After very turbulent period, market has now settled down: SEC Chief

Securities and Exchange Commission (SEC) Chairman Dr. Nalaka Godahewa yesterday declared that after a very turbulent period in the recent past, the stock market has now settled down encouraging the regulator to focus more on fulfilling overall responsibilities.

He made this observation during his remarks at the seminar on related party transactions organised by the SEC’s Capital Market Education and Training Division.

Statutory Accounts Standard Committee Chairman Nishan Fernando made a presentation and then participated in a panel discussion involving the Institute of Chartered Accountants of Sri Lanka. ICASL President Sujeewa Rajapakse, SEC’s Acting Director General Prof. H. Dissabandara, and Director Supervision Surana Fernando were also present. Following are excerpts from Dr. Godahewa’s speech:

On behalf of Securities & Exchange Commission, it is my pleasure to welcome you to this seminar on related party transactions, which I believe is timely, considering the fact that SEC has recently issued a consultation paper on this subject and we are in the process of receiving public comments.

Today’s presentation and the discussion that will follow will also be taken note of when we are making the final decisions on this matter.

As all of you are aware the SEC has been in the public eye during the greater part of the last two years. Obviously there was high media attention due to the volatility of the Colombo Stock Exchange.

The constant publicity over specific issues to some extent distracted the public perception of the market. Sometimes I wonder whether the role of the regulator is fully understood and appreciated by the concerned parties.

The final outcome of all these undue media publicity was negative sentiments that adversely affected the market. Therefore one of the key challenges for us in the recent past was rectifying this situation. However, after a very turbulent period the market has now settled down and we are now focusing more on fulfilling our overall responsibilities as a regulator.

As all of you are aware the two primary functions of the SEC are:

The creation and maintenance of a market in which securities can be issued and traded in an orderly and fair manner.

The protection of the interests of the investors through proper regulations of the securities market and by ensuring professional standards are maintained.

With regard to the first objective, SEC, after a series of internal and external consultations has now identified Ten Key Tasks or Projects that we need to engage in over the next two to three years.

We believe these initiatives are essential to address our current limitations in developing the overall capital market. There are so many opportunities for us to further develop our capital market and thereby actively contribute towards the post war economic development. As you are aware out of nearly 40,000 registered companies in Sri Lanka, only 200 companies are listed which is less than 1% of the total.

We have less than 50,000 active CDS accounts which means not even 1% of the country’s population are engaged in the stock market. Our market capitalisation is around 30% of the GDP whereas in most of the regional countries market cap exceed 80-90% of the GDP. More than 75% of the capital market depends on equity which shows that the debt market and the other products are not at all developed.

Our stock exchange is not yet demutualised following the global and regional examples. Unit trusts which are a good mechanism to get the ordinary public involved in the capital market has not yet caught up despite being in existence for more than two decades.

During the recent past we were happy to note a clear increase in foreign participation at CSE. However, we need more. While we need more foreign funds to come into the market we also need to ensure that more both state owned and private companies are listed to create opportunities for large foreign funds to invest.

I do not intend to go into details on the 10 initiatives, but we are hoping to address most of the above mentioned issues through these initiatives during the next two to three years.

The second objective, the investor protection also needs further action. While we are generally satisfied with the regulatory measures that are in place, there are some areas of concern where we need further attention and streamlining to keep up with the changing international standards.

Some of the limitations we find in the current regulations in addressing these concerns will be addressed by the proposed amendments to the SEC Act. But there are other things that we can do without waiting for an amendment to the Act. Such things we intend to implement at the earliest possible after proper consultations with the stakeholders.