The Colombo Stock Exchange (CSE) has sent nine surveillance referrals to the Securities and Exchange Commission (SEC) so far this year, SEC sources said.
“Since the start of this year, CSE has referred nine irregularities to us and we are following these,” a SEC source told the Business Times. During the year 2012, a total of 54 surveillance referrals were prepared on various issues, where the SEC also received 14 surveillance referrals – which refer to suspicious trading trends – from the CSE.
The number of surveillance referrals increased to 54 in 2012, compared to 33 in 2011, an increase of 64 per cent. “This increase in referrals can be attributed to the full implementation of the new surveillance system. Apart from the alerts that are generated by the system itself, additional data and analysis tools are available and this has led to both increased detection as well as the ability to build better cases of any perceived market malpractices,” the SEC annual report said.
According to SEC sources, probes into the alleged malpractices which were referred by the CSE are being carried out.
They added that the Committee also cautioned certain investors who traded through the Internet, against inappropriate trading patterns at the first instance and compelled to direct their brokers to discontinue the Internet trading facility if it continues. Out of the total referrals, eight issues had been warranted for investigation with the approval of the Commission.
“Under the instructions of the Committee, the SEC sought explanations from certain parties who were involved in suspected market abuse. A register is maintained whenever we call brokers (or CSE) and seek clarifications verbally on minor issues where urgent attention is needed,” SEC annual report said. “During the year 2012, a total number of 19 investigations was conducted by the SEC into instances of suspected market misconduct, including market/price manipulation, insider dealing, front-running, etc. The year under review also saw several enforcement actions being taken by the SEC in respect of offences/irregularities committed under the SEC Act and rules/regulations,” the report said.
It added that SEC also issued warnings to two investment advisors and three investors following an investigation conducted into suspected market/price manipulation, upon the conclusion of which the stock broking firm through which the manipulative trades had been executed was also cautioned by the SEC.
Out of the total number of investigations conducted in 2012, two investigations remained suspended throughout the year owning to the reason that the issues pertaining to the said investigations formed the subject matter of pending litigation, the report said.
“Letters of Warning were issued to three investors who carried out trades in order to overcome settlement failures in a manner that created an impression of manipulation. The investors were strongly advised against repeating similar conduct in the future and were warned that action will be taken against them in the event of any repetition.”
The Commission also warned the two investment advisors who facilitated the trading of the above said three investors and advised them to ensure that their employees adopt ethical business practices when advising clients in investing in the stock market.