SEC seeks help to iron out issues relating to ownership change in CSE
The Securities and Exchange Commission (SEC) is in the process of hiring an external consultant to obtain technical support to draft laws to change ownership of the Colombo Stock Exchange (CSE) from a stockbroker-owned organisation to a more broad-based company, SEC officials said. This will assist to bring the capital market in line with those in more mature jurisdictions, they noted.
“The draft bill to demutualise the CSE that was prepared by the Legal Draftsman on the direction of the Cabinet of Ministers was further discussed with the Registrar of Companies and the CSE. The comments of the Registrar of Companies and the CSE have been forwarded to the Attorney General (AG) for his opinion and the AG’s opinion is still pending,” a SEC source told the Business Times.
Demutualisation leads to the separation of the ownership and control of stock exchanges from trading rights of its members, which eliminates the conflict of interest between exchange and broker members. This reduces the chances of brokers using stock exchanges for personal gains. A special committee has been formulated by the Commission to carry out the demutualisation process. Through demutualisation, a stock exchange becomes a corporate entity with its own objectives and it transforms from a non-profit organisation to a profit-making company like any other corporate entity.
The source added that the SEC and CSE will be hiring a regional consultant to iron out the issues. “We are at a quagmire now as the shareholding structure is yet to be determined,” he added.
(Amendments to the SEC Act)
Meanwhile the SEC’s 2012 annual report released this week says that proposed new legislation ensuring stock market rule offenders is close to being finalised. “The new Act will provide for the all-time licensing of demutualised stock exchanges, derivative exchanges, clearing houses and central depositories as market institutions are subject to certain safeguards.” The World Bank through FIRST Initiative (Financial Sector Reform and Strengthening Arm of the World Bank) assisted SEC to propose amendments to the SEC Act, the report said, adding that the new Act will provide a robust legal framework to the SEC to regulate the capital market and also will harmonise the law with the International Organisation of Securities Commissions (IOSCO) standards.
“The jurisdiction of the SEC (under new laws) will be extended in respect of companies and market intermediaries making or advising on the offering of debentures to the public,” the report said. In addition the SEC will be empowered to institute civil sanctions and administrative actions against capital market offenders in order to disgorge investors who have incurred losses due to their actions. Many provisions have been included to enhance the protection of the investors including whistleblower protection and powers to protect investors’ assets.
The report added that foreign investors contributed to 25 per cent of the market’s turnover, up from 11 per cent in 2011. “The CSE recorded an inflow of foreign capital in the year of US $303.8 million approximately Rs 38.7 billion,” it said, adding that the best-performing sector on the CSE in 2012 was the beverages food & tobacco sector, which rose 31 per cent. However, the rest of the 19 sectors at the CSE reported negative growth, the report said, noting that the worst performing sector indices were IT and motors recording a negative growth of 53 per cent and 42 per cent per cent, respectively.
During 2012, a total of 54 surveillance referrals were prepared on various issues. The report said the SEC also received 14 surveillance referrals from CSE. “The number of surveillance referrals increased to 54 in 2012, compared to 33 in 2011. This increase in referrals can be attributed to the full implementation of the new surveillance system.” It added that apart from the alerts that are generated by the system itself, additional data and analysis tools are available and this has led to both increased detection as well as the ability to build better cases of any perceived market malpractices.
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