Chandra J writes to Association of CFAs over broker research reports

Chandra Jayaratne, a former Chairman of the Ceylon Chamber of Commerce, has written to the Association of Chartered Financial Analysts Sri Lanka with copy to several others, including capital market regulators, over issues of ethics and professionalism with regard to research and analysis reports circulated by a stock broking firm. Following are excerpts of the letter:

Murtaza Jafferjee Esq.

President,

Association of Chartered Financial Analysts Sri Lanka,

Colombo.

Dear Murtaza,

Capital market development via the enforcement of the codes of ethics, standards and governance binding investment intermediaries, securities analysts and financial analysts



I write this note as the former Founder President of Sri Lanka Association Securities and Investment Analysts (SLASIA) succeeded at a professional level by the Association of Chartered Financial Analysts Sri Lanka (CFA Sri Lanka) and now ably led by you, following the initial establishment under the leadership of Ravi Abeysuriya.

The visionary approach of the founding team of SLASIA was built on the belief that highly professional men and women of Sri Lanka with knowledge, skills, attitudes and values matching qualifications, ethics, standards, advocacy and best practices of The Global Association of Investment Professionals – the CFA Institute – should drive the capital market development in Sri Lanka.

Your Association is now engaged in taking strategic steps with commitment towards realising the above Goal, in an environment where peace, security, stability and much improved infrastructure service delivery can attract investments (both local and foreign) in assuring growth and development of Sri Lanka duly facilitated by an efficient and effective capital market.

The Securities Exchange Commission (SEC), the Colombo Stock Exchange (CSE) and the Central Bank of Sri Lanka as the operating Regulators fully supported and duly recognised the visionary objectives of SLASIA.

The US AID Mission in Sri Lanka provided us with the necessary technical assistance towards laying the initial foundations towards a full professional Chartered Financial Analysts Association being established in Sri Lanka. The Bankers Association and the Ceylon Chamber of Commerce gave SLASIA all possible encouragement in its endeavours.

It is indeed a privilege and a pleasure to observe CFA Sri Lanka under your leadership now driving the investment profession in Sri Lanka to its next stage of development.

In the above context, I am highly perturbed and deeply disappointed by reading some e-mails (see box) circulating recently purported to be official analysis reports issued by a recognised and registered financial intermediary engaged investment analysis supporting their business in stock broking and internet trading.

I am sure that the Chairperson and the Executive Team of the Securities Exchange Commission and The Chairman and Executive Team of the Colombo Stock Exchange along with yourself and the Council of CFA Sri Lanka, will no doubt endorse that:

1. Vituperative, unprofessional and unacceptable research and analysis reports have no place within the scope of disciplined and professional investment management; nor within the framework of a desirable investment advisory environment and are definitely not desirable in driving capital market development.

2. Only professional, independent, analytical research reports developed by capable men and women with intellectual integrity and committed to professional discipline have a place within the visionary outlook of the leaders of and drivers of the capital market.

3. Strict enforcement of codes of ethics, standards and governance will be a pre requisite for capital market development.

4. Transparency, consistency and accuracy of market information and management information are critical elements of a recognised capital market.

5. The professionalism and commitment to standards and codes of ethics and governance by all intermediaries and professionals engaged, (e.g. brokers, rating agencies, investment analysts, auditors, corporate secretaries, lawyers, and registrars etc) are pre requisites for the functioning of an efficient capital market.

6. Openness of intellectual debates, public critique and professionalism of financial journalism are essential features for market acceptance and market development.

7. Restriction of freedoms of expression, restrictions of opposing views and critique in debate and calling for the selective elimination of voices of critique and dissent are significant negatives in attracting direct foreign investments and in capital market development.

In the light of the above commitments by the key stakeholder of the capital market, I would appreciate leadership action by you and CFA Sri Lanka in duly engaging with the Chairperson and the Executive Team of the Securities Exchange Commission and the Chairman and Executive Team of the Colombo Stock Exchange in taking immediate steps to:

1. Inquire in to the veracity of the purported research report circulating as an e-mail.

2. If the purported report has been issued by a registered market intermediary or a registered investment analyst and its content have duly violated codes of ethics, standards and governance expected by SEC , CSE and CFA Sri Lanka, bring the full force of penal provisions of the codes and standards in to enforcement against the errant intermediary.

