Price bands to stay until SEC is sure market has learnt its lesson

* Price bands effective, give it another four months, say top officials

* Some analysts want it removed, but say needed to be tough with manipulators

Top officials of the Securities and Exchange Commission of Sri Lanka (SEC) said the price bands on volatile stocks would continue to be imposed for another four months or so until the market had learnt its lesson well enough to warrant a removal of what some market analysts call a controversial measure.

In August 4 last year, the SEC imposed a 10 percent price band on all stocks after the market was on a bull with certain stocks rising in price without being backed up by fundamental company performances.

In September the SEC removed the general price band and introduced a new formula which was based on price volatility and volume traded adjusted to public holding, on a daily rollover basis for the proceeding review period of 5 market days. Stocks that have been thus identified were imposed with a 10 percent price band which would be effective over 15 market days, and only day orders for these stocks would be allowed while carried forward orders would be purged.

While some market analysts felt the price band was unwarranted and severely hampered growth prospects of the Colombo Stock Exchange. They said market manipulators should be identified and punished without penalising the entire market. However, the regulator felt otherwise.

The regulator said the price band would deter market volatility. Investors and brokers involved in trading in these controversial stocks are being investigated for possible market manipulation. Some investors have been buying cheap and dumping stocks when prices were on the upward trend.

Last Friday (14), the SEC met with industry stakeholders to discuss its plans for capital market development in Sri Lanka in 2011, and the price band issue came up during the discussions.

SEC commission member, P. D. J. Fernando said the ‘price band’ would be removed only once it was felt that the market was disciplined enough.

"As regulators we need to ensure a safe, secure and regulated market environment. Trust and security are important to investors. As regulators we have to be dynamic, but as far as removing the price band is concerned, it may take another four months, let’s wait and see," Fernando, who is also the Deputy Governor of the Central Bank, said.

SEC Director General Malik Cader said the price band was working.

"None of the stocks which had the price band imposed on them have behaved as before. This is a sign that the price band is working," he said.

As reported in The Island Financial Review of January 15, 2011, the SEC is hoping that amendments to the SEC Act would be finalised this year which would give it more powers to punish market manipulators.

SEC Chairperson Ms. Indrani Sugathadasa addressing the capital market stakeholders last Friday (14) said that if it was required, market manipulators could even be jailed, but she said this was not the option they were considering at the moment. "If you want us to, we can do it," she said.

Market analysts said they were hopeful the price bands would be removed altogether.

"Price bans are not very good things to have, especially for an emerging market. If there are wrong doings, then action must be taken and perpetrators punished. This would give a clearer message to market manipulators to keep away. We hope the regulator would be more forceful on this front, and sooner, than later, remove, the price bands," a senior industry analyst said.

source - www.island.lk