Circular saga at CSE.
By Madhusha Thavapalakumar | This article originally appeared in The Sunday Morning newspaper
The Securities Exchange Commission of Sri Lanka (SEC) had asked the Colombo Stock Exchange (CSE) neither to name the shares in its widely speculated February “circular” nor to send the request for information in the form of a circular or a direction, The Sunday Morning Business learns.
On 1 February, issuing a “circular”, the CSE requested stockbroker firms to submit information pertaining to credit extended by stockbroker firms to a list of six company shares, and the CSE had named the shares in the same circular which appeared to have created a misperception over those stocks amongst potential investors.
Speaking to The Sunday Morning Business, SEC Chairman Viraj Dayaratne PC noted that the SEC called for necessary information through the CSE as onsite supervision has been disrupted by the prevailing pandemic.
Dayaratne added that the SEC calls for reports on a monthly basis on various activities of stockbrokers and stock dealers.
“As far as stockbrokers are concerned, we wanted the CSE to call for certain reports in the sense that the information we get on a monthly basis, we asked to submit on a weekly basis and some additional information on a monthly basis, and we wanted the CSE to inform the brokers accordingly – not (via) a circular and not a direction – the information we generally collect as part of our supervision. We wanted the CSE to inform the brokers. That is a letter we sent to the CSE, asking them to inform the brokers – not (via) a direction or a circular, just a letter,” Dayaratne noted.
He added that the CSE, in turn, had communicated that to the brokers and the brokers had termed this request as a circular in which the CSE had called for information in addition to what the SEC wanted while naming certain stocks.
“They have mentioned them by name and called for some additional information. That was not part of what we required. That is some additional information the CSE had wanted and that is what they have communicated to the brokers. This has nothing to do with the SEC,” Dayaratne added.
Meanwhile, CSE Chairman Dumith Fernando told us that the “circular” was issued as part of CSE’s responsibility to maintain the market and financial stability.
“Therefore, CSE, like any regulator, wanted to understand what sort of broker credit exposure there is in the market. We asked the brokers to present the highest concentration in their portfolio. There was misperception in the market that this was part of the market volatility,” Fernando added.
When mentioned that the SEC did not name the stocks when directing the CSE to request information from stockbrokers, Fernando stated: “We just do not do only what the SEC asks us to do. CSE was looking at ways to measure some of those exposures, which is why the Monday circular presented a different way to do it, so there was no misperception that we were not targeting any stocks. We clarified our intention. Stock exchange is maintaining the sustainability of the market for the long term.”
A circular issued on 1 February requested information on credit extended by stockbroker firms. The information required by the CSE included debtors’ and creditors’ age analyses for specified categories, the computation of excess of cost-over-market value for unsettled purchase transaction on an individual client basis, overdraft position of each client fund and firm fund bank account maintained by the stockbroker firm, and confirmation of liquid assets less obligations as at the end of each week, commencing from the week ended 22 January 2021.
In addition to this, stockbroker firms were also asked to forward the reports and analyses of Browns Investments PLC, LOLC Holdings PLC, Expolanka Holdings PLC, Industrial Asphalts (Ceylon) PLC, Sierra Cables PLC, BPPL Holdings PLC, and Piramal Glass Ceylon PLC.
Meanwhile, in a statement issued on Wednesday (3), the CSE noted that the circular it issued on 1 February regarding information pertaining to credit extended by stockbroker firms has not in any way placed restrictions on the ability of stockbroker firms to extend credit on any particular security. The statement further noted that the CSE does not have any limitations of any kind on the tradability of any security by any investor.
The statement further noted that the request for information was done routinely to enable the SEC and the CSE to better understand the nature of such credit extended, purely for purposes of analysing and assessing systemic risks in fulfilling its functions to maintain the stability of the market and for the protection of investors, and not to single out any specific entity or investor.
The CSE further added that it welcomes the recent heightened activity levels of the stock market and is acutely aware of its responsibilities in supporting the medium and long-term sustainability of all market participants.