Is the CSE sure of its listings policy? - letter

With reference to your article headlined ‘Firms say CSE too strict’ in last week’s newspaper, the problem appears to be that the Colombo Stock Exchange (CSE) is not sure of its listings policy.

The report quotes a stock market analyst as saying that it is necessary for companies to fully convince the CSE that a particular investment is good for the investor.

This is precisely what is known as ‘Merit Regulation’. However the CSE Director General says that the CSE policy is not merit regulation but is disclosure based. A disclosure based listings policy requires all the necessary information that an investor requires to make an investment decision to be included in the offer document. It is then upto the investor to decide if the investment is a good or bad one.

The stock market analyst goes on to say that the CSE at times requires bank guarantees to underwrite a rights issues. If the CSE follows a disclosure based policy they should require companies to disclose in the offer document the action that such companies would take to fund their projects if the rights issue is not fully subscribed. Then it is upto the investor to decide if he wants to invest in the company or not.

Underwriting a rights issue is an option available to the company to increase investor confidence. If necessary the CSE may require the audited balance sheet of the underwriter to be included in the offer document. This would be in the interests of full disclosure. It should not be necessary for the underwriter to give a bank guarantee unless he opts to do so.
The article also states that firms say that the regulator is not swift and timely in its decisions. The regulator must be sure of the listings policy and have a good grasp of the technical issues. Then it would have no problem in making swift and timely decisions on listing matters.

Stock Market Professional