Stock broking licence ‘cold storage’ to happen soon
View(s):The Colombo Stock Exchange (CSE) has made a proposal to the Securities and Exchange Commission (SEC) for struggling stock brokers to ‘cold storage’Â their licences following new rules in capital adequacy.
The SEC on the recommendation of the CSE directed the implementation of a risk based Capital Adequacy Requirement (CAR) of 1.2 times the risk requirement of stockbrokers subject to a minimum liquid capital requirement of Rs 35 million. The CAR Rules are applicable to all stockbroker firms excluding those licensed to deal only in debt SEC with effect from 1 March next year.
Rajeeva Bandaranaike, CEO, CSE told the Business Times that the CSE made a proposal to the SEC on ‘cold storage’ which is when a stock broker can hold on to their licenses but not trade. “The SEC is perusing it favourably,” he added.
The current rules on minimum Net Capital applicable to stockbroker firms do not address the different risks these firms are exposed to. In the light of the foregoing limitations of the present rules and in keeping with international standards a dire need to establish stock brokers a risk-based capital adequacy requirement was felt. Having considered the capitalisation of stockbroker firms, their current activities and CAR regimes implemented in regional markets, the CSE together with the SEC developed the methodology for the rules.
The International Organisation of Securities Commissions (IOSCO), which is the global standard setter for the Securities Sector sets out Principles of Securities regulation and its members including SEC Sri Lanka, is expected to implement these principles in order to achieve the objectives of securities regulation i.e. protect investors, ensure that markets are fair, efficient and transparent and reduce systemic risk.