Data from the Colombo Stock Exchange shows that price bands and credit restrictions imposed by the Securities and Exchange Commission to reign in on rampant market indiscipline did not have as bad an impact on the Colombo Stock Exchange, contrary to what is being said by a group of shady investors and their crony brokers.
Several broker firms, including Softlogic Stockbrokers and SC Securities, attributes the recent slump in the stock exchange to higher interest rates and sluggish economic sentiments in the country.
However, the stock exchange mafia has convinced the government that the bourse’s poor run was due to policy directives of the SEC. But data shows otherwise, making it obvious that their main and only contention is the 17 investigations into market malpractices that the SEC is on the verge of concluding. Their lobbying with high echelons of government prompted SEC Chairman Thilak Karunaratne to tender his resignation last Friday, barely a year after Ms. Indrani Sugathadasa resigned as Chairperson of the SEC for the same reasons.
According to CSE data, from January to August 4, 2010 when the price bands were introduced after ‘junk’ stocks saw prices surge, the daily average at the bourse was Rs. 2.53 billion, average trades amounted to 12,970, average number of shares traded was 71.1 million and the All Share Price Index (ASPI) grew 51 percent.
After the price band was introduced in August 4, 2010, up to December 31, 2012, daily average turnover increased to Rs. 2.9 billion, average trades increased to 15,899, average number of shares trades increased to 88.2 million and the ASPI grew 96 percent.
A day prior to the introduction of the price band, the ASPI was at 5,5214.8 points, but six months into the price band regime, the ASPI recorded a high 7,811.8 points on February 14, 2011.
When credit restrictions were placed, the ASPI was 6,175.1 points on September 14, 2010 and five months on, the ASPI reached 7,811.8 points.
"The SEC took measures to contain an overheating stock exchange which went berserk after the war ended. Some counters saw phenomenal prices increases not backed by fundamentals. It became evident that some investors were recklessly gambling. Insider dealing and pumping and dumping were rampant, and broker credit was extended indiscriminately."
"Today, some investors and brokers are holding on to dud stocks and they are naturally livid that they cannot offload them, with a big profit, on to some poor unsuspecting investors. Some investors are in debt going to millions and billions. So naturally they are venting their anger at the SEC. As if this was not enough, the SEC is also investigating some of them for market malpractices. In their desperation they turned to the President, and it seems they have won some respite; a very sad situation for the country," a market analyst said.