The call came at an unexpected time from an unexpected source.
“ Sir, we are calling from Temple Trees. His Excellency the President wants to talk to you” is what the operator told me.
Then came the rough voice on line. It was just a short question.
“ Nalaka Koheda Inne ( where are you)? “
“I am at Mt Lavinia Sir”.
I was still at home around 10 am in the morning preparing a speech which I was supposed to deliver as Chairman Tourism in the afternoon. I had not gone to office yet.
“ Ikmanata meheta enna ( Come here quickly) ” and the line went dead.
I assumed the place he wanted me to come was Temple Trees and I had no clue what the requirement was. If I was at office it would have taken only 5 minutes for me to go to Temple Trees. But I was still at home in Mt Lavinia, and not even dressed. I had asked the driver to come only around 11 am so he was not available to drive me.
I got dressed as fast as I could and drove from Mt Lavinia to Temple Trees like a mad man amidst heavy traffic.
It was 20th July 2012. At that time I was holding the position of Chairman of Sri Lanka Tourism Development Authority. My reporting structure was to the Minister of Economic Development Hon Basil Rajapaksa. I couldn’t recollect any other previous occasion President asking me to come to his office to discuss any tourism related matter without informing me through the ministry. So I was not in position to explain to the staff at Temple Trees what was the meeting I was supposed to attend. I just told them HE wanted to see me urgently. But they appeared to have been already briefed as I was quickly escorted to the main meeting room at the Temple Trees.
When I entered a meeting was already on and the room was absolutely full. His Excellency the President was chairing with Dr P B Jayasundara and Mr Lalith Weeratunge seated next to him. Deputy Minister Hon Geethanjana Gunawardena and MP Hon Sajin Vas Gunawardenawere were also there. I noticed some familiar faces from the private sector around the table but none of them were from Tourism.
The moment I opened the door HE acknowledged me and signaled me to sit. I looked around and found just one vacant seat closer to the entrance.
It didn’t take much time for me to realize that it was meeting between the capital market industry stakeholders and the president. I recognized the chairman of SEC Mr Tilak Karunaratne amongst the few who were in jackets. Chairman of CSE Krishan Balendra was seated next to him. There were also several broker company CEOs whom I recognized.
Mrs Sureka Sellahewa, the CEO of Colombo Stock Exchange was seated very close to where I sat.
She whispered to me and asked “ what are you doing here ? “
“ I don’t know” I said .
Only then I realized that I was the only outsider at the meeting. All others except the few Government higher-ups were from the industry representing SEC, CSE, Finance Ministry, Brokering Companies or institutes related to the industry. Chairman Tourism was obviously a total misfit at that meeting.
I had walked in halfway into the meeting. There had been some presentations before I came and now there were some heated arguments happening in the room. It appeared to me that most of the attacks from the industry personnel were directed at SEC and Mr Karunaratne was defending. I noticed that president was visibly annoyed. HE intervened on a few occasions to show that he was not in total agreement to what SEC boss was saying. Mr Karunaratne too was quite aggressive and somewhat disrespectful in his approach which would have angered the audience.
As the readers would recollect, this was a time Colombo Stock Market was in Turmoil. Market was crashing and people were losing money. Contentious issues such as overregulation, alleged malpractices, credit rules for brokers and other challenges facing capital market were openly discussed in media. On one side there were allegations of the existence of a capital market mafia, that had apparently been engaged in Insider Dealings, Market Manipulation, Front Running and various other violations of SEC Regulations. The other side argued that the market was overregulated, often with ad-hoc measures, and unnecessarily maligned, thereby instilling fear among retail investors – all of which had caused the serious downfall of the market. Apart from pointing fingers at each other no one was able to give a solution and stop the bleeding. Industry stakeholders in sheer desperations had requested president to intervene and call for a meeting to discuss a solution.
When the meeting ended with President assuring the audience some solutions within the next few weeks I still did not have a clue why I was summoned for the meeting. But as soon as HE got up he signaled me to come closer. The president, Dr Jayasundara and other senior government representatives had already started waking out of the room when I reached them.
The moment I came closer HE turned back and said “ Nalaka oya meka baraganna ( you take this responsibility) “
I was shocked and couldn’t answer. Then he turned towards Dr Jayasundara and said “ I thought of making Nalaka the CEO of SEC”.
“ Sir, but there is a Chairman at SEC” I interrupted.
“ No No it is not Chairman but the CEO who has the powers to run SEC according to the ACT”
“ Sir actually the position is Director General and not CEO. But anyway as long as there is a Chairman I don’t think DG can do much “
“ Lets talk after lunch” President cut short my objections.
