Next year will see some landmark implementations in the Sri Lankan capital market with the securities regulator mooting a commodities exchange and paving way for Exchange Traded Funds (ETF) and unit trusts, a top official said.
"The Securities and Exchange Commission (SEC) will call for international expressions of interest to set up a commodities exchange next year and will put out a structure for exchange traded funds,” Malik Cader, Deputy Director General SEC said.
He was addressing the LBR-LBO CEO Forum on ‘Funding the Engine of Growth; Opportunities and Challenges’ recently. “We plan to call for expressions of interest (EOI) international and the chosen party will also be required to assist in developing a regulatory framework,” he told the Business Times on the sidelines of the forum.
He said that such exchanges, which holds assets such as stocks, commodities, or bonds are operated on margins, meaning that to take a position only a fraction of the total value of the commodity traded needs to be available in cash in the trading account.
He also said that ETFs which are securities that track an index, a commodity or a basket of assets and trading similar to a stock on an exchange will be possible early next year and the SEC is working on the modalities of this. He said that an ETF will attract institutional investors into the Colombo market.
He added that ETFs are attractive to most as it will assist traders balance their portfolios.
e said that the Colombo Stock Exchange (CSE) took 24 years to reach the first trillion in turnover but it was only 9 months before it reached the second trillion. He said that unit trusts are also on the cards and these are considered as low-risk, low-return investments, which will also attract more investors to the CSE.
He said the cabinet has sanctioned demutualization of the CSE which is the way forward and the regulators have already come up with certain regulations to be in line with this step. “Mr. Mark Mobius, the Templeton Fund Manager has commended the 10% price band that SEC has implemented to curb the volatility in the market,” he said.
SEC will also regulate warrants. “At the last SEC meeting this was sanctioned and we’ll send the circular with the new set of rules by next week,” Mr. Cader said. He said the new regulations specify that firms are prohibited from issuing warrants beyond 15% of their stated share capital and will limit their time of warrants issued to two years from the day of issuance.
The SEC will ask firms listed on the main board of the CSE to maintain a minimum public float of 25% and those on the second board of the CSE will need to maintain 10% in free float. “Now it’s law and this is in line with rules in India, Malaysia and Pakistan,” Mr. Cader added.
The Business Times on September 17, reported that warrants, which are becoming increasingly popular with listed firms, is receiving the urgent attention of the share market regulators, who are gearing to bring in international best practices pertaining to this instrument.
Some companies which issued warrants recently are Nation's Trust Bank, Reefcomber, Ceylon Leather Products and Environmental Resources and Investments.
Companies often include warrants as part of a new issue offering; for instance a rights issue in a bid to entice investors into buying this new security.