Wednesday, September 15, 2010

Sri Lanka SEC lifts blanket price caps for formula

Sept 15, 2010 (LBO) - Sri Lanka's securities watchdog will lift a blanket 10 percent price cap for day from September 20 and instead bring in a formula based rule, and brokers have also been directed not to give credit to clients from their own balance sheet.

Illiquid stocks in Sri Lanka's stock market in particular have been rising steeply on some days rising fears of price manipulation. The watchdog brought in the 10 percent rule though no one has been prosecuted.

In a directive issued Tuesday the SEC said a formula based on "price volatility and volume adjusted to public holding" has been devised.

It will be applied trading of stocks over five previous trading days and the list of stocks captured through the process will be published daily.

A 10 percent price cap will then remain in effect for 15 days. Only day orders will be permitted during the imposition of the price cap.

Stock brokers will also have to get upfront cash up to 50 percent of purchases for any securities that are subject to a price cap.

The price cap will not apply on the opening day of an initial public offering, all or nothing parcels, crossings (negotiated deals), debentures, when a share sells below one rupees and when shares trade after a split, consolidation or right.

Separately the regular also directed brokers not to give credit to their clients on their own account. Brokers have been given till January 01 to shift any facilities to an external margin provider.

source - www.lbo.lk

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