More about the real potential of the stock market

Tuesday, 19 June 2012 00:53 -     - {{hitsCtrl.values.hits}}

Your article which appeared on 25 May 2012 is very educative, thought-provoking, clearly explaining the brief history of the factors that contributed to the collapse of the stock market. The author’s effort is highly appreciated by all investors and the brokering community. Your esteemed newspaper too is commended for the effort in revealing the truth.  

It is tragic how the SEC, for that matter a regulator in any stock market could destroy a stock market through ill conceived irresponsible decisions. As recommended by the writer I feel the following matters too should be included in the terms of reference of the presidential commission.    

Whether any board member or official of SEC or CSE had any hidden agenda political or otherwise to damage the market thereby damaging the economy and the image of the Government and the country. Their connection to the opposition parties and other anti national forces too should be probed.

The composition of the SEC and CSE Boards. There is a strong view that the government should have the control of CSE. Similarly members appointed to the SEC should have genuine faith in the ‘Mahinda Chinthana’ and small investor friendly. Further, every member should have in depth knowledge of the stock market and related fields. Merely depending on the paper qualifications, present positions held without the knowledge of subject matter would result in disaster as seen in the Colombo stock market collapse.

I observe some members are appointed by virtue of the position held. For instance, the President of the Chartered Accountants Association is a permanent member. He may be a person holding anti government views or person with conflict of interests. This rule therefore should be amended. There are thousands of accountants in the country and if necessary such person could be appointed who conforms to the above requirements.  

Appointment of an advisory committee by the government consisting of investors with over 20 years with suitable academic qualifications representing retail market to advise the SEC. This would also fill the vacuum in the impact management.

Conduct of officers of SEC and CSE in an exemplary manner that would restore credibility and respect among investor public and the stock brokering community. Senior officials of SEC should ensure that the free operation of the market is not hampered by advising investors and brokers on the type of shares they should buy. It is the funds belonging to the investors and they alone should decide on the investments made, may be in consultation with their brokers.

It is alleged certain officials of SEC have adversely commented on certain shares giving a zero value at various seminars. In one instance a certain official if correct has threatened to kick out a popular company from a well known high rise building. These are very disturbing trends that should be stopped forthwith since regulators should realize their role and act in a dignified manner.

There is no doubt nearly 500,000 investors mostly small investors such as minor employees, small traders, clerks, middle grade officers, pensioners, etc., have lost their entire savings and this represent nearly two million affected persons amounting to 10% of the population. There were expectations to increases the stock market participation to 1.5 million accounts benefitting about six million of the population and unfortunately the Government has lost this opportunity mainly due to commission and omissions of SEC.

We agree with the author that the delay in implementing the decision regarding allowing lending up to three times the net capital of the brokering firm appears to be a move to undermine the authority of the President who had the vision to foresee that even a higher lending level should have been requested by the brokers. Not even up to the time of writing this letter has the SEC attempted to conform to the assurance given by the President. In fact various obstacles have now been placed by the CSE to further delay this important and much needed announcement.

The President called a meeting with brokering companies in the recent past since he was not satisfied with the performance of the SEC. As Finance Minister he has taken a correct and bold decision although anti-Government forces criticised it. Similarly he took the correct decision to cancel the TFC/NSB deal although a certain opposition MP objected to it, despite been a leading critic. The President is not guided by outdated theories and is motivated to find practical solutions. If he listened to the opposition parties and anti national forces we would be still fighting the LTTE terrorism. These are the qualities that made him one of the best leaders produced in the history of the country and one of the most popular in Asia according to the recent survey. As suggested by the author immediate meeting should be convened by the President in his capacity as the Minister of Finance under whose purview the SEC comes, to find solutions to the present crisis and to at least consider the following immediate remedial actions.  

Increase the forced selling limit under margin credit to 75% for a short period until stability in the market is restored. However, buying against current portfolio to be restricted to 50% as at present. This is essential to save the existing small investors who are struggling with severe financial difficulties.

Encourage Government and private funds to purchase shares in the manner outlined by the author.

Ensure some consensus among stock brokering companies to maintain selling at a minimum level for an interim period of one month to be reviewed later once the stability of the market has been restored.

The SEC and the CSE which are sustained from investor income are living in a fool’s paradise thinking everything is hunky dory when nearly two million people affected have lost their entire savings and our stock market is considered one of the worst performing market in the world having dropped over 20% as at 29 May 2012.  Have SEC or CSE ever held a crisis meeting in the recent past to find solutions to this situation. No. I am strongly of the view the Government should hold every commissioner and senior official responsible for all the wrong decisions taken to damage the market during the past three years.

I would like to request the authorities to act without delay in taking the necessary corrective actions to restore the market confidence and to try and revitalize one of the main economic indicators of our proud nation. As the author of the article has rightly pointed out we should not wait until all small time investors are bled to death at the CSE and the vultures swoop in to pick their bones.

The authorities should get the CSE out of its doldrums and ensure competent persons are in charge of critical success areas of the Government, one of which is the SEC where the officials in charge should complement the implementation of government strategies based on the ‘Mahinda Chinthana,’ rather than hindering the progress of the country.  

Well-informed investor