3. SEC, CSE and CFA Sri Lanka to arrange a series of workshops targeting the key intermediaries in building awareness of and promoting due adherence to Codes of Ethics, Standards and Governance and making them be participants singing from the same hymn sheet and driving down the same path as agreed to by SEC, CSE and CFA Sri Lanka in realising envisioned capital market goals of Sri Lanka.

I trust that this appeal made with commitment in seeing the realisation of the envisioned dreams of the founders of SLSIA for capital market growth built on professionalism, integrity and best practices will receive the urgent attention of yourself and the collective collaborative action support of the SEC and CSE

With warm regards,

Yours sincerely,

Chandra Jayaratne

Cc. Mrs. Indrani Sugathadasa, Chairperson, Securities Exchange Commission

 Mr. Nihal Fonseka, Chairman, Colombo Stock Exchange

 Dr. Mrs. Ranee Jayamaha, Presidential Advisor on Banking and Finance

 Mr. K.G.D.D. Dheerasinghe, Deputy Governor, Central Bank

 Mr. Amita Gooneratne, Chairman, Bankers association of Sri Lanka

 Dr. Anura Eknayake, Chairman, Ceylon Chamber of Commerce

 Mr. Malik Carder, Securities Exchange Commission

 Ms. Sureka Sellahewa, Colombo Stock Exchange

 Mr. Ravi Abeysuriya

 Mr. Channa de Silva, Founder Secretary SLASIA

Technical analytical and economic/political outlook:

The market escapes the bull flag consolidation but the progress is still affected by forced selling! The market came out of the bull flag consolidation pattern in which it was entrapped in from the beginning of this month but the progress is badly affected by forced sales continuing at several brokerages not interested in keeping small retail investors.

In this regard we are glad to announce that ….…. has progressed significantly in securing margin trading facilities for most clients big or small. January 1 2011 deadline for discontinuation of unofficial margin trading facility provision by brokerage firms will continue to affect the market sentiment in the coming months despite the better than expected corporate results and economic performance results expected during the period.

We must never forget the fact that the war against the deadly terrorists was won in early 2009 but the war against saboteurs, traitors and subversive elements is continuing. The Government’s noble goal of making our motherland the ‘Financial Hub of South Asia’ and the ‘Economic Miracle of Asia’ will remain as empty slogans unless these disruptive elements who are ‘perched comfortably on the horns and devouring up the ears’ are identified immediately and eliminated early.

This week, the last two stocks which were imposed with the controversial price bands will be released from their shackles. CTBL and MULL will be trading freely from the 26th.

RSIs of ASI and MPI daily charts are still in the mid 50s. ASI and MPI after breaking out through the bull flag resistances are displaying BUY signals. Please note the large number of stocks and warrants displaying BUY signals after the ASI/MPI bull flag breakout.

 Please refer the updated and improved warrant/rights calculators for the time values and total values of all the warrants, rights and options traded at present and of those that will hit the market in the coming month.

Great days are returning!

For the benefit of those using our TA recommendations list regularly we repeat here the important rules to follow:

1. BUY only when a BUY signal appears on the daily chart of a stock with higher than one beta against ASI (i.e. The Finance Plc and above on the list) with BUY for monthly status and BUY for weekly status.

2. SELL on the first appearance of a SELL signal on the daily chart.

If you require any charts or special advice on any stocks please do not hesitate to seek the assistance of your investment advisor or ...... You are of course always welcome to phone or email me for further clarifications anytime.

New/updated GREG, CLPL, NTB, CLND, REEF, SEMB & SEMB.X Rights/Warrant/Option Price Calculators incorporating the time values of the warrants/options are in attached Excel files. These are updated daily and sometimes modified and hence you have to refer to these regularly every day.

Happy and successful trading!