Business Times

BT Poll: Most people favour Stockmarket Ombudsman

Most Sri Lankans polled this week by the Business Times on the crisis facing Sri Lanka’s stockmarkets agree that a ‘Stockmarket Ombudsman’ could be the way forward. Asked whether there was a need for a Stockmarket Ombudsman on the likes of the Banking and Insurance Ombudsman, 85 % of the respondents said ‘Yes” while 15 % disagreed.

The poll came in the backdrop of a crisis brewing at the Securities & Exchange Commission (SEC) over insider trading issues, market manipulation, powerful investor interests, Government intervention which led to speculation that SEC Director-General Malik Cader was either stepping down or being asked to resign.

The commissioners (board members) of the SEC met on Friday morning to discuss the crisis. There was no immediate information as to what decisions were taken.

In the many comments received in the course of the poll, a few respondents said while the Ombudsman should be an impartial adjudicator, would the person selected be impartial (given the politics in Sri Lanka)?

There were also others who said that most of the issues were between the SEC and a few high powered and influential investors. “The Ombudsman must be free of politicization (most importantly free of political appointees) and be seen and act transparently thus receiving stakeholder confidence.

Over regulation will be counter productive but all industry participants should make prudent decisions based on sound principles/ethics,” said another respondent. He added: “Compliance with ethics potentially outweighs following rules. Well structured corporate governance and leadership plays a significant role on being ethically compliant.

While the proposition to have an Ombudsman is a positive development, the financial industry should also have a body to research and design progressive and tailored uniform corporate governance for the financial industry.”

Another noted that the SEC has failed to find solutions to problems confronted by the stock market at a time when Sri Lanka needs all the investment it can get to double per capita incomes by 2016 and alleviate widespread poverty as envisaged by the government. It (SEC) has to be reconstituted with an infusion of professional leadership that is decisive as well. However one respondent was in doubt about the efficiency of the Ombudsman, saying “we do not see any high value addition from either the Banking Ombudsman or the Insurance Ombudsman.”

But, on the other hand, he noted that the SEC itself is a regulatory body, and “my concern is the maturity of the regulator. In my opinion the solution to the problem would be to improve the maturity level of the regulator. Taking strict decisions would be fine, as long as, the possible impact of the decisions are thoroughly considered, and as long as it stands by critical decisions it takes. In my opinion the problem with the regulator is, it backtracks on its decisions too fast and this brings in too much of an unpredictability (risk) to the market.”

One good example, he said, is the SEC, extending the deadline given to brokers to clear credit, several times and finally settling for a credit formula. The result of this was continued forced selling in the market over a period close to one full year. This indicates that the initial directions issued to clear credit have been taken without considering all the required facts or consulting the required parties. “So I suspect that their decision process and maturity level should improve,” he added.

Ombudsman will help

There are many lessons that the financial sector regulators can learn from other law enforcement agencies like the Police. In the same way that rules pertaining to traffic lights cannot be negotiated the SEC rules also cannot be negotiated. The SEC should take action against violators of these rules. Having rules and non implementation leads to a break-down of the system. In this spirit an Ombudsman will definitely help to provide relief to investors as it will give them an opportunity to present any allegations of any misconduct in the market. I fully support institutionalizing an Ombudsman for the stockmarket.

Channa de Silva
Group Managing Director
LR (Global) Lanka Asset Management
Ombudsman? SEC has enough teeth

The creation of an Ombudsman is not necessary if rules are enforced for ALL and not in a selective manner by the SEC.

The existing rules and regulations under the SEC is currently more than sufficient to deal with the issues at hand. The SEC has to ask itself whether they are interested in enforcing the existing rules, or not.
If not (as seen even in the recent cases where cases were compounded), however much new rules are brought in or even if an Ombudsmen is brought in, it really will not matter. A few people will benefit at the expense of an ill-informed majority who will gullibly invest in the market. The impact is in the long term viability of the CSE. We have to learn from history and a situation similar to 1994 may arise, where the market took a sustained beating where prices were lifted to unreasonable and unsustainable levels and took almost 10 years to recover.

Dr Suren Peter
Senior Lecturer
University of Kelaniya
Should cover
capital markets

I have advocated the creation of an Ombusman on a number of occasions. But it should be a Capital Markets’ Ombudsmen, the stock market is a narrow definition of the capital market.
Murtaza Jafferjee
Chairman/Managing Director
JB Securities (Pvt) Ltd

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