Thursday, July 28, 2011

Brokers to reappeal on credit for retailers?

By Jithendra Antonio

The twice best performed second capital market in the world, Colombo Stock exchange has tumbled to its worst  performance in 2011. Stock brokers have now resorted to boost retail activities, requesting to extend the broker provided credit, Mirror Business learns.

According to a top official of the stock broking community, at meeting held on Monday, almost all the Chief Executive Officers of stock broking firms had agreed and signed letters stating that brokering firms should be able to lend their excess funds above the minimum capital requirement to their trade debtors.

“We will soon submit our letter to the Securities and Exchange Commission,” our source added.

However, Mirror Business learns that two broking firms which are units of two joint investment managing arms who brought in overpriced IPO’s for listing in recent times,  had disagreed on providing broker credit.

“No one can prevent us from lending to clients, and what we can do anything with excess money which is above the minimum capital requirement’ our source said.

“Further, CEOs also agreed that it is fair enough for the brokering firms to leverage one time as it was allowed once. Finance companies in the country are allowed to leverage 10 times and leasing companies are allowed to leverage 7 times,” he pointed out.

According to the industry, the biggest reason for the market to fall to its lowest in seven months during early this week was the declining interest of retailers.

“Retailers are the major force of the market, and they contribute 44% of the daily market turnover” he said adding that if broker provided credit could not facilitate those individuals who have portfolios less than Rs.2 million, the major driving force in the market will soon be eliminated.

On 29 November 2010 SEC Directed brokers to limit credit by December 2010, and was further extended till June 2011 after broking community made representation to SEC.

Sri Lankan regulator, from January 01, 2011, has banned all stock broking firms from providing credit to customers and encouraged banks to provide margins.

Subsequently, brokers cleared 50% of credit in March 2011 and then SEC again revived its directive allowing brokers to clear 25% of credit by September 30, and the rest by end of year 2011. Since then, market indices have gradually declined, and some investors had moved away from the capital market after burning their fingers, market analyst point out. Meanwhile, it is learnt that Colombo Stock Brokers’ Association made a representation to the SEC yesterday, requesting permission to provide credit for retailers.

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