Total Credit available to rise to Rs.8.7 billion-SEC allows Credit

Credit Boom

Link: http://lankabusinesstoday.com/news/market/1020-creidit-boom

MONDAY, 16 JANUARY 2012
The SEC further relaxes stock broker credit extension – additional credit available will increase by Rs. 5 billion resulting in total credit available in the market to Rs. 8.7 billion

At the Commission meeting held on 16th January 2012, the Securities and Exchange Commission of Sri Lanka (SEC) decided to permit Stock Broking Firms to leverage 3 times adjusted Net Capital with immediate effect. “Adjusted Net Capital” is the Net Capital computed as per the Colombo Stock Exchange (CSE) Member Regulations less 50% of Fixed Assets. In line with other regional markets, 50% was deducted to take into account the concerns of realizing illiquid assets into cash.

I can't understand the terms. What I got is credit is increased from 2.7Bn to 8.7Bn

From LBO

Broker Leveraging
16 Jan, 2012 19:04:49
Sri Lanka SEC allows more broker credit
Jan 16, 2012 (LBO) - Sri Lanka's Securities and Exchange Commission said it had allowed brokers to lend up to three times their net capital to clients to buy shares in a relaxation of credit rules imposed last year.
The adjusted net capital is arrived at after deducting from net capital 50 percent of the value of fixed assets.

Earlier brokers were only allowed to lend only their own assets. The new rule allows them to leverage, effectively engaging in a finance business of borrowing and lending.

The SEC said the new rule will increase the amount all brokers can lend to the market to 8.7 billion rupees from the current 5.0 billion rupees.

In 2011, the SEC put credit curbs and the stocks, especially fundamentally weak illiquid stocks were punted upwards amid credit bubble supported by lower interest rates and excess liquidity in the banking system.

Credit growth has since hit the balance of payments and rates are now rising.

The market has since corrected and profits of many firms have also improved.

Brokers went to Sri Lanka's President to pressure the SEC to relax credit rules, eventually leading to the resignation of the chairperson of the SEC.


Ready to face the momentum wisely...


Good Luck for all

lets hope price band also removed. and most importantly T+5 rule..

econ wrote:lets hope price band also removed. and most importantly T+5 rule..

What is the point of giving credit while T+5 is still there? To utilize credit, there should be some relaxation in T+5. Else, brokers will give credit, lot of credit.. but only for 5 days!

Genting wrote:

econ wrote:lets hope price band also removed. and most importantly T+5 rule..

What is the point of giving credit while T+5 is still there? To utilize credit, there should be some relaxation in T+5. Else, brokers will give credit, lot of credit.. but only for 5 days!

No prob, if not pay interest

Genting wrote:

econ wrote:lets hope price band also removed. and most importantly T+5 rule..

What is the point of giving credit while T+5 is still there? To utilize credit, there should be some relaxation in T+5. Else, brokers will give credit, lot of credit.. but only for 5 days!

My interpretation: As long as brokers are within their permitted credit limits, T+5 is not applicable.
Brokers will force-sell only if they exceed these limits - or if a customer does not pay within the agreed credit period.

In another few weeks (or days) brokers would say the stock market is going down these days because of the credit restrictions. They may go to the President again and demand 10 times credit? Or money printing rights for brokers?

Genting wrote:

econ wrote:lets hope price band also removed. and most importantly T+5 rule..

What is the point of giving credit while T+5 is still there? To utilize credit, there should be some relaxation in T+5. Else, brokers will give credit, lot of credit.. but only for 5 days!

Price band is a useless rule. It doesn't matter if it's there or not. None of the meaningful stocks get the price band.

Since last year brokers can give credit beyond the T+5 days. Even since before that margin providers can give credit beyond T+5 days. If you remove T+5 rule then who is going to pay the seller if buyer is not paying? Does the seller have to wait indefinitely until the buyer pays in T+2500 days? Somebody has to pay the seller. That's where margin providers give the money and brokers since last year. Since last year if the brokers force sell shares it's the brokers' decision not the SEC rule. Your broker has decided to give credit to their favorite (big) customers instead of to you and lied to you that they had to force sell because the SEC told them so.

when the new rule take in to effect?

