Sri Lanka Stockbrokers Unveil Website & Ethics Code. 18 Months of Decline Ending with Stability Brought back to the Market

03rd April 2013, www.lankabusinessonline.com
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Sri Lanka's Colombo Stockbrokers Association launched a website and  a code of ethics which officials said would improve professional standards and investor confidence.


"By introducing these Principles of Best Practices, we are intent on promoting professional standards among our members," CSBA president and head of Asha Phillips Securities Dimuthu Abeysekera said.

"This will in turn enhance investor confidence prompting the industry to undoubtedly enjoy benefits of a vibrant market place."

Fundamental Research

The website www.colombostockbrokers.com will also have research for potential investors.

Chairman of Sri Lanka's Securities and Exchange Commission Nalaka Godahewa said more research was needed to educate investors.

Godahewa said the worst was over for the market with 18 months of decline ending.

"But I think all the problems we had at that time, the bad feeling, the bad publicity, the difficulties, accusing each other, mistrust excuses they are all now history," he said.

"We have brought back stability to the market. When we say we, all of us together."

The code was devised by a committee under Ravi Abeysuriya, of Heraymila Securities.

Head of Acuity Stockbrokers Deva Ellepola said even stockbrokers who were not members of the CSBA also contributed to the code and he hoped they would join the association again.

Several stockbrokers quit the association during the collapse of a stock market bubble as controversial measures were taken with some high net worth investors to counter credit rules and other action of the regulator amid allegations of widespread securities fraud.

Foreign investors who sold out during the bubble, are now coming back buying into several fundamentally strong companies with strong management whose valuations have improved with falling prices.

But small investors who bought fundamentally weak shares with margin credit which were also pumped up with margin credit in some cases, are in losses licking their wounds and are not active.

Sri Lanka's stock market bubble was fired by excess liquidity that built up in the banking system largely from inflows of foreign money, driving interest rates down amid euphoria from the end of a 30-year civil war.

Repeating History

Analysts say fraud and mischief always rocket up when lose money drive up stocks.

The world's first SEC in the US was also created after the collapse of a stock bubble in the late 1920s which was fired by excessive Federal Reserve money printing and margin credit.

One of the most well documented of such stock bubbles is one that occurred in France in the 1790s with the introduction of the Assignat paper fiat money.

Excessive printing of Assignats eventually led to the collapse of the French economy amid speculation, inflation, price controls and widespread corruption.

"For at the great metropolitan centers grew a luxurious, speculative, stock-gambling body, which, like a malignant tumor, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets," Andrew Dickson White wrote in his iconic work Fiat Money Inflation in France

"At these city centers abundant wealth seemed to be piled up: in the country at large, there grew a dislike of steady labor and a contempt for moderate gains and simple living.

"Nor was this reckless and corrupt spirit confined to business men; it began to break out in official circles, and public men who, a few years before, had been thought above all possibility of taint, became luxurious, reckless, cynical and finally corrupt."

"It grew as naturally as a fungus on a muck heap. It was first felt in business operations, but soon began to be seen in the legislative body and in journalism," wrote White.

Many of those involved were later guillotined and France returned to the gold money again.

Sri Lanka's interest rates are now higher and inflation is falling, though the currency has also depreciated making everyone poorer and destroying the real value of investible savings in banks.

Related Info :

• Colombo Stock Exchange (CSE) Opens 6th Branch Office in Anuradhapura, North Central Sri Lanka

• Listed Firms in CSE Issue Debentures to Raise Big Sums Following Budget 2013 Concessions on Corporate Debt

• CSE's Automated Surveillance System Helps Detect Breaches of Securities Law of the Colombo Bourse. System Supplied by Millanium IT

CSE's Automated Surveillance System Helps Detect Breaches of Securities Law of the Colombo Bourse. System Supplied by Millanium IT

28th June 2011, www.news360.lk

Securities and Exchange Commission says the “Automated Surveillance System” currently up and running in the CSE has helped the surveillance activities of the bourse.

According to the Director Surveillance of the Securities & Exchange Commission Chandu Epitawala, so far the system has helped to identify about 15 possible breaches of “securities law” taken place in the CSE during this year.

