Financial Times

SEC: Going after the sharks
Fancy walking into an Internet-type café, like the ones that are springing up in the city and major towns, like the familiar fax/telephone calls/photocopy shop, sitting down at a terminal and playing the stockmarket?

That could be the future of Colombo’s bourse as a rejuvenated Securities and Exchange Commission (SEC), brings in new measures geared to create a buoyant market, transparent transactions, a place in the sun for much-harried small shareholders and the important issue of governance.

Colombo stockmarket’s have been touted as one of the best performing markets in the world but that’s far from the truth when it comes to the real players in the market.

It’s all big time investors and large institutions who dominate the market unlike other trading centres in the world where small shareholders play an equally important role.

That hopefully will change with the entry of a new chairman at the SEC which has been on a rollercoaster ride for the past two years ever since the infamous insider dealing case involving a former chairman of the SEC came to light. New chairman, Gamini Wickramasinghe, whose success at Informatics – one of the pioneer IT firms in the country will stand in good stead, ably assisted by SEC Director General Channa de Silva, are set to take the Commission to greater heights – if they could withstand the pressure of office, particularly when it comes to taking unpleasant decisions.

In a recent interview with The Sunday Times FT, Wickramesinghe vowed to take the stockmarket regulator forward with best practices in regulation and also to protect minority shareholders, a much marginalised group.

The Sunday Times has been leading the charge for a better deal for small investors particularly since governments have in the present and past spoken of creating a share-holding democracy. But if small investors are paid scant attention — particularly at AGMs, EGMs and other meetings of companies where some are even asked to shut up by the directors — then what is the use in promoting a stockmarket where all players should be considered equal irrespective of their financial status?

Often small shareholders are cold shouldered or shouted down by directors when unpleasant questions are asked at meetings. The directors wouldn’t dare treat a big shareholder (and someone who is influential) in the same manner — providing all the courtesies to him, even if the questions are unpalatable.
We have in the past suggested the creation of a small investors or small shareholders association with support from the regulators, and this would be the appropriate time to do so now that the SEC is seen as a small-investor friendly agency.

Perhaps one of the boldest plans of the new SEC is to launch walk-in investor centres in the country with the first one in Colombo where any one can sit at a free-to-use terminal, trade in stocks and take a peek as to how the market is performing.

The SEC, in another innovate move, is also planning to run a joint marketing campaign with the Colombo Stock Exchange to persuade more companies to list.

That however shouldn’t be at the expense of governance and transparency, two issues that the SEC is working hard at with a set of new rules including making governance mandatory for companies against a voluntary code that exists today.

There is a lot of talk when it comes to corporate governance with the accounting world being rocked abroad and even here. One of the issues that we confront in the Sri Lankan context is when audit firms also act as recruiters for companies they audit. Conflict of interest, no doubt but the audit firm doesn’t think so.

That’s a bending-the-rules-to suit-one’s-purpose kind of corporate governance, if you ask me. Another issue that’s cropping up at the soon-to-be-held Commercial Bank AGM is the re-election of aged directors (some over 80 years) who are physically unable even to be present at any meeting — an issue the SEC should look into ensuring directors are active and capable for the benefit of all shareholders.

There is also speculation that one director is connected to audit firm (Ernst & Young) that is being recommended for appointment as the new auditors. Conflict of interest again – something the SEC should step in or shape the rules to ensure this doesn’t happen.

Perhaps the biggest test in coming months would be if and when the SEC takes on the “sharks”- the set of white collar workers or greedy officials or directors who resort to insider dealing and make millions by being privy to inside information on the company. A lot of this has been happening in the past and one hopes the SEC will perform its duty towards law abiding investors and ensure a clean market.

If you want our help in making things better – write to us at ft@sundaytimes.wnl.lk if you learn of any unsavoury happenings in the stockmarket and we’ll investigate.

Back to Business