Leading investors and stock brokers said that stock brokering firms have to go through almost impossible tasks due to force –selling of more than 1000 client for a day when each market day have become a T + 5 Rule of the Securities and Exchange Commission (SEC).
On 29 December 2010 the SEC issued a directive which mandated for stock brokering companies on forced-selling by the T+ 5 ( transactions on five days) , securities of buyers, which are in default of settlement by the T+3 Rule. Therefore, from 7 January 2011 each market day became a T +5 force- selling day, which put every stock brokering company and local investors through a difficult situation whether the market goes up or down, stock brokers told the Island Financial Review.
Even if the stock buying quotations are much lower than the previous transaction price share could be obtained through forced-selling though back officers of a stock brokering company, which is not done in consultation with the particular owner of the share, which ultimately destroys the market due to unnatural interference in price discovery, investors said.
According to the SCE Annual Report 2010 new accounts have increased from 18,705 to 52 285 during 2009 and 2010 respectively. A large number of local individual investors have increased significantly, which accounted for 44 per cent of the total stock market turnover, while foreign institutional buyers account only for15 percent of the total market turnover.
Further, the Central Bank directive in 2011, limited credit exposure to customers for the purchase of listed shares and loans granted against listed shares from a period of less than one year shall not exceed 5 percent of the loans outstanding as at end of the preceding quarter. This directive increased the liquidity crisis as the few banks engage in marginal trading stopped taking any new clients from stock brokering firms said.
"This further worsens the situation by informing the large investors to pay up this margin trading failures," investors said.
When banks and finance companies can leverage 10 times, stock brokering firm could be allowed to leverage at least once so that small investors who have supported the government cannot get credit facilities, who account more than 45 per cent of the total turnover, he said.
Further, marginal trading investors in the stock market do not provide facilities that any investment not less than Rs 2 million, which drastically affects the market performance, he added.