SEC says the system formally started operating from the 1st quarter of this year, but was under testing for nearly 6 months since the last quarter of 2010.

The system provides SEC with an analytic platform that supports and accelerates investigations and research functions.

A product of Millanium IT, a member of the London Stock Exchange, the system is also linked to several data bases of insiders of listed companies, their related parties and market intermediaries.

This situation according market regulator accommodates speedy detection of insider dealing.

Epitawala also said the Rs. 20 million worth state of the art system is installed in the London Stock Exchange and the Egyptian Stock Exchanges.

The SEC in its 2010 annual report said it has detected nearly 30 cases which are suspected to have breached the “Securities Law”.

Related Info :

• SEC Buys Surveillance System to Monitor Growing Market

• MillanniumIT Built London Stock Exchange Trading Platform Turquoise Achieves World Record Trading Time

• Colombo Stock Exchange Becomes Best Performing Capital Market in the World Recording 111.14pct Growth

• Sri Lanka Banks' Exposure to Stocks to be Limited for Banking Sector Stability

Several Global Players Respond to Sri Lanka Commodity Exchange

20th May 2011, www.lankabusinessonline.com

Sri Lanka's securities regulator has got responses from several 'big global players' for a request for proposal to set up an exchange to trade spot and futures contracts in commodities and other assets, an official said.

"The response is very encouraging and it reflects the growth potential of the country and the interest some of the big global players," Malik Cader, director general of Sri Lanka's Securities and Exchange Commission told LBO.

Cader said there were "over half a dozen" response from big foreign players from several regions but declined to name individual parties as a process of selection involving a technical evaluation and tender board was under way.

The deadline for proposals to set up 'multi-asset' class exchange ended in April 29 and the egulator has also called for applications for a consultant to assist in evaluating proposals with a closing date of May 27.

Sri Lanka already has a stock exchange which also deals in listed debt.

Related Info :

• Sri Lanka Calls for Proposals to Set up a Multi Asset Commodities Exchange for Spot & Forward Markets

• Sri Lanka Tops Returns for Equity Markets around the World in 2010

• Sri Lanka Performs better than BRIC Economies. Smart Money Highlights Investing in Smaller Emerging Markets

• Colombo Stock Exchange to Start Gold ETF Trading in 2011

How to Invest in Unit Trusts - Introduction to Sri Lankan Unit Trust Industry

09th May 20111, www.dailymirror.lk

Unit Trusts were introduced to Sri Lanka in 1991 to provide an alternate investment for the people of Sri Lanka to benefit from the capital market.

The Securities and Exchange Commission of Sri Lanka (SEC) as the licensing authority has the power to permit a Fund Management Company referred as Fund Manager to launch a unit trust under the SEC Act.

In real life, the Fund Manager has to formulate a fund with an objective in mind before seeking an approval from the SEC. The objective of a fund can be for example growth, income and growth or income only and the strategy to achieve the objective needs to be worked out by the Fund Manager to deliver results with in the expected time frame. As the investments of the fund are focused on the specific financial instruments, the fund management company also needs to select authorised investments to suit the type of objective of a fund.

The Fund Manager needs to submit an Explanatory Memorandum (EM) and a Trust Deed to obtain the license from the SEC to launch and operate the Fund. The EM provides necessary information about the Fund offer, the Fund Manager, Trustee and other relevant investor information. The Trust Deed gives details of the formation of the trust and its deposited property, registration process of the investors, dividend distribution, areas of intended investment of the Fund’s assets, appointment of auditors, covenants of the Manager and the Trustee, procedure for a unit holder meeting etc. The Trustee usually a reputed bank and provides services and acts as the beneficial owner on behalf of the investors in the fund.

There are six fund management companies operating in Sri Lanka and more are expected to be licensed. Further there are 22 funds operating in the market managed by the six Fund Managers. Now let us look the advantages for small investors to invest through a unit trust.

Growth Funds
We assume you are an investor who wanted to invest in a Growth Fund to participate in the shares listed in the Colombo Sock Exchange.

Growth Fund is a fund primarily invests in shares to achieve long term growth of capital to the investors.

