Market must earn confidence to be more attractive for investors: SEC

Thursday, 7 June 2012 10:35 - - {{hitsCtrl.values.hits}}

The Securities and Exchange Commission (SEC) Chairman Tilak Karunaratne has emphasised that for the Colombo stock market to be attractive, it must earn investor confidence.

“The SEC is of the view that for a market to be attractive to potential investors and draw wider participation, it must earn investor confidence,” Chairman Karunaratne said in his review in the SEC’s 2011 Annual Report released yesterday.

In his review, the Chairman also said in 2011 the SEC continued to provide proper direction and consistency in policies towards fulfilling its mandate of fostering a fair, efficient and transparent capital market.

“In line with our objectives the SEC made significant strides in developing market infrastructure, institutions, intermediaries and investors in order to expand the role of our capital market in financing the growth of the economy,” he said.

“During the last three years, the Colombo stock market provided the public an additional avenue of investment even though many did not tread this path carefully by not assessing the risks involved in an appropriate manner. The high growth in the Colombo stock market seen in 2009, 2010 and in the first quarter of 2011 caused a high degree of price volatility and it also created many regulatory and supervisory issues. The SEC was forced to step in and take several – perhaps not very popular – measures to curb the volatility and to reduce the systemic risk in the capital market,” SEC Chairman Karunaratne said.

He also said that the regulatory reform process of the SEC was focused on strengthening investor protection and market integrity.

“We continued to remain vigilant and maintain robust surveillance of the trading activities to ensure that the market operates in a fair and orderly manner and promote efficient price discovery. The SEC is able to monitor trading activities on a real time basis to detect a wide range of possible market misconduct. This enabled us to act promptly to curb potential market misconduct and enhance investor protection,” the SEC Chairman said.

SEC is also of the view that the settlement risk which currently exists between T (Trade Day) and T+3 (Settlement Day) will be fully eliminated by improving equity-market infrastructure such as establishing a Clearing Corporation.

“We will also pay more attention to improving corporate governance, improving market liquidity, creating a well informed and educated investor base, re-evaluating market volatility controls and developing a long-term listed debt market in the immediate future. Introducing a minimum free float is one measure that the SEC is currently contemplating in order to increase the liquidity of the market,” Chairman Karunaratne added.

His review also stated that in 2011 SEC embarked on a more proactive role to make the capital market accessible to the masses through financial literacy programs.

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