”PBJ, Market stakeholders try to keep media at bay” screamed the headlines of a local newspaper on Thursday, implying that the media was to be ‘kept in the dark’ (as far as possible) from what transpired at a meeting between stock market stakeholders and the Treasury. There was a‘gentlemen’s’ agreement at Tuesday’s meeting that the [...]

The Sundaytimes Sri Lanka

Stocks: Bending the rules


”PBJ, Market stakeholders try to keep media at bay” screamed the headlines of a local newspaper on Thursday, implying that the media was to be ‘kept in the dark’ (as far as possible) from what transpired at a meeting between stock market stakeholders and the Treasury.
There was a‘gentlemen’s’ agreement at Tuesday’s meeting that the contents, aimed at giving a positive twist to ‘boost’ the market, would be released to the media as a statement from the Treasury/Ministry of Finance. That was agreed by everyone including Treasury Secretary P.B. Jayasundera who chaired the meeting.

But what happened subsequently. PBJ himself broke the rules, speaking to a select group of media and divulging details of the meeting. While the media has every right to go after a ‘story’ and use all the ethical methods at its disposal, it is up to those officials to resist any temptation to release such information and respect the agreement.

While all other participants at the meeting chose to refrain from discussing what transpired or spoke off the record, PBJ went on record on what happened. It’s better now that an official statement is not released by the Treasury after its head made a hash of the agreement.
The problem with officials like Jayasundera is that they have been so long or – for that matter– too long in a position that their individuality takes precedence over the position they hold. Any position held in the public sector, and that applies to the President too, has certain norms and rules that one must follow. The irony is that if any one of those, other participants spoke to the media (on record) including Securities & Exchange Commission (SEC) Chairman Thilak Karunaratne or Colombo Stock Exchange (CSE) Chairman Krishan Balendra, there would be hell to pay, a warning and who knows what. But for public officials like Jayasundera, there is no ‘punishment’. That kind of arrogance may also stem from the fact that the Treasury Secretary was able to overturn a Supreme Court verdict in the LMS case where he had earlier quit his position and become a civilian rather than a privileged person, following in the footsteps of the President who chose to ignore a Supreme Court ruling on oil prices.

Bending the rules to suit its own convenience and needs has been the hallmark of this administration, an ‘infection’ that has a crept across the spectrum of society. Retired civil servant Tissa Devendra has written an interesting piece which appears elsewhere in this section arguing that there never has been or never will there be an ‘independent’ public service. He says over the years (and explains why) the public official has served the Government and politicians rather than the people. That has been stretched to the maximum in recent years and current examples from top officials exemplify that crisis in management.

Moving on to other serious issues, a comprehensive report by Transparency International published in the BT refers to the lack of perpetrators of white collar crimes going unpunished, market manipulation and conflicts of interest and questionable investments by the Employees Provident Fund (EPF), among other issues confronting the stock market.

The word ‘employees’in the fund clearly indicates that the money in the fund is the people’s money, held in trust and no one else has a right to invest as and when they wish. There is no transparency in the investments, another right denied to members of the fund. Given the recent criticism of the fund, if workers have a choice, they would move to another pension fund where they have a role in the management and investment decisions.

Trade unions have proposed that workers and/or their representatives should be drawn into a committee along with those from the Employers Federation (EFC), representing employers, which would oversee investments and make sure there is a balance in risk-taking (which is inevitable to get better returns) and members’ interests. This is a laudable suggestion that should be aggressively campaigned and the Government persuaded to agree.

Regulation of key markets like banking, insurance and stocks must be above political or bureaucratic interference, unless absolutely necessary. What if influential bankers sought the President’s intervention over unhappiness by the Central Bank’s regulations? Would the politically-powerful Central Bank governor permit such an intrusion?

The moment politics enters the marketplace, new issues arise and decisions are made on political considerations; not rational, practical or to benefit all investors, big or small. The follow-up meetings by the Treasury based on the President’s July 20th meeting, with stakeholders, saw the Treasury Secretary stating that the market needs to move up for political considerations, suggesting that a depressed market was not a good signal to investors, particularly foreigners. The market has shown different signs with net inflows of foreign investment this year compared to net outflows last year.

This is a reflection that either foreigners are happy with the fundamentals in the market, in some stocks (otherwise why invest if everything is wrong?) or funds are being channeled to frontier markets like Sri Lanka because the global investment environment is gloomy. Or are they only investing in stocks with good fundamentals like JKH, Aitken Spence or Hayleys and giving a wide berth to the others that high-net investors here have ploughed their money in and are grumbling because hundreds of retail investors, after burning their fingers on bad advice and lack of awareness, have chosen to stay away for the moment?

A good example of the lack of awareness by small retail investors, who form the bulk of the market, was one IPO issue last year which was sold to the public at double the price of a private placement which retailers were unaware of. One can argue that the private placement price was listed in the prospectus and investors had access to this information. But as the Transparency International report states, the smaller investing public is still not familiar with the nitty-gritty in the market and tends to invest without knowing the fundamentals.

The less said about this week’s stakeholder’s meeting the better because as clearly illustrated by Jayasundera’s rules it is a situation of ‘might is right’ in every sphere of state-controlled activity. Some big-time investors and their backers will once again blame us and some other media for what they consider is ‘bad’ publicity that is ruining the market. They expect the media to hide facts about EPF investments, the NSB-The Finance Co fiasco and the ‘pump-and-dump’ series, and run to their masters for help. The Business Times, on its part, will not bow down from its watchdog role of ensuring stability, governance and a well (not over) regulated market.

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