There are over 240 companies listed in the Colombo Stock Exchange and it is practically difficult for small investors to research and identify good stocks with reasonable valuations. It makes it more difficult to monitor the performance of stocks they buy and hold for longer term. The unit trust managers make it easy for the investors as they undertake the selection of shares and monitor the performance of the underlying companies over time. In addition the Managers also provide other services to the investors to make investment in shares a hassle free affair in the day to day life. The investors enjoy a host of benefits by investing through a unit trust.

They are:
• Expert professional fund management at lower cost
• Diversification of your investment in many shares ( Do not put all your eggs in one basket)
• Low minimum investment level
• Excellent long term prospect
• Protection by independent Trustees
• Easy to buy and sell or transfer
• Invest jointly with minors
• Choice of investments and transferability among funds
• Tax free income

How to invest in Unit Trust?
There are many unit trusts available in Sri Lanka and investors can contact the Fund Management Company and obtain an Explanatory Memorandum and an application form to open an account and to make an initial investment. Consider charges and the performance of different unit trusts and their track records.

Shares and equity unit trusts can fall as well as rise, so you should aim to hold for at least five years.

Consider how much you can afford to invest and how often. It is prudent to keep some money in bank and short term fixed income instruments for unexpected emergencies.

You can usually choose to make your payments by cheque, direct credit to the designated bank accounts, standing order or any other means recommended by the Fund Manager.

Regularly check the statement or reports from the Fund Manager to track the progress of your investment. You can also follow the daily prices of your units in the news papers or visit the website of the Fund Manager.

When you need any help or clarification you can contact the Registrar or relevant officer who will offer advice on their range of trusts.

Solving financial planning needs
You can redeem your units on any business day and receive the proceeds within short periods. However, unit trusts works best for you as a long term investment rather than a short term punt.

You can switch between different types of funds – for example from high to low risk, or growth to income etc.

You can build up savings by re investing dividends and through regular savings.

Types of Unit Trusts
There are different types of Unit Trusts available in the market. Let’s see some of them:

• Growth Funds: Growth Funds are higher risk funds offer higher return prospects to the investor. These funds invest higher proportion of its money in listed shares. There are many Growth Funds operating in the fund. Some of the funds distribute dividends and others do not.

• Balanced Funds: Balanced Funds are moderate risk funds offer dividend and growth prospects to he investors. These funds invest around 50-60% of its money in listed shares and the balance in selected fixed income securities. These funds often distribute dividends annually based on the fund performance.

• Income Funds: Income Funds are low to moderate risk funds depending on the short to long term investments in debt instruments and allocation between government and corporate debt instruments. This fund pays annual or even quarterly or half yearly dividends. Often it is classified as an income fund with less prospects to grow. However at times of volatile interest rate environment these fund can offer growth prospects as well.

• Index Funds: Index Funds are more passive form of fund and tracks an accepted index. With negligible tracking error, these funds can offer higher upside when the underlying index rises.

There are many other specialized unit trusts, operating specializing in sectors such as money market, Sharia compliant Islamic and sub sectors of the stock market.

Related Info :

• Market Indicators of Unit Trust Funds - The Unit Trust Association of Sri Lanka

• Sri Lanka Unit Trusts Manage Rs22bn in Assets. Public Awareness a Must for Participation in the Economic Growth

• Sri Lanka Unit Trusts Attract Rs1.5bn New Funds in First Ten Months of 2010
• IPOs on CSE Must Allocate 40pct Shares to Retail Investors, Sri Lanka's Markets Regulator Decides. 10pct Offer to be Made to Unit Trust Funds

• Sri Lanka’s First Unit Trust Company NAMAL Leverages Market Position with Backing from Union Bank
• Ceylon Tourism Fund to Benefit by Sector Boom. Banking & Tourism to Top Colombo Stock Exchange in 2011

• Saudi Arabian Heraymila Investments of Al Mashal's Start a Fund to Invest in Listed Sri Lankan Companies

Sri Lanka Calls for Proposals to Set up a Multi Asset Commodities Exchange for Spot & Forward Markets

28th March 2011, www.lankabusinessonline.com

Sri Lanka's securities regulator has called for proposals from international and domestic qualified investors to design, build and own an exchange which can trade "multi asset" classes in spot and forward markets.

