Brokers to consider SEC request
By The Nation Sunday, 03 August 2014 00:00
The President of the Colombo Stock Brokers Association, Dihan D. Dedigama on Friday said the brokers will take the recent request by the Securities and Exchange Commission positively and consider lowerin lending rates charged to investors if there was a leeway.
“I cannot talk about rates charged on margin trading as each broker decides their own rate but as far as rates charged on credit extensions are concerned we will have a committee meeting soon and discuss how the request could be complied with,” Dedigama who is the Chief
Executive Officer of Softlogic Stockbrokers (Pvt) Ltd said.
Meanwhile, other brokers The Nation spoke to said on condition of anonymity that they would not be able to immediately consider a rate cut given that it had a direct relationship with the rate they had obtained the credit from the banks.
“Although there is a low interest-regime prevailing in the country, banks still consider stockbroking a risky business and hence lend to us as high as 16 to 17 percent. Since we also need to keep a margin, we, in turn, lend the money to investors at 20 to 21 percent,” one stockbroker said on condition of anonymity.
In two letters sent to stockbrokers and margin providers dated July 25, 2014, SEC’s Officer in Charge/Deputy Director General Dhammika Perera said Sri Lanka’s average weighted prime lending rate had ‘declined considerably in the recent past’ but some brokers and margin providers had not reduced lending rates.
According to Perera, the stock market demonstrated greater stability depicting a positive momentum with the benchmark All Share Price Index (ASPI) recently surpassing 6700 mark together with a larger participation of investors in the market and increased level of turnover.
He pointed out that although the Average Weighted Prime Lending Rate (AWPR) of the Central Bank of Sri Lanka (CBSL) has declined considerably in the recent past, lending rates charged by certain brokers and margin providers have not been adjusted accordingly to transfer the benefits of the lower interest rates to their clients.
Central Bank’s AWPR currently stands around 7.6 percent, against 9.7 percent at the beginning of the year. “Hence the Securities and Exchange Commission of Sri Lanka (SEC) is of the view that it is essential for the lending rates on credit extension be aligned with the policy rates prescribed by the CBSL (Central Bank of Sri Lanka),” the letter said.
“While thanking those who have already adjusted their lending rates, we urge all margin providers to act accordingly so that lending rates of credit extension would be brought to a justifiable level in line with the prevalent policy rates of the country.
“In view of the above, all stockbrokers are expected to ensure responding forthwith to the above request made by the SEC in a positive manner.”