Capital market: systemic risk very high, SEC must act fast

Stocks overvalued, including banking stocks

A top capital market professional says systemic risk is very high in the capital market and urged the Securities and Exchange Commission of Sri Lanka (SEC) to act fast before calamity strikes.

Addressing the Capital Market Development Workshop last Saturday, organised by the SEC in collaboration with the Colombo Stock Exchange, Colombo Stock Brokers’ Association and the Unit Trust Association of Sri Lanka, Heraymila Securities Ltd CEO Ravi Abeysuriya said the infrastructure was already in place to develop the country’s capital market further.

"We do not have to worry about the infrastructure because it is adequate enough, what we need to do is to establish more ethical practices in the stock exchange in order to instil public trust. Are we deepening the capital market or deepening the distrust on the market?" Abeysuriya asked.

He said the majority of the public perceived the stock exchange as a den of punters looking for short term opportunities and not as a long term investment vehicle infested with rip-off artists.

"We would like to see a significant enhancement of SEC powers. The regulator needs to amend the SEC Act to provide for civil sanctions such as punitive penalties and disgorgement on offenders. Stern action must be taken against those who artificially manipulate the market prices to their personal advantage and people are waiting to see a few high powered offenders being prosecuted for market manipulation and insider trading," Abeysuriya said.

He said investors were questioning the ethics behind private placements followed by an IPO with investors involved in private placements making huge gains when shares are subsequently listed on the exchange. These private placements are placed by advisory institutions which tend to incentivise the clients of their brokering arms and are not open to all investors.

Abeysuriya called for the promotion of professionalism, a higher level of training for all staff in the brokering community and the need to encourage high standards of analysis and independent opinion. He also called for the swift dissemination of price sensitive information and the leakage of such information once they are made to the regulator before the press is formally informed of these.

Abeysuriya also called for more comprehensive financial reporting and making more detailed information available to investors.

Many believe the majority of stocks listed on the exchange are overvalued.

Former Director General of the SEC, Arittha Wickramanayake addressing the forum (see yesterday’s The Island Financial Review) slammed the professional bodies of the industry for not working closely with the regulator. He said broker associations were doing little to develop the capital market by consulting with the SEC.

"It is the same with the banks, where their main body has only one fulltime employee as the secretariat. It was (recently discussed at a forum) that Sri Lanka was striving to be a financial hub for the region and the bankers at that particular forum had said this was possible, why because banking stocks were making tremendous gains in the stock exchange. But I told them that this was all rubbish, the banking stocks were all overvalued and cannot be relied on to base such a conclusion," Wickramanayake said.

source - www.island.lk