Sri Lanka's Securities and Exchange Commission has called for expressions of interest from parties that now operate at least two licensed exchanges and have net assets of more than 100 million US dollars.

Prospective investors have to team up with a Sri Lankan party and submit proposals by April 29.

"The exchange should facilitate spot and futures trading of multi-asset classes and needs to incorporated as a demutualized limited liability corporate entity," the SEC said in a newspaper advertisement.

"It should adhere to global best practices and standards, and accommodate all necessary components of a commodities exchange including mechanisms for clearing and settlements of the instruments traded."

Sri Lanka already has an equities exchange which also has some debt listed. The advertisement for the new exchange for multi-asset classes did not specifically exclude either equity or debt.

The existing stock exchange is member-owned.

But the new exchange has to be set up as a limited company owned by shareholders.

IPOs on CSE Must Allocate 40pct Shares to Retail Investors, Sri Lanka's Markets Regulator Decides. 10pct Offer to be Made to Unit Trust Funds

10th March 2011, www.lankabusinessonline.com

Sri Lanka's markets regulator said companies planning initial public offerings in future will have to allocate a minimum of 40 percent of shares initially to retail individual investors.

The Securities and Exchange Commission (SEC) said the move is aimed at helping broad base share ownership in the country.

The new rules will be effective from March 15, 2011.

"The SEC has observed that the recent IPOs were heavily oversubscribed due to investors using the bank guarantee option to submit IPO applications for a very large quantity of shares," the statement said.

"This has resulted in a majority of retail investors being allotted a small portion of the shares applied and has not created a level playing field in the primary market thereby hindering the process of broad basing share ownership in the country."

The SEC said a minimum of 40 percent of the offered shares for a particular share class in a public offer must be initially made available for allotment to retail individual investors.

A ‘retail individual investor’ is as an individual investor who applies for up to a maximum of 3,000 shares or for a value of not more than 100,000 rupees, whichever is higher.

Applicants submitting applications under other investor categories shall not make applications under the retail individual investor category, the statement said.

The SEC also said a minimum of 10 percent of the offered shares in an IPO must be initially made available for allotment to Sri Lankan growth or balanced unit trust funds comprising of not less than 500 unit holders resident in Sri Lanka making up of at least half of the fund.

If there is an under-subscription in the unit trust investor category and an over-subscription in other investor categories, the oversubscription in the retail individual investor category shall be given first priority in allotment of under-subscribed shares, the SEC said.

If there is an under-subscription in the retail individual investor category and an over-subscription in other investor categories, over-subscription in the unit trust investor category shall be given first priority in the allotment of under-subscribed shares.

The new rules come after talks with the Colombo Stock Exchange, Colombo Stock Brokers Association and IPO managers.

The rules were mooted after increasing concern that big investors using bank guarantees to apply for large volumes of IPO shares were edging out small investors.

Stock market analysts have said new IPOs are coming at increasingly higher valuations.

A flood of IPOs is expected this year as companies move to raise cash in a market which has been hitting record highs in recent months, although it has fallen this week.

Related Info :

• Sri Lanka Securities Watchdog Eases Rules on Price Cap & Private Placements

• Sri Lanka to See app 50 IPO's in 2011 with atleast Two over Rs5bn by April

• Sri Lanka’s Equity & Capital Market Sees $459mn Net Inflow in 2010 from Total Inflow of $1.91bn

Colombo Stock Exchange to Have Locked Accounts After Going Scripless

16th December 2010, www.lankabusinessonline.com

Sri Lanka's Colombo Stock Exchange will create locked accounts for shareholders of listed firms who do not wish to trade after the bourse goes scripless, a statement said.

The accounts in the CSE's Central Depository Systems are part of a move to fully dematerialise all listed securities by converting all paper-based physical share certificates into electronic form, it said.

"The CDS would introduce a facility for shareholders of listed securities who would not wish to trade their securities, to 'lock' their securities in a separate locked balance in their own CDS accounts."

Once securities are 'locked' they would not be visible to CDS participants like stock brokers and custodian banks, maintaining the confidentiality of the information and safeguarding shareholders from unauthorized transactions by stock brokers.

Trading on locked balances would be suspended, the statement said.

Securities could be 'unlocked' from a locked balance and transferred to the trading balance of the CDS account holder only with the written authority given by the CDS account holder to the CDS through stock broker and custodian banks.

