Colombo stockbrokers want more respite

By Duruthu Edirimuni Chandrasekera
The stock market following the Securities and Exchange Commission’s (SEC) recent decision to let brokers reduce their debtor positions in two stages saw a surge in turnover (last week) with foreigners showing buying interest which gave an added impetus to the bourse, but brokers seem to want ‘more’.
“What we want is to be able to lend (grant credit) to the investors three times of the net capital of a particular stockbrokering house,” a broker said. But the SEC says that this will not come into play (from January 1) as the brokers can extend credit beyond the T+3 (trading day+ three market days) through a margin trading account.

The SEC after representations by the Colombo Stock Brokers Association (CSBA) granted permission to brokers to reduce their current debtor’s position by 50% by 31, March next year and the balance by June 30. “It would have been unfair not to grant them time to clear their (huge) positions. The request by the stockbrokers to lend proportionately to their net capital is something we want to consider in the long run. Since they are encouraged to open margin trading accounts from next year onwards, this question will not arise,” a SEC source told the Business Times.

The brokers say that floating a separate entity for margin trading is a hassle, which is the main reason for such a request. But SEC sees this as a lame validation. Meanwhile what analysts are mooting is increasing the net capital of brokering houses.

“In today’s context of rising turnovers, it will be prudent to increase brokering houses’ capital requirement from the current Rs 35 million to about a Rs 100 million,” an analyst said.

Deshan Pushparajah, Manager Corporate Finance Capital Alliance noted that the SEC directive on the credit extended by stockbrokers to clients was a main reason why there was no buying pressure (if not large selling pressure) in the market. “However with the broker credit facilities being extended in the short term, the market may experience a temporary knee jerk reaction driving it back upto even the 7000 levels, mostly driven by speculative buying,” he said, adding that whether it can be justified fundamentally raises questions.

He also noted that this problem has not gone away and will come back to haunt market participants in another 3-months.

source - www.sundaytimes.lk