SEC Act implementation vital for capital market growth - Experts | Sunday Observer

SEC Act implementation vital for capital market growth - Experts

Murtaza Jafferjee-Ravi Abeysuriya
Murtaza Jafferjee-Ravi Abeysuriya

The speedy implementation of the Securities and Exchange Commission (SEC) Act to demutualise the Colombo Stock Exchange (CSE), introduce Delivery Versus Payment (DVP) settlement system, greater selection of products, more issuers with sizeable free floats and tapping the top 20 percent of households to invest in the CSE are crucial to develop the market, said capital market experts urging the new Government to pay greater attention to develop the market. Past President of the Colombo Stock Brokers Association and Candor Group of Companies Director, Ravi Abeysuriya said it is imperative to implement the long overdue supply and demand side structural reforms to build a vibrant capital market.

It is expected that the Government will pass the SEC Act soon to facilitate the demutualisation of the CSE, DVP settlement system, a central counterparty, improve governance standards and democratise the stock market for digital transactions. “When the new market infrastructure is up and running and the excesses if any are swiftly dealt with, the CSE will be well positioned to play a pivotal role for capital raising for large and small companies and a popular long term investment vehicle for institutional and retail investors,” Abeysuriya said.

According to research, the major challenges affecting the stock market are its small size and low liquidity. It notes that solving the “size and liquidity” puzzle is critical to unlocking the potential of the Sri Lankan stock market which needs bold and visionary supply and demand side reforms at Government level.

JB Securities (Pvt) Limited Managing Director Murtaza Jafferjee said the case for the capital markets has significantly improved with the decline in nominal interest rates from low double digits to mid-single digits.

We need greater selection of products (gsec trading on the CSE, index futures, REITs), more issuers with sizeable free floats (IPOs), targetting the top 20% of households to invest a greater proportion of their financial wealth via the capital market, legal structures to enable greater pooling (e.g. limited partnerships), implementing much delayed market infrastructure (Delivery vs Payment and Central Counter Party) and for the regulator to improve market conduct and reduce abuse (e.g. insider dealing, front running, market manipulation, fiduciary duty of intermediaries towards their clients) for the industry to grow.

Lack of clarity and stability in policy, fluctuating e rates, high fiscal deficit and a weak currency have adversely affected the growth of the economy for years and this has had an effect on the investor confidence on the country and the capital market.