SEC removes price band No credit beyond three days from January:

Charumini DE SILVA


New formula from September 20:

The Securities and Exchange Commission (SEC) will lift the 10 percent price band imposed on all listed securities from September 20. They will also introduce a new formula to ensure the stability of the Colombo Stock Exchange (CSE).

Without a reasonable cause none of the stakeholders can increase or decrease the price of a share. The introduction of the new formula is to safeguard the entire stakeholders of the capital market, Securities and Exchange Commission Chairperson, Indrani Sugathadasa said at a press conference yesterday.

Based on the last five trading days under the new formula, which takes into account both volume and price movements, shares that captured will get into a list and will remain there for 15 days. During this time there will be restriction placed on those shares such as the applicability of the 10 percent price band and the 50 percent margin upfront for trading such shares.

This price band will not be applied on situations such as first day trading on any security, crossing and debentures. SEC Deputy Director General Malik Cader said “the SEC has required the listed stocks to ensure a minimum public float on a continuing basis. There are only 60 percent of the securities that are trading through Central Depository Systems (CDS) at present. With new companies entering into the market the SEC wants to deposit 100 percent of the securities in the CDS. We will be giving time for them to deposit their securities in CDS,” he said.

The SEC has asked all stockbroking companies to refrain from extending credit to any investor beyond three days from January 1 next year. “If credit is to be extended beyond this specified period it could be done only through a Margin Provider duly registered with the SEC, the regulator said in statement to the Colombo Stock Exchange (CSE) yesterday.

Any backlog of credit already extended by any stockbroker will be cleared or regularize through a Margin Provider latest by the January 1, 2011 in compliance with the requirement mentioned above, the statement said.

The SEC has issued three new brokering licenses during the year and with that there is a total of 24 stock brokering companies in the CSE.

Brokers comment on new changes

Ceylinco Stockbrokers Director/General Manager Sriyan Gurusinghe hailed the new formula saying that it would help to have a value reflection in the market. “There is no need to buy on debt and it will be an impetus to invest much efficiently and have a free market,” he said.

Capital Trust Securities Director Sarath Rajapaksa said the new changes to be introduced from January 1, will harm the small retailers who used margins to sell. It will only provide more benefits for big corporates to do their ventures.

“Currently clients over 1 million portfolio are only able to get money from marginal providers and banks as they have considerable money in their accounts.”

“Banks and other marginal providers are reluctant to provide credit for clients below the one million portfolio. These clients have to get credit from brokers,” he said.

Another Stock Broker said, “as the regulator the SEC should penalize the exact parties without distressing the investors. It is important that the regulator form a proper mechanism must track capital market violators and discipline them directly,” he said.(C de S and ih)

source - www.dailynews.lk