Casino type trading in the closest stockmarket culture to Sri Lanka when compared with its neighbouring India where this is substantial from their total trading and unlike the Securities and Exchange Commission (SEC), its Indian counterpart, the Securities and Exchange Board of India encourages it, some analysts point out.
SEC sentinel system to be ready soon
The electronic surveillance system that the Securities and Exchange Commission (SEC) bought from Millennium Information Technology (MIT) last October is now being tested and will be ready for installation soon, SEC officials said.
“It’s being tested at present and we’ll be ready to install it within a couple of months,” Malik Cader, Deputy Director General SEC told the Business Times.
The SEC last year signed an agreement to procure a new electronic surveillance system from MIT and this system will replace the current manual system that SEC has.
He said the new system will be installed in a bid to detect market manipulation and insider dealing in a more effective manner. “This will enhance the SEC’s ability to monitor the market in a much more efficient and also an effective manner,” he said.
He said it is a Rs. 20 million investment, adding that the proposed system identifies unusual trading patterns, such as chronological connections with customer orders. He said that this IT-driven system will replace the manual checking system that is currently in place to monitor market manipulation and insider dealing.
He added that this system will help the SEC to identify any signs of insider trading and market abuse. |
“In Sri Lanka day trading, which is now tagged as casino type trading, has risen to around 10% (this year) from 2% a year ago (which was also a direct result of the post-war and decline in interest rates together with regulators decreasing the transaction costs) and there seems to be much worry about day trade increases by the SEC,” an analyst said.
He said that India’s day trading is 71% and this type of trading is supported. “We’re not worried about day trading, but we want some system in order to halt the volatile situation that this brings which we saw in the past,” Malik Cader Deputy Director General SEC noted, saying that this is in line with best international practices.
He said the SEC wants (from January 1 next year) for stockbrokers to extend credit beyond the T+3 (trading day+ three market days) only through a margin trading account.
He said that the SEC wants the share market to be cash-based. “An investor must possess cash against which credit facilities or margin arrangements can be granted. Day traders (from next year) will need to sign a risk disclosure statement and open a day trading account with a margin assigned which will show the trader’s day trading purchasing power.
Small fish
Another analyst noted that the Colombo Stock Exchange (CSE)’s aim should be to increase the active Central Depository Systems (CDS) accounts from the present 27,000 per month to at least 20% of the population which is 4,000,000 active CDS accounts a month which can be achieved through day trading.
“The newcomers to the market prefer to try out with small amounts. Hence, they cannot invest large amounts for the long term. The crowds get drawn into any market when the market is exciting and speculative which increases trading. No speculation means no trading and no market,” he added.
Confess and invest
The SEC says they only do disclosure-based regulation. “We’re not a merit-based regulatory system. Our role is to encourage firms to make disclosures. So based on the disclosed information the traders will take their investment decisions,” Mr. Cader said.
The second analyst noted that when over 2000 investors buy a share at any price, it is not manipulated by a group as thought by most but it is the “market” which is buying and this is normal.
However the securities regulator says when more than 2,000 people get together with the intention of pushing the price up, it’s not normal. “This is why we introduced a new set of rules,” Mr. Cader added. |
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