Sri Lanka Stock Picks

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Thursday, September 16, 2010

Price band on stocks lifted

The Securities and Exchange Commission (SEC) will lift a 10 percent price band on all listed stocks from next Monday (20) and permit carried forward orders for all securities.

The price band came into effect on August 4 after prices of certain stocks were seen rising without being backed by sound fundamentals which resulted in a trading freeze imposed on these stocks which was lifted and replaced with a 10 percent price band on all stocks.

While the regulator defended the price band on the basis that it would deter market volatility, some were sceptical it was a good move. However, investors and brokers involved in trading in these controversial stocks are being investigated for possible market manipulation. Some investors have been buying cheap and dumping stocks when prices were on the upward trend.

The SEC has devised a formula, based on price volatility and volume traded adjusted to public holding, on a daily rollover basis for the proceeding review period of 5 market days. This is to be published by the Colombo Stock Exchange in a list depicting the stocks captured as a result of the formula.

Stocks that have been thus identified would be imposed with a 10 percent price band which would be effective over 15 market days, and only day orders for these stocks would be allowed while carried forward orders would be purged.

And while the price band on these stocks are effective, brokers are required to obtain not less than 50 percent of settlement value upfront in the form of realised funds.

The new formula would not apply to first day trading on any security, parcels trading, crossings, debentures, securities with a closing price of less than a rupee, a first day trading where the issued quantity of shares is increased due to a sub-division of shares.

Meanwhile, the SEC has asked brokers not to extend credit facilities to investors for more than three days after the transaction date. If credit is provided beyond this time frame, brokers are required to do so through a Margin Provider registered with the SEC. It has given brokers time till January 01, 2011 to regularize any backlog of credit with a Margin Provider.

source - www.island.lk