Tight rules governing private placements (PP) are being considered by the Securities & Exchange Commission (SEC) including a suggestion that such investors can sell their stock only a year after a connected Initial Public Offering (IPO) is floated, the SEC chief said.
Along with this the beleaguered institution is also strengthening its investigation arm to expand its probe against market manipulators and insider traders and restore public confidence. "We have to tighten the PP regulations. My personal opinion, which is also one suggestion is to permit PP investors sell their stock a year after a connected IPO comes to the share market," Tilak Karunaratne, Chairman SEC told the Business Times in an interview.
Current rules governing the PP say that the shares allotted on private placement shall be locked-in for a period of one year from the date of allotment of such shares. Mr. Karunaratne added that a company's PP should be imposed a lock in period from the date the firm goes public, which will prevent it's share price from falling after trading on the Colombo Stock Exchange (CSE). "This way the retailers are protected," he added.
Last year several small retailers burnt their fingers when IPOs came into the market - not realizing there had been a PP earlier (at a lower than IPO price). When trading opened after the IPO float, almost all these stocks fell below the IPO price as PP investors made a killing, an issue that was consistently raised by the Business Times on the unfairness of the system.
Mr Karunaratne also noted that SEC's investigations unit needs a lot of strengthening. "We need more staff at investigations as there are a lot of investigations which are ongoing and many more to be started. Therefore we need to strengthen the investigations directorate," he noted.
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