Economic turmoil or ‘emergency’ empowers SEC to close share market for continuous period of time

Tuesday, 5 April 2022 03:16 - - {{hitsCtrl.values.hits}}

Nishan Sydney Premathiratne (Attorney-at-Law) notes that according to Section 30 of the New Securities and Exchange Act No. 19 of 2021, the Securities and Exchange Commission (SEC) is duly empowered after a consultation with the Colombo Stock Exchange (CSE), to direct the CSE to close its securities market (share market) for a period not exceeding five business days at a time which period is extendable.

In order to do so, the SEC should form an opinion that an orderly and fair market for trading in securities on the securities market is being or is likely to be prevented because of an emergency or natural disaster within Sri Lanka or if there exists an economic or financial crisis or any other similar circumstance within or outside Sri Lanka.

“The share market over the last week has seen wiping out of investments close to over Rs. 800 billion. Such however cannot be attributed to failures of performance of the listed companies. The top tier companies have actually recorded exceptional performances and profits for the last financial year. However, owing to the serious fuel and power crisis resulting in the public unrest and curfew, the share trading last week cannot be construed to be orderly and fair. This sentiment and uncertainty are bound to continue for a couple of weeks.

“Last week, over 10 hours of power cuts per day which overlapped trading hours, trading devices being unable to be charged, failures in internet connections and in addition, the inability of share brokers to travel, are some reasons which have all resulted in an unfair trading environment. Considering all this and now the prevailing state of emergency which was declared at the end of the week, it is nothing but reasonable to halt trading for at least a week.

“Though a contrary school of thought exists that all of the above are part and parcel of the uncertainties of an equity market which should not warrant for closure of an exchange, the circumstances at the moment in Sri Lanka are beyond any reasonable acceptable level to any person resulting in also irrational thinking and haphazard decision-making. In instances such as this, the closure of the exchange for a period, and reopening thereafter when a semblance of normalcy returns has generally resulted in some degree of stability and also the possibility of an upward trend.

“However, in the event of a further free fall of share prices, stakeholders including financial institutes who have extended margin facilities on share securities could suffer irremediable harm causing further harm to the economy of the country.”