Aug 22, 2010 (LBO) - A daily 10 percent price band imposed on Sri Lanka's tiny stock market should be continued as it helps curb rampant abuse by a few investors with deep pockets and prevent a bubble, news reports said.
"Some investors urge continuation of price curbs", the privately-owned Sunday Times headlined a report on the market.
Even as the market regulator, Securities and Exchange Commission (SEC), prepares to lift the controversial price curbs on share trades, some local investors are praising the restrictions and urging the SEC to continue them, it said.
“This is a very, very good move and long overdue,” the newspaper quoted K Viknarajah, a veteran investor and long-time campaigner for good governance and ethics in the market, as saying.
“I have been advocating for a long time some measures to control casino-type trading in a market where there is large-scale insider trading..”
The SEC imposed the price band after months of speculative trading that saw some shares rise sharply in value despite no change in their fundamentals.
The price band has been criticised by some investors and analysts and praised by others.
Sri Lanka's stock market has been hitting record highs in recent months, being Asia's second-best performing bourse, prompting concern of an unsustainable bubble developing.
Sri Lankan stocks have risen over 50 percent so far this year, while last year it skyrocketed 125 percent.
The state-owned Sunday Observer quoted capital market analysts as saying share prices shot up to unprecedented levels owing to "either manipulation or unnecessary speculation."
The newspaper said the price band had helped foil a "capital market bubble" developing.
It quoted the Director of the SEC's Financial Service Academy, Dissa Bandara, as saying the price curbs were criticised owing to lack of awareness among stock brokers and investors.
“The price caps imposed by the SEC on share prices have served the purpose and market participants will understand that unnecessary anticipation has no value,” he said.
Bandara said the intervention by the SEC was timely as it helped avert a "major catastrophe in the capital market which would have led to an economic crisis."
Viknarajah told the Sunday Times that the price band should continue until such time regulation controls sharp shifts in prices.
He said the market shouldn’t get too alarmed about these regulatory processes because price curbs are in force at least in 10 to 15 countries including Pakistan in the region.
Insider trading is a huge problem, the newspaper quoted Viknarajah as saying.
He noted that company directors, auditors and some other influential stakeholders have access to inside information and some of them – not all - trade through related parties, a new way to circumvent the rules.
“Small, innocent shareholders don’t have such access and there’s no level playing field. Insider trading has been going on for a long time,” he said.
Surekha Sellahewa, chief executive of the Colombo Stock Exchange, said last week that price manipulation was rife in the market.
"This (Colombo Stock Exchange) is an illiquid market and there is a lot of manipulation," she told a seminar on investing in stocks.
Viknarajah, referring to concerns that investors have burnt their fingers over the sudden price bands, said even with a 10 percent restriction, investors can make good money.
“Bank interest brings you less than 10 percent per annum," he told the newspaper. "Here an investor could make three to four times that and if, for example, a stock rises by 10 percent per day for 10 days, that’s a 100 percent increase or more in price. Greed should not take over the markets.”
source - www.lbo.lk
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