Business Times

SEC to announce rules on cross border listings in March

By Duruthu Edirimuni Chandrasekera

The Securities and Exchange Commission (SEC) is gearing to announce new rules next month pertaining to cross border listings, SEC officials said. Indrani Sugathadasa, Chairman SEC on the sidelines of a press conference to inform the media on important decisions taken at SEC meeting on Wednesday told the Business Times that this is an area which has got the regulator’s attention pertaining to broad basing the stock market.

According to sources close to the SEC already some Maldivian and Chinese companies have expressed interest to publicly list in the Colombo Stock Exchange (CSE). “This is why we are keen to introduce some cross border listing rules,” one source said.

Ms. Sugathadasa said the SEC amended the rule of the one-year lock-in period for trading in shares through a private placement after the firm goes public in an Initial Public Offering (IPO) to shares allotted for such placements. The earlier SEC rule said that anyone who participates in a private placement after March 1 of this year cannot trade these shares in the company after its IPO, but now it has been brought to February 7, when the SEC arrived at this decision.

This move by the regulator to stop private equity investors from trading for a year is to prevent speculative investors from subscribing to private placements with the intension of cashing out during the post8208]IPO trading. The source said that this prevents the High Networth Investors (HNWIs) from cashing in on their gains as soon as the company starts trading after the IPO. He said these HNWIs are promised a ‘sizeable’ return to them ((double or at times triple the return) after a company is listed.

The SEC also pruned the price curb rule from the earlier 15 to 10 market days. “The whole context in which shares trade (now) has changed (from when it was introduced in August) with stockbrokers being prohibited to grant credit to investors, margin lending facility coming in, etc. So the SEC has pondered some changes to the price band (price curb),” Malik Cader, Director General SEC told the Business Times. He said the requirement for a 50 % up front deposit when buying shares has also been stopped. Both these rules will be in effect from March 1.

Mr. Cader said from this year onwards, market capitalization is expected to increase at least by 20% per annum, with more than 50 new firms going public. Mrs. Sugathadasa added that this year so far, the Colombo Stock Exchange (CSE) has posted Rs 127.7 billion in turnover while for last year this was at Rs 570.3 billion.

Mr. Cader said that the CSE will see about two Rs 5 billion worth of IPOs within the next six months.

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