Stock exchange has tumbled to its worst performance in 2011. Stock
brokers have now resorted to boost retail activities, requesting to
extend the broker provided credit, Mirror Business learns. According to a top official of the stock broking community, at meeting
held on Monday, almost all the Chief Executive Officers of stock broking
firms had agreed and signed letters stating that brokering firms should
be able to lend their excess funds above the minimum capital
requirement to their trade debtors.
“We will soon submit our letter to the Securities and Exchange Commission,” our source added.
However, Mirror Business learns that two broking firms which are units
of two joint investment managing arms who brought in overpriced IPO’s
for listing in recent times, had disagreed on providing broker credit.
“No one can prevent us from lending to clients, and what we can do
anything with excess money which is above the minimum capital
requirement’ our source said.
“Further, CEOs also agreed that it is fair enough for the brokering
firms to leverage one time as it was allowed once. Finance companies in
the country are allowed to leverage 10 times and leasing companies are
allowed to leverage 7 times,” he pointed out.
According to the industry, the biggest reason for the market to fall to
its lowest in seven months during early this week was the declining
interest of retailers.
“Retailers are the major force of the market, and they contribute 44%
of the daily market turnover” he said adding that if broker provided
credit could not facilitate those individuals who have portfolios less
than Rs.2 million, the major driving force in the market will soon be
On 29 November 2010 SEC Directed brokers to limit credit by December
2010, and was further extended till June 2011 after broking community
made representation to SEC.
Sri Lankan regulator, from January 01, 2011, has banned all stock
broking firms from providing credit to customers and encouraged banks to
Subsequently, brokers cleared 50% of credit in March 2011 and then SEC
again revived its directive allowing brokers to clear 25% of credit by
September 30, and the rest by end of year 2011. Since then, market
indices have gradually declined, and some investors had moved away from
the capital market after burning their fingers, market analyst point
out. Meanwhile, it is learnt that Colombo Stock Brokers’ Association
made a representation to the SEC yesterday, requesting permission to
provide credit for retailers.