SEC assures safeguards in place

The Securities and Exchange Commission (SEC) headed by Dr. Nalaka Godahewa responding to concerns raised by K.C. Vignarajah in The Island Financial Review yesterday (15) has sought to reassure the investing public that the recent directives did not take away any safeguards preventing systemic risk and market offences.

"The SEC refers to certain newspaper articles which appeared on 14th and 15th October 2012 giving wide coverage to a communication addressed to the SEC by K.C. Vignarajah highlighting some concerns of the said individual. The SEC has consulted all the key stakeholders including the Colombo Stock Exchange, Broking community, Unit Trust Industry, Margin Providers etc., prior to the issuance of the said directives. The SEC wishes to point out that 27 of the 28 Equity Brokers participated at this meeting," the SEC said in a press communiqué yesterday.

"The SEC has not removed any safeguards as alleged, in that the directives issued by the SEC to the CSE on 9th October 2012 referred to by Vignarajah were in order: (a)   to amend the net capital computation of Stockbrokers; (b)   to lift the restriction imposed on executive directors, employees, their spouses and their nominees of all licensed stockbrokers and stock dealers from selling listed shares purchased from the secondary market for a period of 6 months from the date of purchase; (c)   to life the upper limit of 20% imposed on the price of transactions carried out on the crossings board of the Colombo Stock Exchange and to re-establish the status quo that existed previously in the Automated Trading Rules.

"The SEC wishes to emphasize the fact that whilst the amendment of net capital computation was a measure to rectify an anomaly that existed in such computation, the removal of restrictions imposed on the sale of the shares purchased by the parties connected to licensed stockbrokers as well as transactions carried out as crossings were steps to establish the status quo that existed in the past by removing the "interim" restrictions imposed by the SEC previously.

"Accordingly, it should be re-iterated that no safeguards whatsoever have been removed by the SEC as a result of the above mentioned directives, but has imposed additional safeguards (some of which have been clearly mentioned in our aforesaid directives), whilst emphasizing on the need by the Stockbrokers of strictly adhering to the current safeguards which are already existent as per the Stockbroker Rules of the CSE," the SEC said.

Some analysts, investors and brokers allege the SEC has been subject to regulatory capture, with the recent directives removing previous measures taken to contain market offences and systemic risk. However, others have praised the move as being more market friendly.

Four broker firms, breaking away from the Colombo Stock Brokers’ Association (CSBA), earlier this year had written to President Mahinda Rajapaksa commending the credit restrictions. They said the restrictions would minimise systemic risks. The majority of broker firms had however lobbied for looser credit rules.

Former SEC Chairman Thilak Karunaratne told a recent forum that some stock brokers were plying their trade in an unprofessional manner.

Vignarajah had requested the present commission members of the SEC to introduce transparency and disclosure requirements to brokers trading in the stock exchange while echoing sentiments already expressed by a range of stakeholders that credit, although necessary, had to be regulated so as to prevent bubbles.

The Island Financial Review of Friday October 05 carried a story of how several well respected business personalities were trying to mobilise independent minority shareholders to assist the SEC clean up the market of rampant irregularities.

The outcome of 17 ongoing investigations would be the acid test for the current commission members of the SEC after two chairpersons resigned within a year of each other citing extreme pressure from a group of influential investors with the government doing little to strengthen the arm of the SEC which had taken tough measures against market offences.

source - www.island.lk