“The SEC's objective as stated in its mission statement is to promote develop and maintain a securities market that is fair, efficient, orderly, and transparent. Underpinning these objectives is SEC's ultimate responsibility of protecting investors. The SEC welcomes complaints from investors pertaining to improper conduct of market participants and other irregularities, in order to ensure the protection of investors in the securities market” – (www.sec.gov.lk).
The above is a paragraph published under ‘Complaints’ section of the Securities Exchange Commission’s (SEC) webpage. I have a complaint against the very institute which is designated to protect stock market investors.
When the stock market was booming and reaching unprecedented levels, the SEC got alarmed over a possible ‘bubble burst’ as has happened in many other markets (eg. Saudi market where the main index dropped from 20,000 to 6000 and never recovered).
The SEC has the right to intervene and correct unsavory practices, however the way the agency has intervened reminds us the story of the famous pet monkey of the king which slashed the king’s face with the good intention of killing the fly which was resting on the face!
When some shares were skyrocketing, SEC issued a directive to suspend any share which exceeds 30% of price within 3 days or to suspend any share which exceeds 1000 trades within the stipulated period of three days (see SEC circulars in above web site). Immediately on the following day, another directive was issued to suspend any share which exceeds / decrees 10% of it’s value with immediate effect. Most market players being new, panicked and an inevitable market crash incurred. What made SEC issue these directives on an ‘immediate effect basis? Were they in a slumber all this time not to expect the rapid ascendance of the market? With the rude shock of market crash, SEC reversed its own decision on 14th September!
On the same day (14th September), SEC issued another directive to stock brokers to refrain from extending credit from 1st January (thank God it was not with ‘immediate effect’!). So many investors traded on credit. They faced a daunting task of repaying the credit they enjoyed. Any person with limited experience would have predicted a slump in the market when sellers exceed the buyers! Unfortunately, our SEC was more concerned about doing their job than caring about the plight of the investors it deemed to protect! This slump not only damaged the reputation of our stock market but a slap in the face of the government which boasted an ‘investor friendly’ budget. It took so many weeks for the brokers to make SEC realize what damage it has done. Then with their habitual passion, SEC changed their mind and extended the period till June 2011!
As small investors, we have no grudge towards SEC of being a responsible market regulator to protect us. But imposing sudden decisions and later reversing them shows the lack of competency and experience of the SEC. The cost paid by the investors is too high to be ignored.
Can a responsible authority like SEC act in such a naïve manner? Who will compensate the small investors who lost millions of money by underselling to pay their credit within the last couple of days? Who really benefited from these hap-hazard decisions? Who is accountable?