SEC’s Acting DG aims to boost market’s integrity, foreign holdings

* SEC to set strategic plan to curb manipulation
* Target of doubling foreign stake in market to 30%
* Past efforts to curb price-manipulation were stymied

REUTERS: Sri Lanka’s once-buoyant, now-ailing stock market needs integrity and greater participation by foreigners to grow well, the new director-general of the country’s exchange regulator said.

Hareendra Dissabandara, who has a Ph.D. in finance from Japan, said the Securities and Exchange Commission (SEC) has to take strong steps to help improve the performance of the Colombo Stock Exchange.

“We need to introduce a number of changes to increase foreign investors,” the 43-year-old Dissabandara, promoted from heading the SEC’s education and training division, told Reuters in his first interview since becoming director-general on 2 April.

“We have to make possible arrangements to enter into MSCI Emerging Markets Index,” he said, adding one of his aims is to double the stake of foreign investors in Colombo’s market to 30 per cent.

Dissabandara said he knows that much needs to be done before Sri Lanka could fulfil requirements to be part of the MSCI index. Among the needed steps is updating the exchange’s payments system, establishing clearing corporations and increasing liquidity. At present, the capitalisation is about Rs. 2 trillion ($15.69 billion).

In the next few months, Dissabandara said, the SEC expects to come up with a minimum three-year strategic plan for tackling problems that have hurt investor confidence.

“As the regulator, we have to manage systemic risks, protect investors, especially small and retail investors, and maintain a fair and transparent secondary market trading system,” he said.

In 2009 and 2010, after Sri Lanka’s long civil war ended, the Colombo bourse was a star performer. It rose 125 per cent in 2009 and another 96 per cent the next year.

But last year, when there were both economic and market problems, Colombo’s benchmark All Share Price Index fell 8.5 per cent. And so far in 2012 – a year when Asian markets have rallied – it has slumped 11 per cent in spite of eased restrictions on broker credit and margin trading.

Dissabandara faces “a very challenging task”, according to Sriyan Gurusinghe, president of the Colombo Stock Brokers Association, “but since he has been in the market for a reasonable period, I think he should able to resurrect it.”

Previous attempts by officials to change exchange rules and practices have met stiff resistance from some market players and brokers.

Dissabandara’s predecessor, Malik Cader, was transferred to the Finance Ministry in November after spearheading steep restrictions on credit, which brokers said hurt their volumes, and leading market manipulation probes that touched politically connected investors.

One month later, SEC Chairwoman Indrani Sugathadasa quit, saying she did so “to uphold her principles.”
During her tenure, the SEC investigated several cases of share-price manipulation, including “pump and dump” schemes involving previously-illiquid shares, and tightened up the amount of credit brokers could give clients.

The SEC moves were criticised by brokers, who said the restrictions damaged sentiment without addressing share manipulation and insider trading.

Dissabandara said that for Sri Lanka’s exchange, “the issue is how to protect integrity… Protecting the integrity of the market is the responsibility of all the stakeholders… everyone must understand the importance of this.”

The new SEC executive said he wants to see the Colombo exchange converted into a member-owned entity that itself could be listed.

The SEC has planned to introduce a minimum public float, while it is also pushing some big private firms to get listed.

Dissabandara said the minimum public float system “will be reviewed soon.”
Foreigners have been net sellers the past three years, but some foreign funds, approached by the largest state-run pension fund, have helped reverse that to a Rs. 21.1 billion inflow so far this year. In the largest deal, Malaysia state investment arm Khazanah Nasional bought 8.9 per cent of conglomerate John Keells Holdings for about $120 million in March.

The Sri Lankan market is dominated by retail investors who often engage in speculative buying of penny stocks. Local retail investors who have portfolios of less than 1 million rupees (account for around 60 per cent of the bourse’s volume.

The market’s forward price-to-earnings ratio has fallen to an attractive 10.9 from more than 30 in 2009, according to Thomson Reuters StarMine data.

