More brokers to temporarily close ops
View(s):More stockbroker firms will join Navara Securities (Pvt) Ltd (NSL), TKS Securities, Claridge Stockbrokers and Nation Lanka Equities (Pvt) Ltd (NLL) in temporarily closing their businesses this year, industry sources say.
File picture of the stock market floor.
Last January, NSL decided to adopt the Voluntary Inactivation of Business Operations after the Colombo Stock Exchange (CSE) had decided to prohibit NLL from trading activities in October 2017. “About two more brokerages are planning to join NSL and cease trading this year. They may apply to the CSE to ‘freeze’ their licence,” a source told the Business Times.
But this is quite a process. Upon compliance with the requirements set out in Section 12 of the Stockbroker Rules and due completion of the inactivation process, the stockbroker firm has to notify the CSE, in writing, of that fact and submit a declaration to the CSE (in the format prescribed by the CSE) signed by the two nominated directors of the stockbroker firm.
Upon being satisfied that the stockbroker firm has duly completed the inactivation process in compliance with Section 12 of these Rules, the Board of Directors of the CSE shall recommend the inactivation of the stockbroker firm to the Securities and Exchange Commission (SEC) for the final approval of the SEC.
After this, the CSE will communicate the decision of the SEC to the stockbroker firm, in writing, together with the effective date from which it has been/will be declared inactive. The stockbroker firm may, within two years from the effective date of inactivation of business operations of the firm, reactivate its business operations.
Another source said that at least two firms are actively engaged in a discussion with the authorities over inactivation of their licences as they are losing money heavily due to the depressed state of the CSE.
While informing about their operations to its clients, Navara Securities (Pvt) Ltd requested them to transfer their stock portfolios with the company to another stockbroker firm at their earliest. According to the second source, the two broking firms have allegedly been critical struggles – being incapable even to retain the necessary daily liquidity requirements. In 2011, SEC granted six new companies licenses to function as stockbrokers with Navara Securities (Pvt) Ltd being among them.
The last time when such ‘freezing’ was discussed in 2013 and early 2014 when Nalaka Godahewa was SEC Chairman. Our US$ 20 billion stock market has 28 stockbrokers, which is now evidently too high for such a small market, analysts say.
The SEC announced hiking the Capital Adequacy Requirements (CAR) for stockbrokers from March 1, 2017. So each stockbroker will be directed to maintain a capital requirement / liquid capital of 1.2 times the total risk – subject to a minimum liquid capital requirement of Rs.35 million.
The CAR rules mandate stockbrokers to report their CAR to the SEC and CSE on a daily basis. Broking firms have cut costs on many occasions since the crisis in the CSE nearly four years ago, but to no avail. Some stockbrokers closed their outstation branches in a move to cut costs and manage their bottom lines. While the broking companies are faced with several serious issues and their cash-flows are strapped, some companies are mulling pay cuts as well. Some broking firms closed nearly four outstation branches, they told the Business Times adding that altogether about 12 branches were closed by another. Earlier, the net capital positions were reported by the stockbrokers to the SEC and CSE at month-end.