SEC further relaxes Stock Broker credit extension

January 16, 2012 06:29 pm
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The Securities and Exchange Commission (SEC) further relaxed Stock Broker credit extension by permitting Stock Brokers to leverage three times the adjusted Net Capital, the SEC stated.

Additional credit available will increase by Rs.5 billion to a Rs.8.7 billion due to credit relaxation, the SEC Media Spokesman stated.

Are out investors got mad ?
T+5 is introduced since 2011/1/1
Do we recommend to remove T+5 and go back to original T+3 ????????

One thing not understandable. Is this (8.7Bn) what the brokers asked or less than that ?
Who has the ball right now ? SEC or brokers ?

I found one source. It said ball is now with brokers. The credit available is more than highest credit exposure

http://www.lankabusinessonline.com/fullstory.php?nid=777672970

"The regulator cracked down on broker credit amid bubble fears last year with some analysts estimating that brokers were exposed up to 8.0 billion rupees to their clients."

Many Thanks for the timely information, Experts!!!

sapumal wrote:Are out investors got mad ?
T+5 is introduced since 2011/1/1
Do we recommend to remove T+5 and go back to original T+3 ????????

My dear friend T+5 or T + 3 is not an issue. That is only 2 days difference. Any how at least within 3 days or 5 days seller will get money. As stock traders we are sellers as well as buyers in any given time. So we as sellers would like to get money as early as possible. Problem here is nonavailability of easy quick credit to allow our finnacial capability to hold some shares which are trading at much lessser price than we paid for. This is a facility we enjoyed for years and all of a sudden stoped by SEC creating problems and increasing frequent selling presure. This selling presure caused for continues ASI dropping. Broker Credit allows someone to hold shares during a short bear. At least he/she could wait till price up to minimise the loss.
We have to understand the difference between broker credit and margin facility given by finnancial institutions.

insidertrader wrote:

Genting wrote:

econ wrote:lets hope price band also removed. and most importantly T+5 rule..

What is the point of giving credit while T+5 is still there? To utilize credit, there should be some relaxation in T+5. Else, brokers will give credit, lot of credit.. but only for 5 days!

Price band is a useless rule. It doesn't matter if it's there or not. None of the meaningful stocks get the price band.

Since last year brokers can give credit beyond the T+5 days. Even since before that margin providers can give credit beyond T+5 days. If you remove T+5 rule then who is going to pay the seller if buyer is not paying? Does the seller have to wait indefinitely until the buyer pays in T+2500 days? Somebody has to pay the seller. That's where margin providers give the money and brokers since last year. Since last year if the brokers force sell shares it's the brokers' decision not the SEC rule. Your broker has decided to give credit to their favorite (big) customers instead of to you and lied to you that they had to force sell because the SEC told them so.

I agree with insidertrader, T+5 or T+3 is the allowed grace period to settle buyers liability on his purchases.Unless buyer pays for shares he/she bought seller has no way to get money.( however under the present rules broker is responsible for that) We as stock market dealers involved in bboth buying and selling.Therefore we must be happy with the rule of T+3 or T+5. Problem we had was broker credit which is more flexible than so called margin facility provided by banks and financial institutions. Since SEC has now allowed increased amounts of credit by brokers we could expect a bull from tomorrow.

hey experts, still confused with this t+3 t+5 thing. Can anyone explain it simply? does this have anything to do with the 30% excess buying power we get??

insidertrader wrote:

Genting wrote:

econ wrote:lets hope price band also removed. and most importantly T+5 rule..

What is the point of giving credit while T+5 is still there? To utilize credit, there should be some relaxation in T+5. Else, brokers will give credit, lot of credit.. but only for 5 days!