But a small free float, share manipulation and insider trading have caused some foreign investors to look for other frontier markets.
http://www.ft.lk/2012/04/16/secs-acting-dg-aims-to-boost-markets-integrity-foreign-holdings/

■SEC to set strategic plan to curb manipulation
■Target of doubling foreign stake in market to 30%
■Past efforts to curb price-manipulation were stymied

REUTERS: Sri Lanka’s once-buoyant, now-ailing stock market needs integrity and greater participation by foreigners to grow well, the new director-general of the country’s exchange regulator said.

Hareendra Dissabandara, who has a Ph.D. in finance from Japan, said the Securities and Exchange Commission (SEC) has to take strong steps to help improve the performance of the Colombo Stock Exchange.
“We need to introduce a number of changes to increase foreign investors,” the 43-year-old Dissabandara, promoted from heading the SEC’s education and training division, told Reuters in his first interview since becoming director-general on 2 April.
“We have to make possible arrangements to enter into MSCI Emerging Markets Index,” he said, adding one of his aims is to double the stake of foreign investors in Colombo’s market to 30 per cent.
Dissabandara said he knows that much needs to be done before Sri Lanka could fulfil requirements to be part of the MSCI index. Among the needed steps is updating the exchange’s payments system, establishing clearing corporations and increasing liquidity. At present, the capitalisation is about Rs. 2 trillion ($15.69 billion).
In the next few months, Dissabandara said, the SEC expects to come up with a minimum three-year strategic plan for tackling problems that have hurt investor confidence.
“As the regulator, we have to manage systemic risks, protect investors, especially small and retail investors, and maintain a fair and transparent secondary market trading system,” he said.
In 2009 and 2010, after Sri Lanka’s long civil war ended, the Colombo bourse was a star performer. It rose 125 per cent in 2009 and another 96 per cent the next year.
But last year, when there were both economic and market problems, Colombo’s benchmark All Share Price Index fell 8.5 per cent. And so far in 2012 – a year when Asian markets have rallied – it has slumped 11 per cent in spite of eased restrictions on broker credit and margin trading.
Dissabandara faces “a very challenging task”, according to Sriyan Gurusinghe, president of the Colombo Stock Brokers Association, “but since he has been in the market for a reasonable period, I think he should able to resurrect it.”
Previous attempts by officials to change exchange rules and practices have met stiff resistance from some market players and brokers.
Dissabandara’s predecessor, Malik Cader, was transferred to the Finance Ministry in November after spearheading steep restrictions on credit, which brokers said hurt their volumes, and leading market manipulation probes that touched politically connected investors.
One month later, SEC Chairwoman Indrani Sugathadasa quit, saying she did so “to uphold her principles.”
During her tenure, the SEC investigated several cases of share-price manipulation, including “pump and dump” schemes involving previously-illiquid shares, and tightened up the amount of credit brokers could give clients.
The SEC moves were criticised by brokers, who said the restrictions damaged sentiment without addressing share manipulation and insider trading.
Dissabandara said that for Sri Lanka’s exchange, “the issue is how to protect integrity… Protecting the integrity of the market is the responsibility of all the stakeholders… everyone must understand the importance of this.”
The new SEC executive said he wants to see the Colombo exchange converted into a member-owned entity that itself could be listed.
The SEC has planned to introduce a minimum public float, while it is also pushing some big private firms to get listed.
Dissabandara said the minimum public float system “will be reviewed soon.”
Foreigners have been net sellers the past three years, but some foreign funds, approached by the largest state-run pension fund, have helped reverse that to a Rs. 21.1 billion inflow so far this year. In the largest deal, Malaysia state investment arm Khazanah Nasional bought 8.9 per cent of conglomerate John Keells Holdings for about $120 million in March.
The Sri Lankan market is dominated by retail investors who often engage in speculative buying of penny stocks. Local retail investors who have portfolios of less than 1 million rupees (account for around 60 per cent of the bourse’s volume.
The market’s forward price-to-earnings ratio has fallen to an attractive 10.9 from more than 30 in 2009, according to Thomson Reuters StarMine data.
But a small free float, share manipulation and insider trading have caused some foreign investors to look for other frontier markets.
www.ft.lk