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Sunday, 24 July 2011

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SEC takes steps to halt stock market violations

Introducing the price band as a speed breaker to reduce the impact of pump and dump groups; requiring that private placement investors hold their shares for at least one year in their own name, requiring an equitable allocation of shares under IPOs and violations being noted and requiring corrections as well as advising the investing public in a mild manner are some of the commendable steps taken by the Securities and Exchange Commission (SEC) under the determined and honest leadership of Indrani Sugathadasa and the dynamic executive ability of Malik Cader, said Former Chairman of Ceylon National Chamber of Industries K.C. Vignarajah.

Vignarajah said that the introduction of the price band as a speed breaker to reduce the impact of pump and dump groups would have been more effective if the Board of Directors were required to declare the current and Forecast Earnings Per Share (EPS) and all other factors that would significantly impact on the price changes.

This could be augmented by a circuit breaker system for a couple of hours, if an unusual pattern of trade emerges, until the management clarifies, and the reasons posted on the CSE web site. Requiring an equitable allocation of shares under IPOs is a welcome move. However, the decision on a minimum public float has still not been enforced, although representations on this were made last October. The earlier requirement of a minimum public float of 30 per cent should be continued as that was fair, and constituted a compact with the investing public.

Vignarajah said that the understanding is that violations are being noted, companies required to be corrected, and the investing public advised in a mild manner.

However, stern action on abuse of the breach of trust perpetrated on investors is now required, considering the state of the market.

In his opinion, some reasons for the steep decline in the Share Market are: Forced selling by brokers due to curtailment of credit imposed by the SEC. The initial act was required until errant brokers who misused the facility were detected. Lack of broker credit and funds, due to blanket restrictions on broker credit.

Now there is no justification for such restrictions, as the culprits have been identified. Normal business should be restored. Prudent credit to known customers is the essence of any business.

The new process of getting credit through new margin traders is difficult, cumbersome and costly for investors. The lineup of too many IPOs and Introductions capturing investor funds.

The great worry of the investing public is that the public float is very low; in fact perilously close to the percentage where the Controlling Interests (CIs) could apply for delisting at their will. (The optimistic inference on the part of the investing public is that the SEC and the CSE have realised that Delisting is a fraud perpetrated on them ; in fact a heinous crime of breach of trust after unjustly enriching the promoters/CIs.

The external factors: Instability in the US and EU, political upheavals in the Middle East and problems in Japan, following the tsunami, earthquake and nuclear disaster.

- SG

 

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