"Don’t talk of Mafias,’’says SEC chief

November 17, 2012, 6:39 pm 

The new chairman of the Securities and Exchange Commission believes that the use of the words "Stock Market Mafia" to be a deterrent to foreigners coming into the Colombo market and at a news briefing last week suggested that the media should stop using that expression.

Journalists present at the briefing by the SEC and the CSE pointed out that this description was first used by former SEC Chairman Tilak Karunaratne who indicated that he was quitting his position due to unacceptable pressure that had been applied to the detriment of properly fulfilling his regulatory obligations.

The `Mafia’ reference was made in relation to what was perceived to be a small group of politically influential market participants who `cornered’ illiquid stocks and engaged in pump and dump strategies that had hurt the market and small players badly.

Godahewa insisted that no such organized group existed and assured that the regulatory functions would be properly conducted with investigations that were ongoing at the time he took office continuing.

Asked whether the practice of compounding market offences detected on payment of penalties would continue, he said that there has been no decision to discontinue compounding if such action was warranted.

There had been instances when market players accused of manipulation paying penalties usually amounting to what was calculated to be illegitimate gains to compound the offence and not face prosecution. Such compounding was done with no admission of guilt.

The SEC said that its role as the capital market regulator had increased significantly with vibrant market activity that followed the end of the war.

"In today’s interconnected capital markets, regulators have an increasingly challenging role balancing the needs to create efficient markets by preventing systemic risk and developing the market. Efficient securities market regulation and development are critical to the development of an economy," the Commission explained.

It said it was working with all important stakeholders in the market such as the government, CSE/CDS, listed companies, stockbrokers, unit trusts, margin providers, investments mangers, credit trading agencies, underwriters, investors, media and the banks to achieve its main objectives.

Godahewa said that they have been talking to the various stakeholders in the last two or three months and almost 90% of the suggestions that have been made have been implemented while implementation of the rest was in the pipeline.

Although there are less than 50,000 active accounts in the Central Depository Systems (CDS), not even one percent of Sri Lanka’s population participated in the stock market which in the last 28 years gave remarkable returns to investors.

The SEC has computed that since 1985 the average market return per year was 25.5% against a Treasury Bill return of an annual average of 14.4%. Since the year 2000, the stock market has given an annual average return of 32.8% against the 12% return on Treasury Bills.

The average return on the stock market since 2009 has been 53.1% whereas Treasury Bills had given a return of 12.5%.

"These statistics prove that investing in the stock market is a profitable long term investment though there can be fluctuations in the short term," the SEC said.

Godahewa suggested that new players in the stock market begin by investing through unit trusts whose funds are managed by professionals while familiarizing themselves with the market and its intricacies. He strongly advised that they should not follow speculators and come to grief.

It was revealed at the press conference that three cases relating to the stock market were before courts and papers relating to the NSB-The Finance deals have been referred to the Attorney-General.

The NSB side of the deal was not within the purview of the SEC as it was not a listed company.