Business Times

SEC’s market microstructure enforcement delayed by a month

By Natasha Gunaratne

The Securities & Exchange Commission (SEC) of Sri Lanka has delayed the implementation of an April 2010 directive issued to the Colombo Stock Exchange (CSE) to improve its market microstructure following a request made by brokers. Informed sources told the Business Time this week that the brokers wanted a revision of the commission structure which had been reduced although the SEC board of directors did not consider the request. “The brokers were not in agreement with the reduction,” one source said. According to a circular from the CSE, the SEC at a meeting held on 3 June 2010, agreed to delay the implementation of the directive by one month. Accordingly, the directive will be effective on 1 August 2010.

Sources also told the Business Times that the brokers had requested that the implementation of the directive be delayed. The SEC did adhere to the request by delaying implementation by one month, giving the brokers enough time to prepare. According to the SEC, the implementation of the directive will remove the two band fee structure currently applicable and replace it with one band for transactions up to Rs.50 million. It also reduces the transaction costs of trades below that of Rs.50 million by reducing
SEC cess, CDS fees, CSE fees and brokerage fees by 20% on the fee structure applicable to transactions over Rs.1 million (1.225%) at present.

The threshold on negotiable brokerage is to be reduced to Rs.50 million from Rs.100 million with a minimum brokerage floor of 0.15%. The SEC, CSE, CDS fees and government levy will remain the same as currently applicable charges for negotiable trades. The total will be 1.02% up to Rs.50 million transaction costs from 1.425% for transaction costs of up to Rs.1 million and 1.225% for transaction costs from Rs.1million up to Rs.100 million.

A market analyst said it still remains to be seen as to the impact of the revision in cost structure on the volumes traded in the market. Volumes have increased significantly over the past few months with high turnover levels. “For large clients, brokerage has always been deemed too high.”

State institutions have been some of the biggest buyers of some shares which is part of the reason that levels have been so high over the past three to four months. The analyst said it is a positive sign that the state is diversifying its investments, provided they are doing so in a proper and rational manner. Foreign sellers have generally been net sellers.

He also said with 21 broking firms, reaction is mixed on the cost structure change including other changes such as the crossing threshold which has been increased to Rs.20 million from Rs.10 million.

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