The Sunday TimesBusiness

1st June 1997



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New teeth for SEC gives market the jitters

By Ruvini Jayasinghe

Proposed amendments to the SEC Act (Securities and Exchange Commission Act) designed to give this regulatory body 'more teeth' could result in them "biting off more than they should chew,'' market sources say.

While the market agrees that the right amount of regulation is good for it, it is concerned about some of the proposed amendments which they say could tip the scales and result in over regulation.

Copies of the proposed amendments to the Act, (SEC of Sri Lanka Act No. 36 of 1987) have been sent to all institutions to be regulated by the SEC for their comments.

This is a healthy move by the SEC and it is hoped that some of the recommendations made by these institutions (if reasonable) will be adopted in the final Act.

The SEC acts as a regulator to the Colombo Stock Exchange (CSE), stock brokers, Unit Trusts and proposes to regulate the market related activities of merchant banks who so far remain unregulated.

Regulating the market related activities of merchant banks was a long expected move which has an 'across the boards' nod of approval.

In 1992 merchant banks were brought under the purview of the Central Bank, under emergency regulations. With the lapse of the emergency regulations, merchant banks ceased to be under Central Bank's supervision.

An annual (renewable) regul registration is proposed for this category of market intermediary, while all other institutions are issued a renewable licence by the SEC.

As one broker told The Sunday Times Business, ''The SEC has the authority to regulate us, (Stock Brokers) and the CSE, but our parent company a merchant bank, goes unregulated, Strange isn't it?"

While the market relies on the SEC as their watchdog some of the proposed amendments to the SEC Act are causing unhealthy currents in the market, sources say.

Among them are what is seen as 'Judicial powers' to be granted to the SEC which is only a regulatory/administrative body, sources pointed out.

The proposed amendments permit the SEC to appoint a three member committee to hold inquiries and investigations.The committee would have the authority to investigate written/ verbal complaints against professional conduct and activities of licensed/registered institutions; call for and examine documents; evidence relating to the case and determine whether the particular institution/ individual has violated SEC rules, if the amendments go through.

The Committee thereafter, would have the right to recommend appropriate action to be taken by the SEC, if the verdict is guilty.

The SEC in turn would have the right to take appropriate punitive action or refer the matter for further investigation to an appropriate authority.

This in simple terms translates to one of several punishments; cancellation, suspension or non-renewal of licence registration, (in the case of institutions) fines or a court case with the investigation held by the SEC as evidence, legal sources said.

Market sources also point out that the SEC's inquiry and investigative powers under the amended Act, seemed to grant them US style 'subpoena powers.'

With recomended powers equivalent to those of a District Court the SEC would be able to summon and compel attendance of witnesses, compel books, documents, to be produced for examination and examine witnesses under both.

If an institution or individual thus summoned is guilty of contempt against or disrespect of the SEC or its Committee this could be punishable in a Court of Appeal.

Market sources are further perturbed by what seems to be the reversal of the 'golden rule' in a Court of Law; where a person is innocent until proven guilty.

Or, as a market source aptly described it; ''normally the burden of proof is on the person who made the accusation. But amendments to Section 51 of the Principal Enactment, reverses this, and puts the burden of proof squarely on the director /manager/ secretary accused until the person can clear him/herself.

Is there adequate protection for those charged in this manner? Are the safeguards sufficient? Should powers equivalent to a District Court to hold investigations be granted to the SEC? Are these amendments in line with the constitution?

These are hard questions which need to be given, long hard thought, before they are enacted as the amended SEC Act, governing us, market sources said.

Sources also point out that the proposed amendments give the SEC the final authority of approval in listing companies on the Colombo Stock Exchange.

So far, the listing process has had a consensus approach, sources said. Merit regulations, which is a value judgement or a disclosure regulation can be used to approve listings.

Now in a worst case scenario, the CSE's approval of a listing can be overruled by the SEC or vice versa, sources said.

Responding to questions, SEC's Legal Manager, Kithsiri Gunewardena told The Sunday Times Business that the proposed amendments are still in their initial stages. This is only a draft of the proposed amendments. And we have sent copies of this to all institutions concerned, for their comments, which we will consider and incorporate as far as possible, he said.

Six week momentum dampened

Subdued activity levels at the CSM, due to the unavailability of large parcels of shares at present price levels in blue-chip companies, have dampened the momentum gained in the last 6 weeks. Furthermore foreign investors were not seen to be aggressively pursuing shares in the week covered unlike in the previous period under review.

The uncertainty regarding the imposition of the Business Turnover Tax levied on the value of stock market transactions was cleared at the Committee stage of the Bill in Parliament, which clarified that this tax will not be levied. This is a very positive step taken by the government to enhance stock market growth.

Sector: Insurance- Private sector

Companies quoted on the main board are Ceylinco Insurance/CTC Eagle/ Union Assurance. Janashakthi is quoted in the OTC Market.

