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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Market Vs. Regulation

Market Vs. Regulation

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1Market Vs. Regulation Empty Market Vs. Regulation Mon Dec 12, 2011 3:24 pm

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
Market Vs. Regulation - SUNDAY LEADER 2011-12-11

By Paneetha Ameresekere
Stockmarket regulators only want to impose rules on the bourse, whilst not bothering to introduce new instruments to the market, a stockbroker told reporters of this newspaper on Wednesday.
Asanga Seneviratne referring to the recent upheavals besetting the Colombo bourse, not least the resignation of the Securities and Exchange Commission (SEC) Chairman Mrs. Indrani Sugathadasa said that while the regulators were busy imposing rules to control the market, they never bothered about introducing new instruments to take the market up to the next level.
The regulator has been talking about introducing derivative trading for the last two years, but nothing has happened, said Seneviratne; who is also a businessman cum entrepreneur, with interests spanning the financial services, leisure and media.
There is no room for “short selling,” “short trading” and a variety of other trading instruments which however other markets are equipped with, but which are still not found here, he said.
What is permissible here is the buying and selling of shares, which actually is the embryonic stage of share trading, said Seneviratne.
Referring to the present downturn in the bourse, he said that it was due to over-regulation coupled with the fact that the regulators were mere theoreticians without having any practical experience in playing the market.
He said that the market regulators, ie both the Colombo Stock Exchange (CSE) and the SEC were cash rich, made rich by charging the broker community “exorbitant” fees. Each of those associations has well over a billion rupees in their accounts, said Seneviratne.
What they do is that they utilize those moneys to go overseas, study how capital markets in advanced economies like the USA and UK are governed and then try to apply those rules here, he said.
“It’s like applying Formula 1 rules to ‘go kart’ races,” Seneviratne said. On the other hand while the regulators are busy collecting rules governing those markets and applying them here, they are however slow to learn about the various market instruments also available and practiced in those bourses (as mentioned aforesaid) and introduce them here, which, if available will give the market that much needed thrust, he said.
On the issue of leveraging broker credit which the SEC has clamped down for fear that it may have a knock on effect in the event a broking house crashed because of the practice of such, Seneviratne said that there are a hundred investors who are awaiting on the wings to buy such a broking house in the event that happens.
SEC says to expand one’s capital so that a broking house would commensurately be able to enhance its lending to investors, but certain shareholders for various reasons, like the possible reason of their shareholding being diluted won’t like that to happen, he said.
Seneviratne who too runs a few stockbroking houses was however quick to say that his institutions were not in the business of extending credit to investors.
He said that brokers only wanted to leverage three times their net capital.
On the issue of gullible investors being caught up in the “pump and dump” trap, he said that any investor entering the market should do his own homework before investing in stocks and shares. “Don’t leave that responsibility to a third party (broker),” he warned.
There are so many research papers put out by broking houses, study them before investing, Seneviratne advised. He also said that SEC should be in the business of educating such investors. When the going is good then everything is fine for such investors, but when they start losing out, they start screaming that they have been cheated by manipulators, he said.
“I know of certain retail investors who formerly used to travel by bus, but after investing in the bourse they now travel in Mercedes Benzes,” said Seneviratne.
On the charge that foreigners are fleeing the bourse because they feel that the market’s integrity has been lost due to the recent happenings that have taken place? Seneviratne said that one of the golden eras of the Colombo bourse was in the early 1990s when there was little or no regulation, which however attracted foreign investments.
The present economic crisis in the West is the chief cause for foreigners to pull out their money from the bourse, said Seneviratne. But they will return when they feel that the going is good, with regulation or no regulation being of little consequence to them, he said.
On the question of why the SEC was not represented when certain section of the broker community met President Mahind Rajapaksa to air their grievances, he said that no complaints against the SEC was lodged at that meeting.
Among the issues discussed was allowing for the leverage of broker net capital by three times and enhancing bank lending for margin trading from the current 5% to 10%, he said. As proof, Sugathadasa’s husband, President’s Secretary Lalith Weeratunga was also present at that meeting, said Seneviratne.
On the allegation that there is some Rs. 2.25 billion worth of unutilised broker credit as made by Sugathadasa (see the lead story on the Economy pages of this publication in its last week’s edition), Seneviratne said that she was referring to companies such as his which in any case don’t lend money to investors.
At present SEC allows broking houses to lend to investors amounts equivalent to their liquid holdings.

2Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 3:38 pm

aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yes if SEC didn't regulate, JKH should be Rs. 2000 by now.

3Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 3:38 pm

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Very interesting.
Thanks for sharing.

4Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 3:39 pm

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@aj wrote:Yes if SEC didn't regulate, JKH should be Rs. 2000 by now.

Could you please explain how?

5Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 3:47 pm

aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Kumar wrote:
@aj wrote:Yes if SEC didn't regulate, JKH should be Rs. 2000 by now.

Could you please explain how?

Why? It went around 400 in the last bubble. Give more credit and let somebody else buy them at 500, Give some more credit get somebody else to buy them at 600... Go till it's 10000
There's no real money involved, it's broker's virtual money.
Does it matter if the market crashes or if it's going around 1000 PE ratio or 100 PBV or the profits are declining, as long as I get the broker commission and the interest.

“I know of certain retail investors who formerly used to travel by bus, but after investing in the bourse they now travel in Mercedes Benzes,” said Seneviratne.

I know of certain person who used to steal gold chains from girls travelling in the trains, but after becoming a politician he now travel in Monteros," said Siripala.

6Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 3:52 pm

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@aj wrote:
@Kumar wrote:
@aj wrote:Yes if SEC didn't regulate, JKH should be Rs. 2000 by now.

Could you please explain how?

Why? It went around 400 in the last bubble. Give more credit and let somebody else buy them at 500, Give some more credit get somebody else to buy them at 600... Go till it's 10000
There's no real money involved, it's broker's virtual money.
Does it matter if the market crashes or if it's going around 1000 PE ratio or 100 PBV or the profits are declining, as long as I get the broker commission and the interest.

“I know of certain retail investors who formerly used to travel by bus, but after investing in the bourse they now travel in Mercedes Benzes,” said Seneviratne.

I know of certain person who used to steal gold chains from girls travelling in the trains, but after becoming a politician he now travel in Monteros," said Siripala.

Ok good explanation.
I got your point.
No comments.
We need more like you in this forum.
Good luck.

7Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 4:13 pm

Deva


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
What is permissible here is the buying and selling of shares, which actually is the embryonic stage of share trading, said Seneviratne.
Referring to the present downturn in the bourse, he said that it was due to over-regulation coupled with the fact that the regulators were mere theoreticians without having any practical experience in playing the market.
He said that the market regulators, ie both the Colombo Stock Exchange (CSE) and the SEC were cash rich, made rich by charging the broker community “exorbitant” fees. Each of those associations has well over a billion rupees in their accounts, said Seneviratne.
What they do is that they utilize those moneys to go overseas, study how capital markets in advanced economies like the USA and UK are governed and then try to apply those rules here, he said.


hariesha, thank you for sharing these information, very good post. Specially the above is beautifully said.

8Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 5:35 pm

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
It's quite unfortunate that some members are either purposely misleading the members or either they are miss-understood the whole scenarios. It is quite evident by looking at the example taken, “JKH”.

Last 12 month highest price for JKH was Rs. 304.90 on 20th May 2011 when they announced the share split. Even when the market was at the peak (when about to forcibly blast the so called bubble by the SEC pundits) JKH was trading at Rs.293/-. The share has been diluted by 37% since then by splitting and Employee share option schemes.

No. of shares as at 31.03.2011 - 628,740,253
No. of shares as at today - 840,804,522
% of dilution - 33.7%
The corrected share price according to the dilution – Rs. 194/- ( Rs.293/- * 33.7%)
Share price as of today – Rs. 178/-
Drop in the CSE since the highest point - 23%
Actual drop in JKH – 8% and this is despite heavy foreign selling. This is one of the examples that show that actually there wasn’t a bubble as such. Harry was started buying JKH at Rs. 218/- around august by paying a 12% premium to the diluted value. Still he is collecting.
Are those bubble pundits call him a fool?


9Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 6:15 pm

Appuhamy


Manager - Equity Analytics
Manager - Equity Analytics

Yes agree. There are some PANDITHS here who can't see anything beyond theories. I think they will suffer throughput their investment life criticizing others who earn money from CSE.

10Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 6:19 pm

Universalgoal


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
credit creat bubbles that is true what ever sentence use the thing is what are the tactics use by sec to controll the bubbles and credit without breaking confidence of investors

(the regulators must have miss or cut the psycologiical lesson at their overseas study)

11Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 6:51 pm

aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@hariesha wrote:It's quite unfortunate that some members are either purposely misleading the members or either they are miss-understood the whole scenarios. It is quite evident by looking at the example taken, “JKH”.

Last 12 month highest price for JKH was Rs. 304.90 on 20th May 2011 when they announced the share split. Even when the market was at the peak (when about to forcibly blast the so called bubble by the SEC pundits) JKH was trading at Rs.293/-. The share has been diluted by 37% since then by splitting and Employee share option schemes.

No. of shares as at 31.03.2011 - 628,740,253
No. of shares as at today - 840,804,522
% of dilution - 33.7%
The corrected share price according to the dilution – Rs. 194/- ( Rs.293/- * 33.7%)
Share price as of today – Rs. 178/-
Drop in the CSE since the highest point - 23%
Actual drop in JKH – 8% and this is despite heavy foreign selling. This is one of the examples that show that actually there wasn’t a bubble as such. Harry was started buying JKH at Rs. 218/- around august by paying a 12% premium to the diluted value. Still he is collecting.
Are those bubble pundits call him a fool?



I'm sorry I didn't check the exact numbers before posting. Now I check it, it has gone up to 360 in the bubble days. (Or has there been transactions at 590?)

But just check the overall ideas of the post.

Next, I hope nobody will fuss over the grammar or spelling mistakes in my post.

You see SEC "reactively" stopped the bubble from going on when they put the breaks on.

Another thing, the DIST is not buying JKH so that they can sell at a higher price tomorrow, there are other things when big companies are involved. Like taking over control or influencing some party or whatever. I'm sure there are many more reasons or correcting old mistakes they've done like averaging for the high price they paid earlier, because some party higher than the company urging them to buy even at not so good price, just so that they can get favors later. And it's not even a single person's money that's going out, it's the company's money. Company's don't buy to sell higher tomorrow.

12Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 7:05 pm

Rajaraam


Vice President - Equity Analytics
Vice President - Equity Analytics
@Appuhamy wrote:
Yes agree. There are some PANDITHS here who can't see anything beyond theories. I think they will suffer throughput their investment life criticizing others who earn money from CSE.

Well said Appuhami, oyage kate rattaran danna oni,

13Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 7:07 pm

Rajaraam


Vice President - Equity Analytics
Vice President - Equity Analytics
[quote="aj"]
@Kumar wrote:
@aj wrote:Yes if SEC didn't regulate, JKH should be Rs. 2000 by now.

Could you please explain how?

Why? It went around 400 in the last bubble. Give more credit and let somebody else buy them at 500, Give some more credit get somebody else to buy them at 600... Go till it's 10000
There's no real money involved, it's broker's virtual money.
Does it matter if the market crashes or if it's going around 1000 PE ratio or 100 PBV or the profits are declining, as long as I get the broker commission and the interest.

“I know of certain retail investors who formerly used to travel by bus, but after investing in the bourse they now travel in Mercedes Benzes,” said Seneviratne.[/quot

I know of certain person who used to steal gold chains from girls travelling in the trains, but after becoming a politician he now travel in Monteros," said Siripala.


Nonsense.

14Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 10:20 pm

manula


Vice President - Equity Analytics
Vice President - Equity Analytics
@Appuhamy wrote:
Yes agree. There are some PANDITHS here who can't see anything beyond theories. I think they will suffer throughput their investment life criticizing others who earn money from CSE.


yes..correct.. now we cant go as per theories. If you want to earn money you have to work in the way CSE works. Very Happy

15Market Vs. Regulation Empty Re: Market Vs. Regulation Mon Dec 12, 2011 10:30 pm

amilaela

amilaela
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
yes thats correct...

https://www.facebook.com/profile.php?id=100001851586843

16Market Vs. Regulation Empty Re: Market Vs. Regulation Tue Dec 13, 2011 12:05 am

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Asanga Seneviratne is one of the pioneers and great personalities of stock brokering in Sri Lanka. He had been instrumental in many deals including the the takeover of Nation Lanka Finance and facilitating the controversial takeover of Richard Pieris and company on behalf of Dr Sena yaddehige.

