CSE to relax “forced sale” rules; broker credit at Rs. 14 b

Amidst the sharp downturn in the market and Rs. 14 billion in broker credit, the Colombo Stock Exchange (CSE) said yesterday it will relax rules pertaining to “forced sale” as a stability measure.

“We are in the process of amending rules concerning forced sale as a means to bring about systemic stability,” CSE Chairman Dumith Fernando told journalists.

With the Colombo stock market down year to date by over 30% and more sharply in recent weeks on account of economic and political crises, there is increased pressure on investors and market participants involved in credit. Rules at present trigger forced sale when the outstanding amount goes to above 70%.

Fernando said broker credit amounts to Rs. 14 billion whilst the exact figure of margin providers, regulated by the Securities and Exchange Commission, is not known to the CSE.

Forced selling is one of the aspects that the CSE considered in its deliberations to go for a temporary closure of the market until 22 April. CSE believes that the market’s sharp decline in recent weeks was due to unprecedented extreme developments hence the need to bring some stability.

Last week the Daily FT reported that with Rs. 2 trillion in value wiped off, battered margin traders were seeking some relief on “forced selling” rules. Brokers had made representation to the SEC as well in this regard whilst margin providers have been maintaining that their own financial soundness was an important factor as well.