SEC blueprint for the capital markets

The Securities & Exchange Commission (SEC) is going ahead with a massive re-structuring of the country’s capital markets.
In an interview, the Director General of the SEC Channa de Silva explains the developments:

Objectives
We have identified 14 objectives aimed at fast tracking the master plan from 10 years to two years.

We have installed a top line, local capital markets team for this purpose only. Some of them joined a few weeks back.

Among the objectives are grooming 5-10 companies to list, introducing derivatives, enforcing a surveillance system, a new financial services academy and looking at the Morgan Stanley Index and other indices.

There isn’t a single company in the Morgan Stanley index. We want to find out why and how local companies can make the grade.

We also want to feature Sri Lanka in the Calpers Index and ascertain how we should achieve this.

Surveillance
The SEC is looking at a top range system that is tried and tested – an immediate plug and play approach. There are two foreign developers and a local developer that we are working with.

Why is this necessary? As soon as we install this electronic system, there will be an immediate halt to volatility in volumes, prices plus a tracking mechanism for corporate directors and their families when they trade. It will also track new comers to the market.

Derivatives
The Indian derivatives turnover per day is a phenomenal $8 billion a day, four times the size of the Indian equity market. That’s the kind of market we should be looking at.

New index
We are looking at constructing an index that would represent fully the Sri Lankan economy. The ASPI will stay while the Milanka needs to be reworked or we may need an entirely new one.

With the Milanka we not sure whether we have a complete index because with derivates you need a better representation of the market.

Some of the new systems coming are all because of the introduction of derivatives.

There are plans to reactivate the corporate debt market with a Securitisation Act coming to parliament in the next six months.

Offences
The process of compounding offences will be changed. We want to closely look at all current systems and the process of change will be taken after thorough study. One option would be to multiply by two to three times the profit one makes or losses avoided as the penalty. We want to look at examples of penalties in other markets before enforcing them here. This would come as another amendment to the SEC Act. The penalties are now restricted to a maximum of Rs 3.3 million whereas the offender may have made off with up to Rs 100 million in profits.

Small investors
There is a need to create an association that would represent the interests of small investors. We are looking at the experience of other countries particularly Malaysia. We want to create proper watchdog groups among these investors and provide them the time and space to interact with us. SEC is open house to all stakeholders.

Annual reports
We are strengthening our corporate unit to ensure corporates adhere to accounting standards. We will liaise with SLAASMB (official auditing standards authority). We are expanding our team of chartered accountants with three to four more recruits to help in the scrutiny of reports.