Capital market chorus for consultative committee

An obvious process but forgotten midst booms and busts of Colombo Bourse, the appointment of a well represented Consultative Committee for capital market is likely as a means to ensure a more robust and inclusive development of the industry.

This was the key recommendation at a top-level two day capital market development workshop which successfully concluded yesterday at Jetwing Blue in Negombo.

It is also interesting that the very suggestion of greater and regular consultation idea came at an event of all stakeholders of capital market engaged in a dialog itself under a welcome joint initiative of the Securities and Exchange Commission (SEC), the Colombo Stock Exchange (CSE), Colombo Stock Brokers Association (CSBA) and the Unit Trust Association (UTA).

Nevertheless this recommendation by several who spoke follows the forum superimposing the negative sentiments, misconceptions and misunderstandings over certain measures introduced as part of regulating the capital market.

It was pointed out that some of the regulations though aimed at curbing market misconduct indeed had other implications. This reinforced the fact that had there been prior and adequate consultation when possible effective regulation could have been achieved. The consultative committee mooted, is on the lines of Monetary Policy Consultative Committee of the Central Bank.

Vocal proponents of greater consultation at the forum were former Director General of the SEC and now Precedent Partner of Nithya Partners Arittha Wickramanayake; and Acuity Partners CEO and former Chairman of CSBA Ray Abeywardena.

Arittha during the course of his impressive presentation on the session “Is the stock market overregulated?” said good regulation must be facilitative hence industry input is important. “Constant and open dialogue with the industry does not exist in adequate measure,” he lamented.

However he also faulted the industry associations for not being proactive and for not speaking in one voice or unitedly express many view points. This he said has resulted in a top-down imposition of regulations.

“An open and frank dialogue will ensure effective, transparent and industry-wide accepted regulations. This will ensure there is no need for constant tinkering of rules and laws by the regulator, which could be construed as a sign of weakness or incompetence on the part of the regulator,” he added.

“Once industry associations are co-opted for discussions they cannot go back and complain about new regulations,” Arittha said emphasising that solution for effective regulation isn’t easy but co-operation from the industry which knows better some of the manipulative practices in the market is critical going forward.

Abeywardena who expressed the view that the market isn’t over regulated however emphasised that consultation with the industry is a must. “To get the broader regulatory role right with time to time imposition of directives there must be consultation with market participants. This will ensure that the overall regulatory environment is aligned with the core objectives of capital markets,” Abeywardena added.

He pointed two instances where due to lack of consultation two directives have been problematic. One was the segmentation in the preferential basis of allocation on IPOs and the other was stopping broker credit to clients.

CSE Chief Executive Officer Surekha Sellahewa who chaired the session also highlighted the benefits of such a consultative committee.

CSBA President Sriyan Gurusinghe said that there is dialogue between the industry and the regulator but most often it takes place after new regulations are introduced.

The sheer irony of apparent lack of consultation was well demonstrated by former Commissioner of SEC and now on the other side of the divide Heraymila Securities CEO Ravi Abeysuriya. He admitted that whilst it was during his tenure at the SEC Commission that price bands were introduced and broker credit was stropped but having started broking and investment banking firm the ill-effects and cost of compliance of such moves were realised.

The original across the board price band prevented market determining the prices whilst formalisation of broker credit through margin provisioning has increased cost to the industry, he added.

The SEC organised Capital Market Development Forum drew nearly 200 participants. On the invitation of SEC Chairperson Indrani Sugathadasa the guest of honour was Securities and Exchange Board of India (SEBI) Chairman U.K. Sinha who also delivered the keynote speech at the session on unit trusts titled “Unit Trust as a conduit for unsophisticated investors to access the Capital Market?”

The workshop also dealt with several issues under broader themes “Shaping the next phase of development for the Capital Market” delivered by CSE Chairman Krishan Balendra; Innovation for Capital Markets by London Stock Exchange Director Global Development  Tony Weeresinghe; Governance in the Capital Market by Ernst & Young Senior Partner Asite Talwatte; Risk Management in the Equity Market by Devanesan Evanson, Director E &Y Malaysia and Former Chief Regulatory Officer, Chief Market Operations Officer & Senior Vice-President, Legal Advisory for Market Supervision Bursa Malaysia; and, Developing Primary and Secondary Markets in Corporate Debt by S. Nandakumar Senior Director and Head of Fitch Ratings’ Global Infrastructure and Project Finance - Asia Pacific.

A detailed report on the two day workshop will be published by the Daily FT later this week.