SEC releases Capital Market Strategy 2020
The Securities and Exchange Commission of Sri Lanka (SEC) has released its ‘Capital Market Strategy 2020’, a comprehensive transformative plan for Sri Lanka’s capital market, which has been sanctioned by the Cabinet, SEC officials said.
They said that this was done with the intention of providing strategic clarity to market participants and the general public. This plan has components in strengthening regulatory and governance environment, creating an enabling environment for capital formation, increasing accountability and market oversight, deepening liquidity and broad-basing market participation, raising the standards and competencies of capital market participants, developing infrastructure and enabling new products, managing and mitigating systemic risk and building domestic capabilities.
“The developmental objectives focus on the several constraints characterising our market, its small size and scarcity of liquidity, limited diversification in product offering from an investor’s perspective, and in listing platforms from an issuer’s. Additionally, we consider the efficiency and commercial orientation of market institutions, market infrastructure and technology gaps, and community capacity building extending to both the institution and industry,” an official told the Business Times.
The amendment of the SEC Act is among the key initiatives geared towards strengthening the domestic regulatory and governance environment. This Act’s enhancement of the regulatory framework includes the strengthening of the governance standards of the SEC, providing for the establishment of a clearing house acting as a central counterparty (CCP), regulating demutualised exchanges, recognising new categories of market intermediaries, introducing a wide range of enforcement tools to deal with market misconduct, enhancing the accountability of all capital market participants, and encouraging early reporting to the SEC on possible market malpractice through provisions for whistleblower protection.
Rules applicable to all regulatees of the SEC are currently undergoing review and revision with a view to creating a more robust regulatory environment for all and instilling greater discipline market-wide, the SEC said in a statement.
Deepening liquidity
The SEC seeks to actively engage provident funds and pension funds in diversifying their portfolios and increasing asset allocation to capital market investments, it has said noting that increased participation by such long-term institutional investors can improve market stability and sustainability, as a result of their holding power and ability to act in a counter-cyclical manner.
At present, with the broad-basing of market participation in mind, minimum public holding thresholds apply to listed companies upon initial listing, and enforced thereafter on a continuous basis, the official said noting that SEC would drive requisite policy formulation for the introduction of short-selling, securities borrowing and lending, and other new products in order to deepen liquidity.
To increase portfolio choice of investors, the SEC is developing a sequencing framework for the introduction of new products ranging from Real Estate Investment Trusts (REITs) and Exchange Traded Funds (ETFs) to Financial Derivatives. The SEC would enable the introduction of a multi-asset offering for investors by spearheading policy formulation in order to facilitate related rule making by the CSE, the statement added.
Over the medium to long term, far-reaching reforms proposed as part of the Capital Market Strategy 2020 would support the proposition to Morgan Stanley Capital International (MSCI) to reclassify Sri Lanka as an emerging market, providing for broader visibility as an attractive portfolio investment destination, it further said.