The CSE is a "gold mine" for a few big investors who make money but a disaster waiting to happen for small investors, says Arittha Wikramanayake of law firm Nithya Partners and former Securities and Exchange Commission director-general.
If regulators do not take action to protect investors and ensure fair play, Sri Lanka will not become a financial hub, he told the 8th LBR LBO CFO FORUM.
It was held on the theme 'CSE: A Blood Bath or a Gold Mine' at the Ceylon Continental Hotel attended by a large gathering of corporate executives.
Wikramanayake said he was amused at the idea of making Sri Lanka a financial hub, a stated goal of successive governments, given the speculative and indisciplined nature of the stock market and high price volatility.
"Look at the state of the Colombo stock market. It's an absolute disgrace, a cess pool of indiscipline, there's no sense of regulation, nobody knows what's happening there and we're waiting for a blood bath to happen."
Wikramanayake said activity on the Colombo Stock Exchange appeared to favour a few and endangered the investments of a large number of small investors.
"It is literally a gold mine. You know how a gold mine works. At the top you get the fat cats who make all the bucks. They are the few people who exploit those people below.
"At the bottom of the mine are all these people slaving away, doing the dirty work - they are people who will get burnt in the end."
Wikramanayake deplored the manner in which prices of illiquid shares of small companies are being pushed up by a few market manipulators, saying retail investors who play the stocks risk losing money.
"How do prices go up? There's ultimately a buyer and those are the retail investors and they are waiting to get burnt.
"Who will take the responsibility for not protecting them when they need protection?," Wikramanayake asked, saying the regulator ought to do more to ensure fair play and protect investors.
"I'm not finding fault with the regulator and I'm not finding fault with the people who make money. They are entitled to make money and obviously they are making money without breaking any laws.
"Because if they are breaking any laws the SEC can take them to court and put a stop to it," Wikramanayake said.
"When there is a disaster staring at you in the face, the regulator has a responsibility to bring in regulations and try to stem the tide.
It is important to create an informed, sophisticated investor, Wikramanayake said.
"The retail investor is staring disaster in the face. It is important for the SEC to bring in regulations and at least educate investors. The SEC is responsible for maintaining a fair and orderly market and protecting the interests of the investors. I don’t see that happening now."
Wikramanayake warned that if no corrective action is taken the market might not be able to recover from a collapse.
"If nothing is done to correct this we're not going to be able to resurrect the Colombo stock exchange after the next debacle. So we can forget about being financial hub. It will never happen.
"So yes, the answer is, it is a gold mine - for people who make money out of a gold mine are the people on top. There are a whole lot of others at the bottom who just slave away and let others make money at their expense."