As customary for most meetings at Temple trees, all participants were invited for lunch. It is an opportunity for people to talk to President casually. During lunch also a few people asked what I was doing at the meeting. In fact one specifically asked whether I was going to join SEC to which replied in negative.
Once the lunch was over I got hold of Mr Gamini Senerath, the Chief of Staff and explained to him that I had got into a difficulty. I told him that I do not wish to go to SEC. I was quite happy with my role at Tourism and I had a good plan for its future. SEC was in a mess and who would want to move from a booming industry to one which was collapsing.
“ HE has earmarked you because we are in a crisis. But I also don’t think you can go there right now. Unless you go as Chairman of SEC these guys will not allow you to work. So I will discuss this with president “
I told Mr Senerath that I would take up the challenge if president insists though I personally disliked the job. “ Puluwannam mawa berala denna (if possible, save me from this)” I told in lighter vein.
“Industry is desperate for a solution. That’s why HE thought about you. Lets wait and see. We don’t have to rush. “ Mr Senerath said.
I didn’t hear anything from Temple Trees for the next one month. I was happy that everyone had forgotten about me even though capital market crisis continued to be in media.
Almost one months later on 17th August 2012 I read on media that SEC Chairman, Mr Tilak Karunaratne had given resignation.
I was informed on 28th August that I have been appointed Chairman of SEC.
By that time CSE had been continuously crashing for 18 months. Two Chairpersons had resigned during that period. SEC chairmanship was the worst job in the Government one could aspire for.
I had no choice but to accept.
The readers know what happened thereafter. With the support of a very committed team of commission members and staff at SEC we started addressing the issues one by one.
We realized that the biggest challenge for us was to bring market confidence back. Stock market performance depends on investor sentiments. Too much negative publicity on media had done irreparable damage to market sentiments. When regulator is telling the world that there are irregularities in the market it is no wonder that investors lose confidence. Particularly the foreign funds do not invest in a market like that. There were instances when media reported that certain companies were under investigation. But in reality it was some unconnected individual who was under investigation for a manipulation related to the stocks of that particular company. When there are miscommunications of such nature, one can imagine the impact on the stock price.
The SEC Act of 36 of 1987 amended in 1987,1991, 2003 and 2009 allows only criminal sanctions. Administrative and Civil sanctions are not allowed. Even a layman knows that according to the criminal law any accusation has to be proven beyond reasonable doubt and the onus of proving is in the hands of the prosecutor. should be considered innocent until proven guilty. So public proclamations about the existence of a Mafia or another regularities is not going to help in a court of law. There must be sufficient evidence to establish the case beyond any doubts if we are to prosecute someone. Therefore we decided to stop making unnecessary noise and allow the investigations to be handled by professional staff as per the standard SEC procedures.
The main objective of SEC according to the Act is “ the creation and maintenance of a market in which securities can be issued and traded in an orderly and far manner (clause 12-a of Part II).
Many pundits have ignored the word ‘ creation’ which refers to the need for market development. They try to create the impression that ‘ regulation ‘ is the only job of SEC. But that is only the ‘maintenance’ aspect referred to in the Act.
So I was very clear that SEC has a dual mandate according to the Act; 1)market development and 2) regulation.
Common sense tells us that there must be a market in the first place for you to regulate.
This is how we came up with the famous 10-point market development road map. In addition to that an unprecedented number of regulatory improvements were introduced during my 2 ½ year tenure at SEC.
During my 2 ½ years at office I never spoke a word against my predecessors. Anybody could refer to my public speeches or media interviews on the web and verify this. There was no need to waste our time talking about the past. I knew my job. I knew that we were doing the right thing and we were going to deliver results.
The statistics available in the public domain tell the story. Not only the 18 month long market decline was reversed but we also had more than 300% market growth over the next 2 ½ years. Before I left SEC the all share price index had touched 7500 mark and average daily turnover had increased to Rs 1.8 Bn. The Net Asset Value of Unit Trusts went up from Rs.6.7 billion to Rs.75.7 billion. Market capitalization to GDP ratio reached 35%.
We had a vision to take the capital market of Sri Lanka to USD 100 Bn by 2020. We also had put in place a clear plan to achieve that target. I unveiled this vision 2020 on 5th January 2015 and the entire presentation is available on the web.
I left SEC after the January 2015 election, as it was clear to me that there was an aspirant for the SEC chairmanship. I was doing an honorary job and there was no need for me to hang on unless I was needed by the new Government.
To be continued with part V....
Exclusively at Sri Lanka Equity Forum.
Dr Nalaka Godahewa soon will be available in our forum to answer your questions.
Courtesy - Lanka Business Today