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Thursday, April 19, 2012

UPDATE 2-Sri Lanka SEC suspends limit on share price moves

* Bourse jumps over 2 pct after SEC decision

* Brokers welcome move, say long overdue

* SEC says will monitor situation, may reimpose if necessary (Adds SEC head quote in para 4, writes through)

By Shihar Aneez

COLOMBO, April 19 (Reuters) - Sri Lanka's Securities and Exchange Commission (SEC) suspended a 10 percent limit on share price movements with immediate effect on Thursday, helping to boost the island nation's bourse to a two-month high.

The regulator imposed the 10 percent daily limit in late 2010 to curb price manipulation in penny stocks and reduce "pump-and-dump" schemes - in which naive investors are lured into apparently cut-priced equities - in an effort to maintain market stability.

The SEC has been imposing the limit on shares that moved in heavy trade and were volatile without a fundamental reason, to the anger of many brokers and high net-worth investors who saw it as a way of controlling trading volume and limiting broker commissions.

However SEC Chairman Tilak Karunaratne told Reuters the stock market had become depressed with hardly any price fluctuations. "We will monitor the situation and may reimpose if necessary," he said.
The suspension of the 10 percent limit helped boost the bourse to end 2.1 percent up at its highest since Feb. 24.

"We have been asking for this for a long time and we really welcome the move," said Sriyan Gurusinghe, president of the Colombo Stock Brokers Association, which represents 25 of the market's total of 28 broking firms.

"The SEC has informed us they will bring in a new formula to control price manipulation. But we haven't got any details on that so far. We have repeatedly explained to them that the 10 percent price band was actually not serving the purpose."

In 2009 and 2010, after Sri Lanka's long civil war ended, the Colombo bourse was a star performer in Asia, surging 125 percent in 2009 and another 96 percent the next year.

But last year the benchmark All Share Price Index fell 8.5 percent and so far in 2012, when Asian markets have rallied, it has slumped 8.9 percent in spite of the SEC easing restrictions on broker credit and margin trading.

However, bucking a previous three-year trend of foreign outflows, the bourse has this year enjoyed 21.2 billion Sri Lanka rupees ($165 million) of net inflows.

Last week, the regulator's newly appointed Director General Hareendra Dissabandara, told Reuters in an interview the SEC needed integrity and greater participation by foreigners to grow well. ($1 = 128.45 Sri Lanka rupees) (Reporting by Shihar Aneez; Editing by Robert Birsel and David Holmes)

source - www.reuters.com