It said providing credit is a basic necessity, with almost all stock brokering companies around the world providing margin-trading facilities. Issuing a statement to clarify some issues that have confronted the association relating to its proposals, it said the proposals were aimed at stimulating investor participation and restoring confidence to the market.
Amongst the proposals made by the CSBA is allowing stock broking firms to extend credit up to a maximum of three times its leverage of net capital was prominent which will bring more liquidity to the market.
The statement said that now the credit offered is based on the computation of liquid assets less obligations of the broking company and that CBSA assured that giving credit in the future would not create any systemic risk as all the stock brokers will be required to establish risk management systems shortly under the initiatives taken by the Colombo Stock Exchange (CSE).
Reinstating circuit breakersand removing the price band, according to the CSBA, is expected to ensure a level playing field more efficiently. They said that using price bands disrupts the price discovery mechanism in the market.
The lending on listed equity by commercial banks, to be increased from its current 5% to the 7.5% of bank’s loan portfolio and also for the CSE to provide a 50% subsidy to cover the cost of opening stock broking branches outside Colombo, while encouraging more state institutions to participate in the market were also proposed by the CSBA.