CSE seeks stockbroker consultation to address illiquidity in market
View(s):The Colombo Stock Exchange (CSE) is to consult stockbrokers on the new calculation standard for its main benchmark index, to increase liquidity in the stock market, CSC officials said.
They noted that the CSE’s introduction of free float-adjusted criteria to the All-Share Price Index will eliminate the distorting effect of illiquid stocks which has been happening over the years. “It requires a lot of back testing, and we have already done five years of back testing so far. The sector indices also have to be updated which we are currently doing,” an official told the Business Times.
The official said the calls to introduce a free float-adjusted index intensified after the Sri Lanka Investment Forum in Dubai recently. It was when an investor there pointed out that the rise in the stock market is solely because of play on the illiquid stocks.
Over the past few weeks this has been the trend in the market with many traders predicting the highs that CSE will reach on social media betting on such illiquid shares. The CSE officials at the forum hinted that a public float-adjusted computation of ASPI was being explored among other related options.
Analysts point out that introducing such mechanisms will invariably blow the steam off the market. “It will bring down the market somewhat which the higher authorities would probably not want at this point,” an analyst said. Some analysts point out that the CSE’s rise is the only good thing to show for the economy that is dealing a hard blow with the foreign exchange crisis.
They nevertheless agree that this is a dangerous trend. Stockbrokers agreed saying this trend will not be sustained in the coming weeks. “That will be when the free float adjusted market index will be introduced by the CSE,” a stockbroker said.