Rumblings at the SEC
View(s):Was it a powder keg or just a damn squib?
Hareendra Disa Bandara, Director General of the Securities & Exchange Commission (SEC) rejuvenated a virtually, inactive stock market last week by announcing his resignation implying he was under pressure.
When reporters called him as the news broke out on Thursday, he said he made the decision to quit – effective from May 27, more than two months later, based on not being prepared to compromise on his principles. The implication here was that he was being asked to do certain things against his conscience.
SEC Chairman Nalaka Godahewa however had a different story to tell. He said the SEC Commissioners, at their March 19 (Tuesday) meeting decided that the DG’s terms ends on May 31; that his contract was not being extended (though a request had been made by the SEC to the Treasury) and that the post of DG would be advertised.
Godahewa argues that if Disa Bandara had problems and knowing his contract ends in May 31, he could have resigned immediately instead of waiting for just four days when his contract ends.
By the weekend, Disa Bandara appeared to change his story and issued a statement in which no reference was made to principles or issues.
Whether the later, conciliatory statement was made under pressure or realizing his folly, is unclear. But the market is also talking about alleged attempts to scuttle the TFC-NSB investigation and close the case as the former NSB chairman Pradeepa Kariyawasam had (apparently) spilled the beans and named influential personalities in the decision to invest in TFC, which government authorities are not happy about.
Earlier the Government was aiming to ‘fix’ Kariyawasam, once a ruling party favourite, after his wife, Chief Justice Shirani Bandaranayake, also a Rajapaksa favourite, fell out of favour with the administration. The once-influential couple then found the guns of the Government turned at them; transforming a safe haven into a nightmare.
While Disa Bandara is seen as a very honest official, his performance in his current position was anything but spectacular. “He is not the ideal candidate for this job,” noted a respected broker. The DG is an academic and business management guru but has little hands-on experience in regulatory-related matters.
In this sense, Disa Bandara’s departure won’t make a major dent in the market. However if he was under pressure over a probe, that’s a serious issue, and comes on the back of the machinations of the manipulators who earlier forced out two SEC chairpersons out of office when the latter got tough.
K. C. Vignarajah, the good governance activist, says it’s unfortunate that another honest person had to quit the SEC.
“This is why investors have lost confidence in the market. Even at this late stage the probes initiated by Thilak Karunaratne should continue to a conclusion, and raise some hopes in the market,” he says.
At this moment, there are other pressing issues confronting the stock market which has seen weak trading in recent months, and no pick up as anticipated after a new management regime took the SEC.
In a nutshell, one respected broker summed up the crisis:
-Bifurcated market where there is interest at the top but nothing at the mid or lower levels.
-Healthy flow of foreign funds from smaller players as there is a surge of global liquidity to emerging markets, which have to be invested as fast as possible. Thus large market cap, liquid stocks like Combank, JKH or HNB are attractive.
-On the negative side, bigger funds are still concerned about recent headline stories about market manipulation.
-Apart from the top stocks, the market is getting nowhere.
-Investors are losing interest because returns on fixed income instruments are greater than stocks.
-For example the SEC decision to offer tax free bonds has seen a flood of debenture issues at attractive interest rates being snapped up overnight, leaving stock investments less attractive.
The country’s economy is also treading on dangerous ground with warning signals and alerts popping up. Complicating the situation is a volatile Tamil Nadu crisis with Sri Lankan authorities urging Sri Lankan travellers to avoid going there. Indians visiting here are also raising concerns of visiting Sri Lanka fearing a backlash, despite safety assurances from here.
India is among Sri Lanka’s biggest trading partner. India is also the largest source market for Sri Lankan tourism, all of which illustrates the economic importance of resolving the current impasse with India.
Doubts are also emerging about Central Bank statistics on key sectors with economists saying in one particular sector construction growth figures of 25 per cent in the last 2012 quarter didn’t tally with market trends. Cement companies and other suppliers have said sales were low during this period, raising doubts as to the reported growth figures.
Retailers have also reported a drop in sales while the number of defaulters from hire purchase schemes was increasing.
These are early warning signals in the economy which Government economists and the country’s leadership need to recognize and take corrective measures.
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