Market or Malik?

If one takes a cue from the Colombo bourse’s market capitalisation, then the trillion rupee question is which lobby President Mahinda Rajapaksa, who is also the Finance Minister, will find more credible over the calls to remove or retain Securities and Exchange Commission Director General Malik Cader.

Despite speculation to the effect that the capital market regulator’s Director General will be removed, Cader, a longstanding SEC employee, is very much in office whilst the Commission is also intact with Chairperson Indrani Sugathadasa dismissing all as rumours or saying “not to my knowledge”.

The group which is lobbying for change at the top at SEC however insists that Cader’s days are numbered. Others say he will be retained as market needs him and removal means implicating the entire Commission as well.

Behind the scenes, both camps are busy pressing their cases  which will have a bearing on the Bourse,  market capitalisation of which is Rs. 2.2 trillion. Many recommend  the parties meeting half-way as opposed to extreme positions.

The SEC director general post is an appointment by the minister of finance on the recommendation of the commissioners of the regulatory body. Cader is a permanent employee and would require a charge sheet issued among key removal options.

Industry talk is that Cader will be be given a Consultant/Advisor posting at the Finance Ministry, but the move has hit a few roadblocks such as ensuring he is not financially deprived though being required to serve in a Ministry.  

 Cader in particular and the SEC as a body overall face multiple allegations, the most prominent being haphazard directives often showing inconsistency and mis-judgment of its own actions and overregulation. The year-to-date negative return of near 5% in terms of the All Share Index and near 20% on the basis of Milanka Index are cases in point. Some view the dip as part of correction from dizzy heights.

A famous allegation is that the SEC or its DG has been like a cop brandishing market-policing powers too much and too often and at times with loose talk as well as lack of understanding how markets work. This, analysts opined, fell short of a professional approach desired by a regulator.  “It is not the job of the regulator to determine the true value of shares or categorise a group of stocks as junk, speculative or fundamental. A regulator shouldn’t go public often saying there is market manipulation or point to a set of investors, big or small, and brokers as manipulators without evidence. These actions are bigger blows to investor confidence,” they claimed.

“The regulator can be tough and diligent but must be equally professional and announce actions after they are taken rather than being verbally reckless,” they said, adding, "The regulator shouldn’t show indiscipline either by regularly changing its directives. “In any trade there is a willing seller and buyer, hence the regulator shouldn’t intervene unnecessarily. If at all the regulator must step up educating the public if the SEC feels the market is full of innocent investors.”

Those who are supportive of Cader and the SEC insist that regulators need to think and act tough, against malpractices or manipulation.  They also point out that politics should stay away from a regulatory body adding that  a regulator's job is never easy hence the SEC's independence must be preserved.

For this, however, the SEC needs to be truly independent and professional whilst successive amendments to its act have paved the way for such a desired objective.

Whilst some investors pin the plunge in the Colombo bourse on SEC overregulation, others say the fall was after it was over-heated/valued, hence a correction. Some analysts opined that any boom isn’t good if it is due to manipulation. Others however countered saying markets gain or dip on sentiments, not solely on fundamentals or theoretical basis.

There are enough global examples where price does not necessarily correlate exactly to book values, etc. The market boom in mid 2010 (which triggered the SEC’s tough stance) was a natural post-war phenomenon, it was pointed out.

Another criticism against the SEC is the alleged selectivity when it comes to its regulatory action. “All know many groups actively play the market and eventually dump highly-inflated shares on State institutions. The SEC turns a blind eye to these and hunts only others, including small timers,” they added.

Those who back the SEC deny alleged favouritism whilst it pursues a regulatory regime driven more by disclosures.

Unlike in the past, the Colombo bourse post-war has turned out to be one of high stakes, drawing politicians from both the Government and Opposition as well. Understandably, for a Government that rode on the achievement that the Colombo bourse was the world’s most consistent best performer, showcasing it as an emphatic vote of investor confidence, the market now reeling with billions in value lost has become a daily nightmare.