenants. Extension of credit facilities for such companies boost investors moral & appreciation of undervalued shares would be more attractive.