Streamlining regulations to prepare for a better tomorrow

Tuesday, 21 January 2014 00:01 -     - {{hitsCtrl.values.hits}}

The Securities and Exchange Commission of Sri Lanka (SEC) together with the Colombo Stock Exchange (CSE) successfully conducted a ‘Regulatory Compliance Symposium’ – an awareness program which was intended to guide the public listed companies on the recently-issued SEC Directives on Maintenance of Minimum Public Holding as a Continuing Listing Requirement, Code of Best Practices on Related Party Transactions, and Disclosure Requirements for Directors’ Dealings in Shares. The forum was very well attended and held on 17 January at the Cinnamon Grand, Colombo with the participation of over 325 officials representing public listed companies in Sri Lanka. The keynote address, reproduced here, was delivered by SEC Chairman Dr. Nalaka Godahewa: Ladies and gentlemen, you are assembled here today to discuss some very important developments that will help further refine and define our securities market regulations, which would in turn prepare us for a better tomorrow. As you would agree with me, it was in 2013 that we saw stability returning to the Colombo stock market after the preceding years of turbulence. During the 2009-2012 period, the stock market in Colombo drew a lot of attention some for the right reasons – but as well as for the wrong reasons. We don’t have to dwell on the past, but be content that we have now entered a phase of steady growth, where market fluctuations are expected to be reasonable and rational. All signs are pointing towards a 2014 will be a better in terms of returns, and defined with less volatility. Action plan As you would remember in November 2012 we launched a 10 point three year action plan for the development of the capital market. Our initial focus was to bring stability to the market and lay a strong foundation for future development. We wanted to expand our product portfolio beyond just equity. That required policy initiatives as well as infrastructure development. We are already seeing the results of the work done. A good example is the growth of corporate debt instruments. With 28 new corporate debt listings in 2003 the debt market grew by over 446% last year. As a result the total capital raised in 2013 through Colombo Stock Exchange was Rs. 94.25 b, a record 271% growth compared to the previous year. The overall market capitalisation grew by 13.4%. In 2013, Colombo Stock Exchange was the sixth best performing market in Asia ahead of Singapore, HK and Shanghai. As the market regulator, the primary job of the SEC is to protect the interest of investors and to create a transparent and fair market. Contrary to what some people think, the mandate of SEC is not promoting day-to-day trading and driving the market indices up. Whether market goes up or down on a particular day is a reflection of the investor sentiments on that particular day. It’s the same for any market in the world. New regulatory measures Towards the latter part of 2013, you would have noticed a number of regulatory measures announced by SEC. Introducing a mandatory public float for listed companies, introduction of a code of best practice for related party transactions, changes to directors disclosure requirements, reinstating introductions as a method for listing, allowing primary dealers to become trading members of CSE, introducing a maximum ticket size for corporate debts and revising the minimum number of Public shareholders of companies seeking to listing on Diri Savi Board are some of these. Though they appear as far too many during a short period I must emphasise that there were no ad hoc regulations. Every single regulation was brought in after several rounds of stakeholder discussions and public consultations wherever necessary. It is because of this consultative approach adopted by us that we rarely got any criticism for our actions. In fact we are pleased to say that we got a lot of positive feedback from the public, the stakeholders and the media for these regulatory initiatives. What was the reason for all these regulatory initiatives? That’s because in 2013 we took steps to bridge certain regulatory gaps that were in existence for several years. We wanted to make sure that when we step into 2014 we are ready with a sound regulatory framework – a strong foundation to build on. I believe that to a large extent, we have now achieved that objective. Directors’ responsibilities Today’s workshop is targeted at a very important stakeholder group which mainly comprises of company secretaries, compliance officers, registrars and auditors who need to be quite familiar with the changes to the capital market regulations. You are expected to advice boards of listed companies to adhere to these regulations. Of course every director of a public listed company is expected to know his or her responsibilities by law. The Companies Act of 2007 is quite clear on the directors’ responsibilities. As you are aware it is the duty of every company director to act in good faith and in the interests of the company. Irrespective of who nominated you to the Board, once you assumed duties as a director you no longer represent the interests of those who nominated you, but the interests of the company. When one is a director of a public listed company you must be conscious of the fact that you are responsible towards a large number of shareholders. By looking after the interests of the company you are actually looking after the interests of all shareholders. The shareholders depend on the Board of directors to manage the company affairs to their satisfaction. According to the Companies Act of 2007 a minority shareholder can sue the company for mismanagement and seek relief. So it is important that directors are fully aware of their responsibilities and shareholders are aware of their rights. Be conscious of your responsibilities I would like to take this opportunity to make an open request to all directors of public listed companies to be conscious of your responsibilities. Work towards the interests of the company and be impartial; ensure proper governance in the companies you manage; ensure adherence to the relevant rules and regulations; be transparent and follow the correct procedures in executing your duties; guide the management to achieve high corporate performance; offer your shareholders good returns for their investments. That’s the only way we can continue to deliver shareholder value and build confidence amongst the public who invest in listed companies. From SEC point of view we will continue to monitor adherence to the rules and regulations and will not hesitate to take action where violations are observed. So my request to this audience is that you should participate actively in today’s proceedings. We have a panel representing both the SEC and CSE. Given the time restriction we are discussing only a limited number of topics. But you can make use of this opportunity to clarify matter related to not only the presentations but also any other related regulatory matter. We want you to be knowledgeable about the current regulatory framework and advice your boards accordingly. Pix by Lasantha Kumara