Oct 31, 2012 (LBO) - Colombo Stock Brokers' Association, a grouping representing a majority of stockbrokers operating in Sri Lanka has welcomed moves by the securities regulator to relax credit rules and allow brokers to trade in their own names.
Sri Lanka's Securities and Exchange Commission relaxed several rules, after its chairman was replaced.
"We specially appreciate the timely action taken by the Chairman and the commission members since on many occasions we brought this anomaly to the attention of the authorities to which there was no tangible response," the association said in a statement.
Sri Lanka's SEC chairman was replaced following a meeting with several large investors and stockbrokers, as the regulator was probing pump and dump scams and insider dealing.
The SEC had tightened credit during a stock market bubble where retail investors in particular were buying stocks on margin which fundamental analysts felt were pumped up.
Not all brokers in Colombo are members of the CSBA. Several had dropped out in the wake two meetings with Sri Lanka's president.
"In our view retail players are vital to create a sustainable market and our suggestion was well received the Chairman and commission members, the CSBA said.
"We equally appreciate some of the changes made that were not part of our requests.
"As an association we fully endorse the view that recent changes will go a long way to rekindle the market in the short run and create liquidity in the long run and thereby sustain a vibrant market in the future."
Sri Lanka's credit bubble in addition to boosting stocks also generated high inflation and a balance of payments crisis, which is now easing off. Stock prices are also coming down to earth.
Colombo's stock indices which surged briefly after the replacement of the SEC chief have also started to lose steam of late.
Analysts however say many stocks are now fundamentally stronger and there are buying opportunities for investors who have holding power, though risks including perceptions of deteriorating rule of law may increase risk premiums that are demanded.
Foreign investors in particular have been net buyers.
The CSBA statement said "one should not expect miracles overnight since the positive market sentiment was destroyed for more than a year which drove the retailers away from our stock market."
The broker grouping said it would work with the Colombo Stock Exchange and the SEC to develop market infrastructure, educate investors and promote Colombo among local and international investors.
CSBA said it was also in favour of broker staff to be allowed to trade under their own names, which made such trading transparent.
The SEC, inexplicably stopped broker employees from trading on their own names after a controversial deal where a broker traded under his own name came under the limelight.
Rules that prevent transparent trading can encourage widespread underground trading through other names, some feared, though trading through nominee accounts was also technically prohibited.