The Colombo bourse lost steam and enthusiasm this week as investors were seen de-motivated by the new directives imposed to control unusual gains in trading, while analysts lamented that stock market regulators are baffling the players by sending confusing signals.
“At the start of this month, the Colombo Stock Exchange (CSE) reduced transaction costs and brokerage in a bid to increase liquidity in the market. Then many retailers on that day toasted this decision buying into Dankotuwa Porcelain, Environmental Resources – both firms invested by UK based fund Lionhart, while Touchwood and Blue Diamonds were also a firm favourite amongst them. These trades largely contributing to the Rs 6 billion turnover that day. When the CSE imposed the price bands (price curbs) the market crashed, because this rule discourages day-trading, which essentially are the retailers,” an angry broker pointed out.
However, the CSE and Securities and Exchange Commission (SEC) officials reiterated that this rule was imposed to bring in discipline to the share market. “Day- traders don’t have money to pay when they buy the shares. They don’t have adequate funds to meet their obligations, which is dangerous," Malik Cader, Deputy Director General SEC told the Business Times, adding that such rules help the market to grow in a ‘positive’ manner. He said that turnover has to be increased in a realistic manner. “The investment advisors ‘churn’ their trades for higher turnovers as they will get better commissions,” he said.
This week Monday’s dismal performance was negated on Tuesday when state funds made some strategic buys into index heavy counters while the rumour that the controversial price curb rule will be lifted by the SEC propped the investor sentiment. The next two days saw the market slide while panic-stricken brokers sought a meeting with the SEC on Thursday in the hope of finding some respite to the price curbs.
The SEC’s status quo remained the same, but officials said that SEC requested the representatives of the Colombo Stockbrokers Association to come up with a proposal to stop market manipulation. “We also asked their opinions on how the CSE can be taken forward,” Mr. Cader said.
A CSE source said that cartels of day-traders without a cent place orders in the morning and make millions at the end of the day. “It was like a bull running wild. We knew that the market will be down after this rule was imposed, because the 200% a day rise was not realistic,” the source said. On Friday the indices bounced back with analysts saying that buying came in from fundamentally sound counters, but the turnover was relatively low at Rs 1.1 billion.
Disappointed analysts said that before the price curbs were introduced, turnover levels were high. "These rules restrict free market operations. Sudden changes in regulations and policies are not healthy. The new regulations should be implemented in a manner, which would have no impact to the investors," Srimal Liyanage, a stock analyst based in the Middle East, focusing on Lankan shares told the Business Times. |
E-mail
