The Securities and Exchange Commission (SEC) is on the verge of cracking down on a cartel of share brokers and traders in a decisive move to curb share manipulations, according to sources close to SEC.
“The SEC has identified some share brokers as well as many traders who seem have been pushing certain shares up in price during the past few months,” a source told the Business Times.
The source said that the SEC is scrutinizing the trades during early this month, (when the Colombo bourse recorded all time high gains) in a bid to identify market manipulators, which was the period when low valued shares increased in price by more than 1000%.
The SEC was looking at these trades closely to identify the perpetrators late last month and there is evidence of manipulation. “The perpetrators will be dealt with severely by the SEC,” the source said.
Last month the SEC imposed price bands –for the first time in the market – restricting the price of any stock or security from changing either way (up or down) by 10%.
The ‘suspect’ securities were four warrants of Environmental Resources and Investments (ERI) and stocks of Touchwood, Dankotuwa Porcelain and Blue Diamond (voting and non-voting).
Six brokers were summoned by the SEC recently and warned as their exposure to these shares was high.
Some brokers said that the managements of their firms have brought in stops to avoid such situations (large exposures to such shares) in the future. “An investor who wants to buy these shares needs about 75% of margin (of the particular value of shares they want to purchase) or 75% upfront cash equivalent,” a broker said.