A top investor, fast becoming a whistle-blower in the Colombo stock market, is urging the Securities & Exchange Commission of Sri Lanka (SEC) to restore broker credit to investors.
“In all humility, I would emphasize the crying need in the CSE (Colombo Stock Exchange), to level the playing field, by restoring the traditional system of broker credit (50% of the client’s portfolio value) with necessary safeguards. The brokers can allocate credit judiciously,” said K C Vignarajah, former chairman of the Ceylon National Chamber of Industries in a letter to SEC Chairperson Indrani Sugathadasa.
Mr Vignarajah, who says he is acting in the public interest and of independent shareholders of listed companies, said even banks, finance companies and other lending institutions lend much greater proportions on less readily recoverable assets like real estate, vehicles, and pledged perishable goods (Pramuka Bank carried a substantial quantum of expired foodstuffs).
He said the relaxation of ‘T+5 to T+15’ (due to investors’ personal difficulties, like hospitalization, local and foreign travel, etc) is also desired within the overall credit limit, by battered investors.
He said many investors firmly believe that the SEC and CSE have been partial (or had turned a blind eye) to large scale manipulators and insider traders, who have openly and brazenly amassed huge piles of ill gotten cash, here and abroad, by ‘taking advantage of the current lax regulatory frameworks, which taken together with tight credit restrictions have ruthlessly crushed the average decent shareholders’. “These investors say they have been ruined by insider traders, manipulators, by T+5 forced selling, and the credit restrictions, acting in concert,” he said, adding that they had earlier been trading, sedately using the traditional lines of credit extended by the broker of 50% of the value of their portfolio.
The SEC has said that that some brokers had abused the credit system by extending to speculators credit as high as 300% and the punitive measures were needed. However, this justification no longer exists, Mr Vignarajah argues.
“Tremendous damage has already been done to the honest, independent, small, medium and large shareholders. Hence the intemperate language and unusual anger expressed by affected small and large investors,” he said.
The country is facing great challenges in many spheres due to various acts of commission and omission. It is a sad reflection that the business community, whilst finding fault with the politicians and Government for high levels of bribery, corruption andlack of good governance, are themselves, no better, Mr Vignarajah says.
“What is needed, even at this last call, is for action on all fronts to be taken by the honest business leaders to boldly cleanse their ranks, and infuse confidence to draw the vast majority of rural, urban and foreign investors to participate in the glorious opportunities the country still offers for equitable benefit of all,” he said.
Investors, Mr Vignarajah says, have also frowned on patronizing advice by some interested parties, analysts and fund managers to divert investment to unit trusts. Some unit trusts and funds are remote controlled by large networks of related parties and conglomerates, which use the public’s monies to build up stakes in companies for their own ends, he said.
“They are not necessarily managed in the interests of the unit trust holders and fund investors, but are allegedly used to move the markets and shareholdings of certain companies for the ulterior purposes of the controlling interests (CIs). In this context, until appropriate regulatory mechanisms are in place to control such malpractices and conflicting interests, the average innocent investor should not be driven to place his funds in such vehicles,” Mr Vignarajah points out.