Price band is a useless rule. It doesn't matter if it's there or not. None of the meaningful stocks get the price band.

Since last year brokers can give credit beyond the T+5 days. Even since before that margin providers can give credit beyond T+5 days. If you remove T+5 rule then who is going to pay the seller if buyer is not paying? Does the seller have to wait indefinitely until the buyer pays in T+2500 days? Somebody has to pay the seller. That's where margin providers give the money and brokers since last year. Since last year if the brokers force sell shares it's the brokers' decision not the SEC rule. Your broker has decided to give credit to their favorite (big) customers instead of to you and lied to you that they had to force sell because the SEC told them so.

I agree with insidertrader, T+5 or T+3 is the allowed grace period to settle buyers liability on his purchases.Unless buyer pays for shares he/she bought seller has no way to get money.( however under the present rules broker is responsible for that) We as stock market dealers involved in bboth buying and selling.Therefore we must be happy with the rule of T+3 or T+5. Problem we had was broker credit which is more flexible than so called margin facility provided by banks and financial institutions. Since SEC has now allowed increased amounts of credit by brokers we could expect a bull from tomorrow.

Ok. this is the thing.
Now we are eligible to get 8.7Bn worth credit. That credit is not applicable to T+5. But all the credit beyond that is needed to be clear, so that credit is applicable to T+5.
If your broker is selling your stocks within T+5 then that broker has gone beyond his available credits. Otherwise you can hold your credit beyond T+5 if your portfolio is not diminution

sapumal wrote:Ok. this is the thing.
Now we are eligible to get 8.7Bn worth credit. That credit is not applicable to T+5. But all the credit beyond that is needed to be clear, so that credit is applicable to T+5.
If your broker is selling your stocks within T+5 then that broker has gone beyond his available credits. Otherwise you can hold your credit beyond T+5 if your portfolio is not diminution

Yes .u are right. Every individual investor/trader should know his/her responsibility.I dont think investore/traders who are dealing shares do not aware of settlement rules.

sapumal wrote:Ok. this is the thing.
Now we are eligible to get 8.7Bn worth credit. That credit is not applicable to T+5. But all the credit beyond that is needed to be clear, so that credit is applicable to T+5.
If your broker is selling your stocks within T+5 then that broker has gone beyond his available credits. Otherwise you can hold your credit beyond T+5 if your portfolio is not diminution

now clear ...thanks .......

ude zoysa wrote:hey experts, still confused with this t+3 t+5 thing. Can anyone explain it simply? does this have anything to do with the 30% excess buying power we get??

Dear Zoysa,
T+3 or T+5 is your settlement circle. If you buy shares you have to settle within 3 market days under T+3 or within 5 market days under T+5 . Options are (1)You pay in cash to your broker. (2)You arrange a margin facility with a Bank/Financial institution to settle your dues to the broker and broker will settle it to the seller through CSE.(3)You get a facility from your broker as agreed conditions. Issue here is the time factor. If you have arranged a facility with your broker no additional time required to arrange the facility and therefore without any hesitation you can immediately buy stocks as you wish. Relaxed rules would help the market to improve it's turnover thus encouraging big dealers to re-enter.

System will fall more into debt, illiquidity will re-surface, need to look for other sources for capital, says broker

The much awaited announcement which kept the stock exchange jittery for weeks was finally made yesterday, with the market closed for a special bank holiday. The country’s capital markets watchdog the Securities and Exchange Commission (SEC) announced that limits imposed on brokers to extend credit would be relaxed which would increase the amount of credit available in the market by Rs. 5 billion.

However, a leading broker firm has warned that the market would have to look for other sources for capital because the fresh infusion of credit would soon wear-out.

http://forum.srilankaequity.com/t14998-sri-lanka-newspaper-17-01-2012#97577

in the mean time sec should plan to stop bubbles, if not we face the same scinario which popup throghout last year verry soon:pale: