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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Developing story

Developing story

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21Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 9:47 am

mono


Vice President - Equity Analytics
Vice President - Equity Analytics
@duke wrote:
@econ wrote:some people seem to say that credit is not good . but do you know that all businesses run with credits. not only business but countries it self run with huge debt. Smile

We all use credit. We build houses on loans, buy cars on loans, pay for food by credit card. We wouldn't be able to them if we didn't have credit.
When banks give a loan. They check whether you have a steady income, are you going to die before the settlement, force you to buy insurance, check whether you have other loans even add up the credit card credit limit. Credit should be controlled. Imagine allowing brokers to give credit. That is like wadurata dali pihiya dunna wage. That is what happened.

Problem is when you have uncontrolled credit like in CSE. What we had was Wal Buru credit.

http://www.ft.lk/2011/07/26/market-in-mayhem/

according to that brokers were allowed to give 10 times thier capital in credit, but at it's peak they had given only 3 times.

The problem here isn't credit per say, but what to do with credit. The T+3 or 5 seems really stupid to me. I've never used them because for you to close a deal successfully in that space of time is near impossible unless the market is in raging bull mode. Broker credit should be something like T+15. The reason brokers were extending T+3 beyond the +3 stage isn't obviously greed. It's better for brokers to see their clients buy and shares more often. the reason is that practically trades take longer to close. Secondly, while i'm all for the SEC regulating credit they need to be practical about it.

It's pretty obvious that T+3 or +5 has failed so the thing to do is put a cap on how much brokers can lend as a company and then extend T+5 to T+15 or T+30. 30 at a higher interest rate than 15.

22Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 9:58 am

econ


Global Moderator
@mono wrote:
@duke wrote:
@econ wrote:some people seem to say that credit is not good . but do you know that all businesses run with credits. not only business but countries it self run with huge debt. Smile

We all use credit. We build houses on loans, buy cars on loans, pay for food by credit card. We wouldn't be able to them if we didn't have credit.
When banks give a loan. They check whether you have a steady income, are you going to die before the settlement, force you to buy insurance, check whether you have other loans even add up the credit card credit limit. Credit should be controlled. Imagine allowing brokers to give credit. That is like wadurata dali pihiya dunna wage. That is what happened.

Problem is when you have uncontrolled credit like in CSE. What we had was Wal Buru credit.

http://www.ft.lk/2011/07/26/market-in-mayhem/

according to that brokers were allowed to give 10 times thier capital in credit, but at it's peak they had given only 3 times.

The problem here isn't credit per say, but what to do with credit. The T+3 or 5 seems really stupid to me. I've never used them because for you to close a deal successfully in that space of time is near impossible unless the market is in raging bull mode. Broker credit should be something like T+15. The reason brokers were extending T+3 beyond the +3 stage isn't obviously greed. It's better for brokers to see their clients buy and shares more often. the reason is that practically trades take longer to close. Secondly, while i'm all for the SEC regulating credit they need to be practical about it.

It's pretty obvious that T+3 or +5 has failed so the thing to do is put a cap on how much brokers can lend as a company and then extend T+5 to T+15 or T+30. 30 at a higher interest rate than 15.

exactly machan. this t+3,T+5 is a really stupid

23Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 10:00 am

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
T+3 is not a credit so that you buy today and sell before 3 days. It's like giving you an invoice to pay up for what you ordered.
Imagine if you're building a house and you order bricks and sand at a hardware store. First time the seller doesn't know you he will ask for the payment upfront. But when you buy regularly your previous dealings become sort of your collateral. Then you can call the store owner and ask him to deliver a truck load of sand so that you can pay for it in the evening.
It is the same concept with stocks. You're not keeping cash with the broker. You pay only when you buy something. Until then your existing stock becomes your collateral.
T+3 is what is happening in stock markets all over the world.

if you want to arrange a loan you deal with it with the bank. Bank will check whether you can pay and control how much you take as the loan. You don't arrange the loan with a hardware store owner.

24Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 10:45 am

pushpakumara


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@duke wrote:T+3 is not a credit so that you buy today and sell before 3 days. It's like giving you an invoice to pay up for what you ordered.
Imagine if you're building a house and you order bricks and sand at a hardware store. First time the seller doesn't know you he will ask for the payment upfront. But when you buy regularly your previous dealings become sort of your collateral. Then you can call the store owner and ask him to deliver a truck load of sand so that you can pay for it in the evening.
It is the same concept with stocks. You're not keeping cash with the broker. You pay only when you buy something. Until then your existing stock becomes your collateral.
T+3 is what is happening in stock markets all over the world.

if you want to arrange a loan you deal with it with the bank. Bank will check whether you can pay and control how much you take as the loan. You don't arrange the loan with a hardware store owner.

By going through your post I thought of adding the following

Broker arranging credit to the client based on a private agreement between broker and client. (An agreement on the interest rate/ repayment period, amount that can be allowed as credit etc.). In this scenario the broker is responsible for settlement within T+3 and recovering the monies from the client.

In this way there will not be any force selling situation but it will be an additional burden to the broker. But on the other hand it will be an additional business for the broker. So then who ever who will like for broker terms will go for credit and others will make trading with the monies in their hand.

This is only a basic idea and suggestion but I am not too sure wheter present regualtions will be a hindrance this kind of arrangement.

open for your views

25Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 11:00 am

sapumal


Vice President - Equity Analytics
Vice President - Equity Analytics
Why not to blame SEC ? They also responsible for this
They are going to correct 100% wrong system to 100% perfect system within short period. Theoretically 100% right but practically 100% wrong approach.

I wondering why SEC not introducing SUFFICIENT rules to stop deadly overvalued IPOs. Still no sufficient rules. When they are going to introduce rules to stop highly overvalued IPOs if they can introduce severe rules for overvalued market?

26Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 11:16 am

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Agree with tubal, duke and Light of Hope. This is a stock market. If one doesn't have money or not smart enough to cultivate arbitrage opportunities (a professional trader) this is not a place to him/her, IMHO. Relaxing T+5 is a form of credit.

Nice to see members here are touching the ground reality though late, but hope not too late. I also propose this should be a sticky post at the top.



Last edited by Academic on Tue Jul 26, 2011 11:33 am; edited 1 time in total

27Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 11:32 am

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@duke wrote:T+3 is not a credit so that you buy today and sell before 3 days. It's like giving you an invoice to pay up for what you ordered.
Imagine if you're building a house and you order bricks and sand at a hardware store. First time the seller doesn't know you he will ask for the payment upfront. But when you buy regularly your previous dealings become sort of your collateral. Then you can call the store owner and ask him to deliver a truck load of sand so that you can pay for it in the evening.
It is the same concept with stocks. You're not keeping cash with the broker. You pay only when you buy something. Until then your existing stock becomes your collateral.
T+3 is what is happening in stock markets all over the world.

if you want to arrange a loan you deal with it with the bank. Bank will check whether you can pay and control how much you take as the loan. You don't arrange the loan with a hardware store owner.

But people do use it as credit. at least that's what i've heard.

28Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 12:04 pm

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@mono wrote:
@duke wrote:T+3 is not a credit so that you buy today and sell before 3 days. It's like giving you an invoice to pay up for what you ordered.
Imagine if you're building a house and you order bricks and sand at a hardware store. First time the seller doesn't know you he will ask for the payment upfront. But when you buy regularly your previous dealings become sort of your collateral. Then you can call the store owner and ask him to deliver a truck load of sand so that you can pay for it in the evening.
It is the same concept with stocks. You're not keeping cash with the broker. You pay only when you buy something. Until then your existing stock becomes your collateral.
T+3 is what is happening in stock markets all over the world.

if you want to arrange a loan you deal with it with the bank. Bank will check whether you can pay and control how much you take as the loan. You don't arrange the loan with a hardware store owner.

But people do use it as credit. at least that's what i've heard.

Yes. Then brokers should not let them buy more on credit if they're not paying up. If the debtor is not settling the dues which creditor is giving more credit. only brokers. What the broker crooks are doing in selling and letting them buy again on credit because they get the commission.

29Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 12:19 pm

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
Tubal, I don't know how you can possibly say that SEC is gradually shrinking the bubble, it's lost something like 20% of it's value in two months and on thin volume. So as far as selling goes there should be alot more to come. It's a blood bath out there. And SEC has failed to prevent market instability. This is not to say the SEC is wrong in thier intentions, thier intentions are fine. But application is horrible.

The SEC in order to function properly has to understand how the market responds to thier directives. As it stands now the SEC is failing at that



Last edited by mono on Tue Jul 26, 2011 12:40 pm; edited 1 time in total

30Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 12:38 pm

rijayasooriya

rijayasooriya
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
This happens when inexperienced person come to the top.
They apply their theory knowledge but they do not know practical side of that.
SEC has not allowed that bubble to shrink gradually.
SEC punctured the bubble so it get blasted.
T+3 or T+5 day rule actually support the gambling not investing.It develops bubbles everyday and the bubble get blasted with in fewdays.

ලෙඩා මලා බඩ සුද්දයි කියල සිංහලෙන් කියනවා මේ වගේ විසඳුම් වලට

31Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 2:29 pm

Investor99


Manager - Equity Analytics
Manager - Equity Analytics
To attract foreign investments to CSE we need to eliminate two things one is the use of unregulated credit and the other being insider trading by directors and HNWI.

We have to look at the CSE in a long term view to make the prospects brighter and not in a short term view so all credit should be eliminated from the CSE. The T+5 rule should be complied by all the brokers. Unregulated credit should not be allowed in the market. All other business can use credit but the stock exchange is not being a place to use credit. The use of unregulated credit will only cause a bubble.

Foreign investors keep away from markets where a high amount of unregulated credit is in use, Overvalued shares, markets which turn a blind eye to insider dealings

32Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 2:36 pm

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@Investor99 wrote:To attract foreign investments to CSE we need to eliminate two things one is the use of unregulated credit and the other being insider trading by directors and HNWI.

We have to look at the CSE in a long term view to make the prospects brighter and not in a short term view so all credit should be eliminated from the CSE. The T+5 rule should be complied by all the brokers. Unregulated credit should not be allowed in the market. All other business can use credit but the stock exchange is not being a place to use credit. The use of unregulated credit will only cause a bubble.

Foreign investors keep away from markets where a high amount of unregulated credit is in use, Overvalued shares, markets which turn a blind eye to insider dealings

foreigners being big players are generally in cahoots with insiders. And an market has substantial amounts of credit, same goes with the CSE. I keep hearing the term unregulated credit everywhere but none of us know the exact credit situation in the market. And the SEC isn't too keen on divulging it to the public as well.

33Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 3:09 pm

Investor99


Manager - Equity Analytics
Manager - Equity Analytics
Most of the developed stocks markets in the world do not allow credit. I know for a fact that T+3 is the settlement schedule in the Singapore stock market. Unregulated credit in the US housing market was the cause for 2008 rescission. In my opinion the amount of credit in CSE should high and this is one reason that they may not publicise it. If the amount of credit is publicised this can be detrimental to the market too.

34Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 3:28 pm

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@Investor99 wrote:Most of the developed stocks markets in the world do not allow credit. I know for a fact that T+3 is the settlement schedule in the Singapore stock market. Unregulated credit in the US housing market was the cause for 2008 rescission. In my opinion the amount of credit in CSE should high and this is one reason that they may not publicise it. If the amount of credit is publicised this can be detrimental to the market too.

In advanced market most people have leveraged positions. Short term traders have highly leveraged positions. Although it's safe to say that those people have a better understanding about what they're.

The credit situation cannot be that bad. There was a ft.lk article today which claimed that brokerages we're only operating at 30% of their credit ceiling at the height of the alleged "credit bubble". In anycase it's duty of the SEC to maximize transparency in the market, and fundamentally speaking, more information allows for better decision making. So not disclosing the credit situation is unacceptable.

35Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 3:55 pm

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
@mono wrote:In advanced market most people have leveraged positions. Short term traders have highly leveraged positions. Although it's safe to say that those people have a better understanding about what they're.

The credit situation cannot be that bad. There was a ft.lk article today which claimed that brokerages we're only operating at 30% of their credit ceiling at the height of the alleged "credit bubble". In anycase it's duty of the SEC to maximize transparency in the market, and fundamentally speaking, more information allows for better decision making. So not disclosing the credit situation is unacceptable.
Well said, mono!
Each broker should be given an approved credit ceiling based on his net worth and other parameters. The brokers then need to allocate these limits to their respective clients. The utilization needs to be monitored and reported by the SEC on a periodic basis.
Banks' lending limits against shares should be fixed after benchmarking with other countries.

36Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 4:35 pm

Investor99


Manager - Equity Analytics
Manager - Equity Analytics
Brokers are not banks how can a broker firm give credit, because the brokers firms were not monitored the credit amount in the CSE sky rocked.

Banks are regulated and monitor institutes which are allowed to provide credit to clients by the central bank. It would be a joke if any organisation is allowed to give credit.

37Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 4:38 pm

econ

econ
Global Moderator
@rijayasooriya wrote:This happens when inexperienced person come to the top.
They apply their theory knowledge but they do not know practical side of that.
SEC has not allowed that bubble to shrink gradually.
SEC punctured the bubble so it get blasted.
T+3 or T+5 day rule actually support the gambling not investing.It develops bubbles everyday and the bubble get blasted with in fewdays.

ලෙඩා මලා බඩ සුද්දයි කියල සිංහලෙන් කියනවා මේ වගේ විසඳුම් වලට

she does not know theory either. she is only a SLAS officer. we know the capability of sri lankan SLAS officers..

38Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 4:52 pm

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rijayasooriya wrote:This happens when inexperienced person come to the top.
They apply their theory knowledge but they do not know practical side of that.
SEC has not allowed that bubble to shrink gradually.
SEC punctured the bubble so it get blasted.
T+3 or T+5 day rule actually support the gambling not investing.It develops bubbles everyday and the bubble get blasted with in fewdays.

ලෙඩා මලා බඩ සුද්දයි කියල සිංහලෙන් කියනවා මේ වගේ විසඳුම් වලට

Read what other markets use.
http://www.sec.gov/investor/pubs/tplus3.htm

39Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 4:52 pm

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@Investor99 wrote:Brokers are not banks how can a broker firm give credit, because the brokers firms were not monitored the credit amount in the CSE sky rocked.

Banks are regulated and monitor institutes which are allowed to provide credit to clients by the central bank. It would be a joke if any organisation is allowed to give credit.

As per the rules brokerages are allowed to give out credit in the same way a leasing firm is allowed to give out credit. And the brokerages are definitely monitored.

40Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 5:06 pm

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@mono wrote:
@Investor99 wrote:Brokers are not banks how can a broker firm give credit, because the brokers firms were not monitored the credit amount in the CSE sky rocked.

Banks are regulated and monitor institutes which are allowed to provide credit to clients by the central bank. It would be a joke if any organisation is allowed to give credit.

As per the rules brokerages are allowed to give out credit in the same way a leasing firm is allowed to give out credit. And the brokerages are definitely monitored.

Problem is these broker crooks are greedy and crafty. They're not checking whether this person has paid the dues before. They only think about the transactions. One thing they do is when the deadline comes for credit reports they sell the stocks and buy back so that they don't go for the report. A good broker will not allow a person who did not settle his dues to buy more after.

41Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 5:13 pm

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@duke wrote:
@mono wrote:
@Investor99 wrote:Brokers are not banks how can a broker firm give credit, because the brokers firms were not monitored the credit amount in the CSE sky rocked.

Banks are regulated and monitor institutes which are allowed to provide credit to clients by the central bank. It would be a joke if any organisation is allowed to give credit.

As per the rules brokerages are allowed to give out credit in the same way a leasing firm is allowed to give out credit. And the brokerages are definitely monitored.

Problem is these broker crooks are greedy and crafty. They're not checking whether this person has paid the dues before. They only think about the transactions. One thing they do is when the deadline comes for credit reports they sell the stocks and buy back so that they don't go for the report. A good broker will not allow a person who did not settle his dues to buy more after.

i don't think this selling and buying thing can be done that easily en masse without crashing the market.

42Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 5:18 pm

rijayasooriya

rijayasooriya
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@duke wrote:
@rijayasooriya wrote:This happens when inexperienced person come to the top.
They apply their theory knowledge but they do not know practical side of that.
SEC has not allowed that bubble to shrink gradually.
SEC punctured the bubble so it get blasted.
T+3 or T+5 day rule actually support the gambling not investing.It develops bubbles everyday and the bubble get blasted with in fewdays.

ලෙඩා මලා බඩ සුද්දයි කියල සිංහලෙන් කියනවා මේ වගේ විසඳුම් වලට

Read what other markets use.
[url=http://www.sec.gov/investor/pubs/tplus3.htm
http://www.sec.gov/investor/pubs/tplus3.htm[/quote[/url]]

We do not follow the ways and means of other markets blindly.

We should absorb suitable method but we should not imitate them.

Our investers psychology is different from their investers psychology...of course education level also.

43Developing story  - Page 2 Empty Re: Developing story Tue Jul 26, 2011 6:48 pm

windi5

windi5
Moderator
Moderator
Colombo's stock brokers want to meet with regulators later in the week in a bid to persuade regulators to relax credit rules, brokers said. Very Happy

http://www.lankabusinessonline.com/fullstory.php?nid=1525141397

44Developing story  - Page 2 Empty Re: Developing story Wed Jul 27, 2011 12:39 am

windi5

windi5
Moderator
Moderator
According to BMS daily market report, Investor speculation on extending credit days paved the way for the abrupt surge.When this information gets disseminated, everyone starts buying. “Retail investors were more active during today’s trading session.

45Developing story  - Page 2 Empty Re: Developing story Wed Jul 27, 2011 12:44 am

pushpakumara


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
If it is a sustainable growth , that would be fine. So today will be another Gday then?

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