Since of late Mr Seneviratne had been concentrating on tourism project in the east coast, successfully raising over Rs 2 bn from foreign investors mainly from USA whilst his absence in the equity market has been a great loss to Sri Lanka.

His contribution and advise to SEC is greatly required under the current circumstances. His comments to Sunday leader newspaper which he suppose to own proves his unbiased opinion about the stock market and the regulations!!!

17Market Vs. Regulation Empty Re: Market Vs. Regulation Tue Dec 13, 2011 12:49 am

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
" wrote:
Seneviratne said that one of the golden eras of the Colombo bourse was in the early 1990s when there was little or no regulation, which however attracted foreign investments.

According to Mr Seneviratne yes there was so called golden era in early 1990s but soon after that period the market (almost) collapsed (BTW he forgot to mention it..!). Yes there was very little or no regulations in those days.

But in 2011. Market did not collapse. Luckily much better rules and regualtions are implemented. (OK I agree its not perfect but far better than early days)

If SEC had not introduced new rules we would have seen another market collapese in mid 2011.

18Market Vs. Regulation Empty Re: Market Vs. Regulation Tue Dec 13, 2011 1:44 am

lokuayya


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
yes ,yes,in 2011 regulators were very good and smart.they caught and punished three clerks of a local bank who manipulated the market by buying rs15000/ worth shares.


19Market Vs. Regulation Empty Re: Market Vs. Regulation Tue Dec 13, 2011 7:31 am

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@lokuayya wrote:yes ,yes,in 2011 regulators were very good and smart.they caught and punished three clerks of a local bank who manipulated the market by buying rs15000/ worth shares.

Please can you let me know just one local governing body which works according to rules in the book or penalise all wrong doings within that governing body?

20Market Vs. Regulation Empty Re: Market Vs. Regulation Tue Dec 13, 2011 9:00 am

aj


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Quibit wrote:Asanga Seneviratne is one of the pioneers and great personalities of stock brokering in Sri Lanka. He had been instrumental in many deals including the the takeover of Nation Lanka Finance and facilitating the controversial takeover of Richard Pieris and company on behalf of Dr Sena yaddehige.

Since of late Mr Seneviratne had been concentrating on tourism project in the east coast, successfully raising over Rs 2 bn from foreign investors mainly from USA whilst his absence in the equity market has been a great loss to Sri Lanka.

His contribution and advise to SEC is greatly required under the current circumstances. His comments to Sunday leader newspaper which he suppose to own proves his unbiased opinion about the stock market and the regulations!!!

It may be your view, but when I read this interview what I see is very irresponsible and lawless views.
How can a broker say it's the investor's error when big players and brokers gang up and join the manipulations. Aren't brokers "investment advisers" or "investment analysts"? Aren't we paying for that? How many times have you been 'adviced' to buy speculative stocks if you ask for advice?

He may have brokered deals. That must be his profession. When you want to buy or sell a property you hire a broker and you give a percentage of the deal. Does it make the broker a great personality or pioneer? It his job to get your property bought and sold and get a commission out of it.

Why do we have laws against heroine? Why not educate the public and remove the laws. So that heroine can be freely available in groceries. So we educate the public the dangers of the drug. We can't do it. It doesn't work that way. We have to catch the criminals, stop the distribution. It may not work but civilized people are always try that.

Brokers are not happy because they're profits have gone down. Part of the retail investors are unhappy because they bought overvalued shares. But you can't let the whole economy and the financial system fail because of that which is depended on the other 99.9999% population.

Anyway even if they do get more credit it would be just a temporary plaster for a few days. It just delays the natural behaviour.

And why didn't the foreign investors buy the equity market shares? Why do they go for direct investments?



Last edited by aj on Tue Dec 13, 2011 9:26 am; edited 2 times in total

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