The Securities and Exchange Commission (SEC) is trying to bring in directives to ensure a minimum free float in publicly listed firms to negate the inadequate liquidity issues in the market which according to some players has led to share price manipulations in recent times, according to a SEC official.
“There are firms which have less than 10% free float in the market which isn’t adequate. This is an area that we’re trying to correct,” Vajira Wijegunawardane, Director Capital Market Development and Research SEC told the Business Times on the sidelines of a seminar on ‘Investing in the Stock Market’ jointly organised by Institute of Certified Management Accountants of Sri Lanka and Institute of Certified Professional Managers on Thursday.
He said that the SEC together with the Colombo Stock Exchange (CSE) have reduced transaction costs to increase the market’s liquidity and are trying to enhance the corporate bond market while increasing the product range such as introducing derivatives in the near future.
He said that the SEC plans to widen the share issuer base, widen the investor base, enhance efficiency of intermediary services and improve market infrastructure as measures to develop the capital market.
“We are encouraging large corporates to list on CSE and also promote infrastructure financing via capital market through Public-Private Partnerships to widen the issuer base,” he said.
He noted that equity over the long term outperforms any asset class, which is why the SEC is also trying promoting the Employees’ Provident Fund (EPF), Employees’ Trust Fund and other such pension funds to increase their exposure to the capital market. “The EPF so far has only 2% invested in the capital market which is quite low compared to other emerging markets in the region,” he said, noting that SEC is also promoting foreign investments to the local market as well as looking at measures to promote the unit trust industry.
During the panel discussion that followed, Deva Ellepola, CEO Acuity Stockbrokers said that equity investments are long term and it’s important to be patient in such investments without being greedy.
Commenting on the price curbs which were imposed by the SEC, Suresh Sellahewa, CEO CSE noted that there was absolute volatility in certain shares recently, which is why the regulators had to step in. “This is an illiquid market which is why we saw instability and had to step in to correct the situation,” she said. She also said that there were investors without money who were trading in the market. “Regulators had to take measures in this regard,” she added.
When the Business Times asked why 10% was the figure of the price curbs, Malik Cader, Deputy Director General SEC said that this was what was needed to control the manipulation and deter an imminent market crash. “In a highly volatile market this is not the ideal situation, but this was needed. However, no amount of rules and regulations are going to turn a crooked man straight,” he added.