June 21, 2011 (LBO) - A 10 percent upward and downward price band imposed by Sri Lanka's capital markets regulator after unusual price movements in some stocks helped strengthen investor confidence, the Securities and Exchange Commission said.
Indrani Sugathadasa, chairperson of the Securities and Exchange Commission of Sri Lanka (SEC) said in July 2010, the SEC introduced the price band to arrest volatility in the market.
"The price band came into effect after prices of certain stocks were seen rising without being backed by sound fundamentals," she said in her annual report for 2010.
Imposing a price band was part of reforms that SEC took to bring about a strong level of confidence as well as add further liquidity into the market.
"Without these regulations and shareholder protection, only a few people would have been willing to invest in stocks," Sugathadasa said.
"We believe that one of the main responsibilities of the SEC is to enhance investor confidence drawing more people to be part of the investor community."
Malik Cader, SEC director general, said the price band on listed securities was imposed after the prices of certain stocks began to rise considerably, not owing to fundamental factors but "almost due to sheer speculation and ‘overheating’ in the market".
Although the market reacted negatively immediately after the price band was imposed, it recovered gradually within a short period of time, Cader said.
Before the price band was imposed, from January 01 to August 04, 2010 the benchmark All Share Price Index (ASPI) grew by 54 percent and the daily average turnover stood at 2.0 billion rupees.
"Despite the price band the ASPI grew at an encouraging 96 percent and the daily average turnover was 2.9 billion rupees at the end of the year," Cader said.
"The measures taken in a timely manner reflected the vigilance and effective monitoring and thereby helped to enhance the level of investor confidence whilst adding further liquidity to the market."
source - www.lbo.lk
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