HERAYMILA Securities Ravi Abeysuriya in his presentation referred to the manipulative practice of “pump and dump,” which eventually turned out to be the catch phrase during the rest of the workshop, in addition to drawing several questions and reference by some of the other speakers as well.
“The SEC should take stern action against those who artificially manipulate the market prices to their personal advantage i.e. pump and dump,” said Abeysuriya, who ironically until last year was one of the Commissioners of the regulatory body.
Calling for a robust regulatory framework, Abeysuriya quoting media reports said the regulator did not seem to be taking those who trade on inside information to task or was scared of the offenders.
“People are waiting to see a few high powered offenders being prosecuted for market manipulation,” he said, adding that the SEC Act needed to be amended to provide for civil sanctions such as punitive penalties and disgorgement on offenders.
Urging greater trust in the market and awareness, Abeysuriya claimed that the majority of the public perceived the capital market as a punting or short-term opportunity and not as a viable long-term investment vehicle.
Not minding the presence of CSE Chief Balendra (Head of JK Capital which advised on the Expolanka IPO) on the head table, Abeysuriya also took a dig at the alleged rip-off in a recent IPO (it wasn’t named). Though claiming it as a hypothetical example, Abeysuriya said this was a case of an IPO trading below issue price after a private placement one year before at less than 50% of IPO price, where the majority of the investors who invested in the private placement had sold out in the first two days.
“Investors view this regulator-assumed IPO price as an absolute ‘rip off’ as it was compliant with regulations. It implied SEC had no teeth to deal with the company and intermediary the ‘rip-off artists,” the Heraymila Securities Chief alleged.
He also queried whether this was a defensible position: “Are we deepening the capital market or deepening the distrust of the market?” Another attack was on raising the fairness of allowing lead managers and financial advisors to invest in private placements, in an obvious reference to JKH investing in the Expolanka sell down whilst Group arm JK Capital was handling the advisory role.
Investor awareness creation
Noting that a much higher level of investor awareness creation and education was a must (he commended the CSE’s and SEC’s TV programmes such as ‘Milanka’ and ‘Pratilaba’ respectively), Abeysuriya said that in recent years retailers were quite active, looking for quick profits. “They know little about the fundamentals, don’t study the fundamentals of a company or its track record and are unable to make an informed judgment on investments. Their tactic is to follow the herd, buy small lots and moan and groan when a new stock doesn’t gain on opening day trades. There is simply no calculated risk in this kind of investment,” he opined. Abeysuriya also called for greater ethics and fair-play devoid of conflict of interest, professionalism, training of staff among the broker community and encouragement of high standards of analysis and independent opinion.
With regard to stopping credit to clients by brokers, Abeysuriya suggested that this be reintroduced with adaption of risk-based net capital requirements for brokers.
The need for companies and issuers to become market friendly was also stressed. Abeysuriya said the CSE/SEC must ensure dissemination of price sensitive information swiftly through CSE announcements and avert leakage of price sensitive info. Additionally, stricter norms regarding disclosure of price sensitive information was recommended as conflicts of interest contribute to reducing asymmetries of information and aid the markets in price discovery. Other emphasis was more comprehensive financial reporting – making more detailed information available to investors, release forecasts/estimate figures.
Focusing on policy reforms, Abeysuriya said the SEC/CSE should mandate new listing firms to pay interest on IPO proceeds after three days of realisation of funds until funds are refunded. He recalled that only Dialog did this. Facilitating further growth of unit trust industry; encouraging wider institutional investor participation and trading of debt and equity; full service brokers – investors are able to diversify across all five asset classes and allow brokers to sweep credit balances to money market accounts and offer built-in cash management features; allowing pooled investment schemes where the funds of many individual investors are aggregated for investment and providing the option for clients to accept paperless transactions and electronic confirmations were some of the other recommendations by Abeysuriya. “I am confident that a carefully structured programme of reforms based on the deliberations of this workshop under the guidance of Chairperson of SEC Indrani Sugathasasa and her team led by Malik will be able to shape the next phase of development of the capital market,” Abeysuriya added.