Monday, January 16, 2012

Sri Lanka SEC allows more broker credit

Jan 16, 2012 (LBO) - Sri Lanka's Securities and Exchange Commission said it had allowed brokers to lend up to three times their net capital to clients to buy shares in a relaxation of credit rules imposed last year.

The adjusted net capital is arrived at after deducting from net capital 50 percent of the value of fixed assets.

Earlier brokers were only allowed to lend only their own assets. The new rule allows them to leverage, effectively engaging in a finance business of borrowing and lending.

The SEC said the new rule will increase the amount all brokers can lend to the market to 8.7 billion rupees from the current 5.0 billion rupees.

In 2011, the SEC put credit curbs and the stocks, especially fundamentally weak illiquid stocks were punted upwards amid credit bubble supported by lower interest rates and excess liquidity in the banking system.

Credit growth has since hit the balance of payments and rates are now rising.

The market has since corrected and profits of many firms have also improved.

Brokers went to Sri Lanka's President to pressure the SEC to relax credit rules, eventually leading to the resignation of the chairperson of the SEC.

The cabinet of ministers earlier removed the SEC director general soon after a crackdown on price manipulation, hype and dump scams and insider dealing started.

source - www.lbo.lk

1 comment:

Bruce M.Morgan said...

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