Ceylinco Insurance leads the LIFE business with CTC Eagle and Union Assurance in second and third place. Heavy growth in this sector of the insurance business is expected. At present only 15% of the total market is serviced by the private insurers. General business: CTC Eagle seems to be in first place with Union Assurance and Ceylinco closely following in second and third places respectively.

Recommended stock: JKH/JKL/Hayleys/Richard Pieris/ Ceylon Cold stores/ C.Insurance/ The Finance/ Blue Diamond/Haycarb.

SDA bids close

Initial bids for EOIs (Expression of Interest) for all SDA's (Southern Development Authority) major infrastructure projects closed on, Friday (May 30th).

Projects included the Hambantota port project, International Airport and Express Highway.

The six-member evaluation committee, appointed by the President and representing a cross-section of professionals from varying fields, is yet to be named.However no binding decision has yet been taken as to the composition or the final number of members on the committee.

Lanka moves towards a telecom hub

Ceycom Global Communications Ltd, the satellite communications company has tied up with British Telecommunications Plc (BT) for the provision of world-wide satellite services and promote BT's satellite business in the country.

"Our partnership with British Telecom is affirmation of faith that Sri Lanka is an emerging hub for international communications in the region," Ceycom said in a statement.

British Telecom is said to be the worlds fifth largest telecom company employing 129,000 persons.

Ceycom is s joint venture between Ceylinco group and US company Hughes Escorts Communications, a subsidiary of General Motors.

"This tie-up will enable Ceycom to enhance its network coverage to the European and the American sector and further boost its presence in the Asia Pacific region," the company added.

British Telecom's Market Development Manager John Blewet was in Sri Lanka to sign the agreement.


By Business Bug

BOI Boy Wins

When Satellite orbited the Desert Kingdom this week, plenty of officials were in attendance but the man who labours was conspicuous by his absence.

He is said to have thought he should have been there, since the Desert Kingdom was the havoc for housemaids and there were many disputes to be solved in that regard. When asked why he didn't make the entourage, a high official quipped, "How could he, when he didn't see eye to eye with the boy from BOI?"

Before Protests

Strikes demanding that salaries be increased are the order of the day in the state sector with everyone complaining of some anomaly on the other, but now the private sector is feeling the pinch as well.

There have been some murmurs of dissent in a few established business houses and the powers that be are worried there will be more protects to follow.

So, government is considering appealing to the private sector to grant at least a twenty-five percent pay hike...

Milking Dry

With more and more imported milk foods flooding the local market, local dairy producers are warned their market share will decline.

So, some of them appealed to the government to raise a ten percent duty on imported milk foods to twenty per cent.

However, the powers that be have now thought otherwise. The share of the market taken by imported milk food is not large enough to warrant an increase in duties, they have decided

Malaysian investor wants economic co-operation

A Malaysian investor has called for increased economic co-operation among Asian nations to become stronger.

"All Asians whether they are from India Sri Lanka or Malaysia must work together and become economically strong nations with enthusiasm and hard work," says Dato Ahmad Abdullah of AG Global Management Consultants Sdn. Bhd., who led a delegation of Malaysian companies on an investment mission here last week. Dato Ahmad is the Vice - Chairman of the Johor Malay Chamber of Commerce and a member of the Legislative Assembly of the state.

"We should network with each other in the SAARC and ASEAN and go forward," Dato Ahmad said. "I strongly feel that it can be done."

The 14 member Malaysian delegation represented businesses engaged in business consultancy, manufacturing, computer software, stockbroking, manufacturing health care, infrastructure and highway development, power plants industrial park development, industrial and theme park development, port development and shipping.

The delegation met Industrial Development Minister C. V. Gooneratne, Foreign Minister Lakshman Kadirgamar, BOI Chief Thilan Wijesinghe and officials from the Bureau for Infrastructure Investment, the UDA, PERC and the Southern Development Authority.

"This is a very ambitious project," Dato Ahmad said. "The area is the size of Singapore island, it will definitely be a landmark, with the new airport, industrial area, housing, tourist resort development area and recreational facilities," he said.

Though some Malaysian businesses which had invested in tourism had been somewhat unlucky he said it should not deter other investors as the situation was now improving.

"The industry was at a low ebb due to security developments we could not foresee at the time," he said. "I don't think the present security situation is Sri Lanka should deter tourists and investors from coming to Sri Lanka.

Before his visit he had also been somewhat concerned, Dato Ahmad said.

" But after I came here I think differently," he said. " I would urge other tourists and industrialist to come and see for themselves and do something for the mutual benefit of themselves and Sri Lankan and for the benefit of the SAARC and ASEAN regions."

"When you see the checks being made at the airport and government buildings it should not deter us. We see that measures are taken for the safety of the people and visitors."

Following talks here with the local chamber representatives, members of the delegation had identified projects in low cost housing, infrastructure development particularly highways, industrial park development, port and manufacturing industries.

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