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.