The move by the Securities and Exchange Commission (SEC) prohibiting shares of default board firms to be traded by directors of those firms was welcomed by most in the share market community.
Some analysts said that this is a good thing from the perspective of protecting minority investors and encouraging companies to avoid getting onto the default board.
One of the main reasons that a company goes into a default board is the non submission of interim results on a timely basis- which reflects on their transparency. Nikita Tissera, Head of Research Sampath Securities said that ideally default board shares should be trading at a discount in comparison to their peers in the main board all other things being equal. “This is a good move in terms of not just protecting the small investors but protecting investors overall who trade on publicly available information,” he said. Some analysts say this move is better late than never.
Thakshila Hulangamwa, Vice President Asha Phillip Securities said that the share market should be a fair place to all participants with the shareholders and the prospective investors being able to access information for the simple reason that it’s supposed to be transparent.
The SEC issued a subsequent directive saying that disclosures of all listed firm share transactions by directors of those firms should be immediate.
In developed exchanges there is a huge stigma associated with getting into the default board.
“In most of the global markets it’s practiced and all listed companies have to adhere to this regulation. And specially as a developing market as most of the foreign funds looking at investment prospects in Sri Lanka its best the regulators act swiftly to put the house in order,” he said.
Some say that this rule has to be applied across the board. Some directors of listed firms said that if the main purpose is to stop insider trading, then all insiders should be prohibited from trading. “All privy to the information – the heads of finance, any related parties etc should be stopped from trading, not only the directors,” a listed firm director said.
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