Colombo stock market requires gradual regulation, not rash steps

Nishan Premathiratne

Following the sharp dip in the Colombo Bourse, the International Chamber of Commerce (ICC) (YAF) Regional Representative for Sri Lanka and the Sector Specialist for Commercial Law Reforms of the

Ministry of Justice and Attorney-at-Law Nishan Premathiratne, yesterday opined that regulation should not be brought in such a hurry but should be done cautiously, giving time for stakeholders to adapt to regulations in a gradual manner. 

“Regulators of capital markets being proactive and taking steps to closely scrutinise and monitor market affairs is a good thing. However, there is a thin line between regulation and over-regulation. The consequence of certain circulars which are intended to be in the best interest of the entire stock market and also to protect investor interest, could actually result in changing the overall market sentiment. This in turn might actually be counter-productive and against the interest of all investors. The new circular which has been issued with the objective of clearing stockbroker credit has seemingly caused the stockbrokers to force-sell shares resulting in the overall share prices coming down,” opined Premathiratne. 

He also said: “Going forward, I think it is in the interest of the entire stock market and in the interest of all investors that these circulars be re-looked at, wherein a more gradual process of clearing credit of certain stockbrokers should be effected. This in turn would provide the brokers with a reasonable degree of flexibility and could resurrect the market, more over preventing the market from coming down any further and reaching record lows.”

From being hailed as ‘The World’s Best Stock Rally’ by Bloomberg.com at a time when many Sri Lankan citizens were actively investing in the stock market, the Colombo Stock Exchange has plummeted over 1,500 points within a period of a mere 10 days, unleashing catastrophic effects upon the investments of individuals.

Having reached a record high of 9,000 points in late January, 11 February saw the market plummeting more than 500 points, compelling the market to be stalled where trading was stopped twice when share prices plummeted 20% in most counters.

The downward trend started from on or around the 1 February, when market regulators issued a circular to all broker firms which resulted in a free-fall in the market over the last 10 days.