Stock market full of crooks? What do SEC and CSE statistics show?

Contrary to popular perceptions that the Colombo stock market is infested with insider dealing, manipulation and other malpractices, statistics from the very regulator convey a different picture altogether.

Statistics show that though overall investigations and suspected cases of market/price manipulations have doubled in number, if one compares this with the total number of trades that the Colombo Stock Exchange does for a year, the incidents as a ratio are negligible.

It is from a trade that SEC or CSE detects any suspicion. In that context, consider this analysis. Possible malpractices in 2011 were only 1:138,484 trades and in 2010 it was 1:116,666 trades. The ratio has in fact dropped last year. A scrutiny of the number of investigations in comparison to the number of trades is also negligible. Last year the number of investigations conducted by the SEC was 18, down marginally from 20 in 2010 but high as against 10 in 2009.

Overall, these numbers imply several take-homes. Comparison vis-à-vis explosion in number of trades between 2009 and 2011 reveal malpractices are negligible hence regulations are an overkill. On the other hand if market is infested with malpractices, then the SEC has not been able to keep pace with the velocity of such malpractices in terms of detecting or it is not free to enforce laws hence a more independent SEC, greater surveillance and action is required.

See full analysis on http://www.ft.lk/category/sectors/special-report/