Stock Market Regulator: Making It A “Toothless Tiger” No Good Sign
By W.A. Wijewardena -
The peculiar Colombo Stock Market
First, it was agitations by a group of market participants, known as high net-worth investors, for the removal of the Chief Executive Officer of its watchdog,Securities and Exchange Commission or SEC, from his post. His crime: getting too tough on investors who have been alleged to have practised the crime of engaging in ‘market manipulation for personal gain’ and ‘insider trading’ at the cost of other market investors. After a do or die battle for a few weeks, they succeed and the CEO is asked to step down by authorities who are supposed to protect the watchdog. This writer analysed the story in a My View published in this paper under the title “Share Market Game: Play it According to Rules” (available here ).
The pressure on stock market regulator
Even before this hot news got cool, the Chairperson of SEC became the target of attack by the same group of investors and once again, authorities yielded to them by allowing her to leave the place, of course this time, with dignity. Then, there was a long period of uncertainty in the stock market without a CEO or a Chairperson in SEC to steer the market’s regulatory arm. The market began to show its discontent by moving down the prices, but wiping out billions of wealth belonging to investors in the process. This is because when a market is temporarily driven up by a few investors, all others rally round them like a ‘herd’ as proposed by Daniel Kahneman and Amos Tversky in their famous prospect theory. As a result, when they are active, the market goes up and when they withdraw, it slides down fast. This phenomenon was captured by this writer in a subsequent My View published in this paper under the title “Controversy over the efficiency of share markets” (available here ).