Financial Times

Strange moves in stock market
For a few weeks now there have been some unusual price movements in the Colombo stock market which have prompted the intervention of the regulators. Regulators have expressed concern that some share prices have increased for no apparent reason. The Colombo Stock Exchange (CSE) has warned brokers against manipulating the market and of what it called deceptive conduct.

They have warned against creating a false market by buying or selling shares at successively higher or lower prices and creating the appearance of activity or setting an artificial price that does not reflect the real market value of such shares.

The CSE has also called for explanations from the companies whose share prices have been fluctuating in strange ways. Many of the firms that were written to have replied that there are no valid reasons for such unusual price changes and that there is no price sensitive information that has not been disclosed. The regulators are now getting ready to ask the investors themselves for explanations about their unusual market activity.

The brokers maintain that the market is now driven by local investors, many of whom have a penchant for speculation and that investors have the right to make their own decisions about pricing. They also argue that share prices of some firms have risen because they have announced good financial results or because of speculation of future expectations.

Brokers have warned that inquiries and investigations by the regulators could dampen the enthusiasm of investors and create a "fear psychosis" that could damage the market. They certainly have a right to be concerned that over-regulation and intrusive probes by regulators could affect their business and hurt market sentiment at a time when it is having a good run.

However, genuine investors need have no fear if they have done nothing wrong. After all, it is the duty of the regulators to probe unusual market activity such as sharp price gains or losses. The authorities are simply doing what they have been mandated to do.

We must be mindful that we are living in an era where white-collar crime is rampant as evidenced by the corporate scandals that have rocked mature Western markets. Even here there have been unprecedented scandals in high places involving both the CSE and the Securities and Exchange Commission. Only recently the SEC imposed fines on two people, including a prominent hotelier and CSE board member for insider dealing.

What is at stake here is not the narrow interests of a few stakeholders or players in the market but the larger interest of the entire investing community, especially those thousands of small investors whose hard-earned money was sought after when foreigners kept out of the market.

It is the local investors who are now driving the market contrary to the dominance of foreigners a few years ago and it is important that the regulators protect their interests as they now provide the required depth which this market was long lacking. It is important not to lose or damage public confidence in the market as the authorities and the broking community are trying hard to broadbase share ownership and trading.

It is also in the interests of those firms whose share prices have been subject to unusual movements for there to be some stability in the market as volatility for no valid reason could be harmful.

Also, mere warnings or fines by regulators is not enough. Sterner action is required. If not, it could give wrongdoers the impression that they could continue their fraudulent activities with the knowledge that they can get off with a mere fine and with no admission of guilt.

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