Sri Lanka's Securities and Exchange Commission said the long awaited legal changes to allow demutualization, or converting the exchange from a broker held mutual entity to a limited company is awaiting clearance from the Attorney General.
"These amendments to the Act will establish a regulatory framework for a derivatives exchange, clearing house, licensing of a demutualised stock exchange and give powers to the SEC to institute civil sanctions and administrative actions against capital market offenders," Chairman Nalaka Godahewa said in the regulator's annual report.
Outgoing director general Hareendra Dissabandara said the new laws in addition to bringing in "civil and administrative sanctions" will also back the introduction of new products.
Godahewa said the stock market had started to recover from the second half of 2012 from a burst bubble. Sri Lanka's stocks rose 400 percent after the end of a 30-year war in 2009, he said.
"Most new investors who entered the market did not have a good understanding of market dynamics," he said.
"Speculative traders looking for short term gains thronged the market creating a high degree of volatility in the market.
"The herd mentality created a market bubble and the regulator stepped in at this juncture and introduced risk mitigation measures, which created debates within the industry."
He said several measures were relaxed in consultation with the industry.
The regulator was implementing a master plan to boost capital markets.
Meanwhile the government has given tax breaks to boost the debt market which was also helping as part of measures to expand markets.