Friday, May 18, 2012

Sri Lanka controversial stock sale to state bank reversed

May 18, 2012 (LBO) - Sri Lanka’s securities regulator said it had allowed state-run National Savings Bank to return stock bought in a controversial deal at an inflated price to the sellers outside the trading floor.

 The move comes, after NSB (the buyer), Sampath Bank (the settlement bank) and Taprobane Securities Private Limited (broker on behalf of the buyers and sellers) wrote the Securities Exchange Commission (SEC) seeking a reversal.

 State-run NSB bought 13 percent of The Finance Company stock for 390 million rupees from a consortium on April 27, but failed to settle its purchase with Sampath, which acts as the settlement bank on behalf of the Central Depository System.

President Mahinda Rajapakse, who is also the island’s finance minister, ordered NSB to stop payment for the stock.

Senior career officials of the bank were also reported to have opposed the deal, which was sanctioned by its board of directors.

“In this backdrop the SEC has granted approval to allow NSB to transfer The Finance Company shares purchased on 27th April 2012 in its entirety to the persons identified by Taprobane Securities outside the trading floor of the Colombo Stock Exchange,” SEC said Friday.

The regulator did not say when the transfer would take place. Its directive came after the market closed for trading.

The non-payment, was the first in the tiny stock market’s history, and generated a lot of public debate.

 However, the SEC has taken the decision to allow a smooth flow in the capital markets.

The regulator said it was keen to ensure the stability of the payment and settlement cycle system within the market.

“It is stressed that the SEC will not consider this instance of granting approval to conduct a trade of this nature off the floor of the Colombo Stock Exchange as creating a precedence,” the release said.

Separately, the watchdog said it was probing the transaction and the parties involved in it.

"Firm action will be taken against all those who are found to have violated the SEC Act.”

Opposition legislator Harsha de Silva has charged that the deal is only the 'tip of the iceberg' where stock is sold to state managed funds at inflated prices.

The regulator said it is also studying the issue and will introduce procedures to prevent future incidents.

“The SEC will also intensify its efforts in implementing the Central Counter Party (CCP) for the CSE which will be the final solution to address settlement failure risk,” the statement added.

source -

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