Market meets for momentum

Key stakeholders of the Colombo stock market yesterday met for a brainstorming session on the current status of the bourse, to make it more vibrant given the recent lull in comparison to the bizarre bull run until October.

SEC said Chairperson Indrani Sugathadasa together with other members and officials of the commission and Chairman of the Colombo Stock Exchange (CSE) Nihal Fonseka met with the members of the stock-broking industry yesterday where several decisions were made.

One was to encourage stockbrokers to extend credit facilities to their clients through margin providers registered with the SEC.

The SEC had informed the stockbrokers that the directive that was issued earlier by the commission on extending credit to any investor beyond T+3 days, was not a measure taken by the commission to discourage investors, but was a critical step taken towards managing the inherent systemic risks in the capital market.

A list of the margin providers registered with the SEC has been published in the newspapers for the information of the public whilst it is also available on the website of the SEC (www.sec.gov.lk).

SEC said, having taken note of the concerns of the stock-broking industry, it permitted the stockbrokers to grant a brief grace period to buyers who are in default of settlement by T+3.

Accordingly, stockbrokers will be granted an additional two days to force-sell securities of buyers which are in default of settlement by T+3 in order to recover the monies owing to them by such defaulting client.

The market’s move towards margin providers is growing judging by the number of registered parties for this activity. As of last week there were 23 registered margin providers in comparison to 14 end of 2009.

Some analysts viewed yesterday’s multi-stakeholder dialogue as a “crisis meeting” as the market in a critical sense has remained lackluster especially when considering the extremely bullish run a few months ago.

The introduction of the price band as well as new rule to formalize credit arrangements were cited as two factors that has killed the market’s momentum.

However, others noted some of the measures taken by the SEC were warranted to cool an overheated market as well as discipline an extremely dangerous bull run which they described as “highly artificial” and loomed as a “bubble about to burst”. Some even alleged the bourse was akin to a casino.

Despite the arguments for and against, statistics show mixed results. In comparison to record high in October of 115% year to date gain, the bourse’s return as of yesterday had come down to 96%.

The latter however was boosted since Christmas week as the market is currently trading at an eight-week high. The more mature investors opine that the market needs further correction, a forecast shot down by those who insist that the market is over-regulated.

Analysts said that some of the new measures introduced by the SEC were to keep extreme risks out of the market. A case in point is requiring brokers to float separate entities and not even a subsidiary if they wish to provide margin facilities to clients.

Perhaps under pressure, SEC recently relaxed the deadline for clearing of previously offered credit by brokers to clients. They are now required to settle 50% by 31 March and the balance by June 2011.

The enforcement of the 15 market day (three weeks in normal basis) 10% up or down price band remains an eyesore among many investors.  Some brokers and investors have been lobbying for a reduction in the effective period, whilst others have called for a total removal. SEC however remains firm over the price band as it hasn’t made any changes so far.

SEC takes Miramar Beach Hotels to court over Annual Report failure

The Securities and Exchange Commission (SEC) has recently instituted proceedings in the Magistrate’s Court, Fort, against Miramar Beach Hotels Plc and its directors for non submission of the Annual Reports of the Company for the financial years ended on 31 March 2008 and 31 March 2009.

The rules issued by the SEC makes it mandatory requirement for every company listed on a stock exchange to comply with the Listing Requirements of that exchange.

According to the Listing Rules of the Colombo Stock Exchange, all listed companies must release their annual reports within five months of the end of the financial year. If a listed company fails to do so, the securities of that listed company are transferred to the Default Board of the Exchange.

SEC said this rule had been introduced to enable investors to make well-informed decisions in respect of public listed companies. “All public listed companies on the CSE are under a contractual and legal duty to release the Annual Report of the company within the stipulated time period,” SEC said.

Sources said Miramar is the second listed company to be slapped with legal proceedings over non submission of annual reports. The first was Asia Capital, which later complied.

In the current default board, there are several companies on account of non submission of Annual Reports. For example, Hotel Developers (Lanka) Plc hadn’t submitted an annual report since 1990.

This appears to be an extraordinary case as the Company has some legal cover for non submission.

Vanik and Ferntea are two other companies in the Default Board for non submission of Annual Reports since 2006 and 2005 respectively, but both are under liquidation.

Lanka Cement, also on the Default Board for non submission of an Annual Report since 2005, is likely to face legal action by the SEC shortly.