Posted by Securities and Exchange Commission plans to come up with steps to stop “excessive price volatility” and also “curb excessive credit by brokers to investors”.
Securities and Exchange Commission says this will be done as a part of its plans to relax the present price band imposed on the trading taking place at the Colombo Stock Exchange.
A very senior official of SEC also added, that regulations will come into prevent any of the shares keep moving in prices in excessive terms.
He told www.news360.lk currently the regulators are revisiting the price band and is studying all possible options to come up to ensure the market plays “fair”.
The senior official said the new plans will be made public either at the end of this week or early next week.
The official also warned that if any relaxation comes in, it will not mean that manipulators or speculators can start playing around once again as usual.
He said, the Price band was not imposed “out of the blues” and was done based on clear reasons.
SEC official who did not wanted to be quoted as he is not authorized to speak to the media also pointed out that “We are a statutory body, vested with a clear mandate”.
He said the SEC’s role is not to look after the interest of a small segment of punters in the market, but to safeguard the industry.
WHY THE BAND CAME IN?
SEC revealed that certain investors who has come to the market with Rs. 50,000 has bought shares running up to Rs. 3 million.
It adds that, if at one stage these investors default on those credit given by brokers, it will have a domino effect on the entire industry, thus creating a system collapse.
He cited an example of where 1 investor who has come to the market with Rs. 1 million in hand has purchased shares running up to 4 to 4.5 million rupees.
The SEC representative said the Stock Exchange needed day traders and speculators, but added the regulator cannot allow them to control the market.
BEFORE THE BAND
SEC in a study done between the periods of 29th July to 3rd August saw the prices of certain stocks have gone up with one stock price climbing by 103% and another by 89% during the 3 days.
While another assessment done between the periods of 1st July to 2nd August has identified stock prices of certain shares going up in the range of 290%, 220%, 217%., respectively.
The official said, those stocks has gone up without any basis or in other words fundamental reasons.
Report by: Prasanna C. Rodrigo / Email him on: news360@sltnet.lk
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the SEC should introduce short selling to prevent market going one way. That is the usual way to stop excessive price movements. As it is, with a few millions a player can determine the market in the short term for a particular share. Short selling without the obligation to return the shares but with settlement of the price difference is the way to go. This contract is called Contract for Difference. It should be allowed over the counter by the SEC so that brokers themselves can handle it and bet against the speculators.