Withdrawals from the CDS would be allowed for mortgaging of securities, the CSE said.

CDS account holders having securities deposited in locked balances in their CDS accounts would receive a separate statement every month.

The markets regulator, the Securities and Exchange Commission, has made it mandatory for securities of new listings to be in electronic form from January 01, 2011.

All applicants for initial public offers which open for subscription on or after January 01 will have to open CDS accounts and indicate their CDS account numbers in the IPO application form.

"The company secretary and registrar would not issue securities certificates to the applicants who do not have valid CDS accounts," the CSE statement said.

Shareholders of existing listed companies which got listed before January 01, 2011 will be given to a year from January 01 to convert their shares into electronic form.

Colombo Stock Exchange to List 75 Companies to Boost Liquidity. Capitalization to Up by 45pct to Rs 3.3 Trillion

08th December 2010, www.dailynews.lk

Sri Lanka's Securities and Exchange Commission (SEC) said on Tuesday it aims to boost the Colombo Stock Exchange's capitalization by 45 percent to a 3.3 trillion rupees ($ 29.67 billion) by the end of 2011.

Most growth will come from listing up to an additional 75 companies to try to boost liquidity and increase the proportion of shares regularly traded, SEC Director General Malik Cader told Reuters in an interview.

"There will be one trillion (rupee) in new market cap by 2011," Cader said. "This is a very easy and reachable target for the simple reason being the listing of anything between 60 to 75 companies," he said.

Five large companies in which the Government has a large stake, will be listed in a move to replicate on a smaller scale India's success in raising more than US $ nine billion from the sale of stakes in state companies.

Local retail investors and Government funds have been aggressive buyers of the market.

Cader said 35 finance companies and some small private firms will be listed by June. All insurance firms will be made to list to help increase liquidity and transparency.

The current market capitalization is 2.3 trillion rupees ($20 billion), having doubled in the first 10 months of 2010.

"We expect a lot of foreign inflows particularly next year," Cader said.

To entice overseas money, the SEC might consider increasing the foreign holding limit in the stock market slightly from the current 20 percent limit.

Colombo Stock Exchange to Start Gold ETF Trading in 2011

20th November 2010, www.island.lk

Sri Lanka has hammered out a regulatory framework for exchange traded funds (ETFs), a pooled investment scheme, which will also allow precious metals to be traded on the Colombo Stock Exchange from next year, an official said. Director General of the Securities and Exchange Commission Malik Cader said that the basic framework to allow ETF has been finalized with the help of the Securities and Exchange Board of India, and the rules are going through legal drafting and other formalities.

"One feature in this particular exchange traded fund is in addition to equity one could also have commodities like gold and silver brought into the market," Cader said. "Hopefully next year we will have gold ETFs trading in the Colombo stock exchange."

With the US Federal Reserve printing money to create prosperity through inflation the price of real commodities has been rising to levels even higher than before the 2008 commodity bubble.

Investors have piled into gold, driving its price to around 1,400 dollars an ounce, high than the 1,000 dollars level reached in the first quarter of 2008, before the commodity bubble burst, as credit imploded in the US in particular.

Before the creation of the Federal Reserve in 1913, gold was just 20 dollars an ounce from 1792 and money was gold.

But the dollar was devalued in 1933 to 35 dollars an ounce during the great depression, which started with the collapse of an economic bubble fired by the Fed in the mid 1920s.

The post war Bretton Woods system collapsed in 1971-73 as the Fed printed money to finance the Vietnam war, firing a massive commodity bubble (oil shock) in the process and gold went to over 80 dollars an ounce.

The World Gold Council, a body representing the gold industry, said demand in India was rising on ‘monetary perceptions.’

WGC said by August 2010 gold ETF have grown to 10 tonnes from 6 tonnes a year earlier. Though Indian gold ETFs allows non-gold assets up to 10 percent, at the moment they are fully backed by gold, the report said.

When the value of paper money falls, people go back to gold. World Bank chief Robert Zoellick upset mercantilist economists by suggesting that the world should consider a gold linked monetary system.

Sri Lanka Opens for Derivatives as Legal and Regulatory Framework is in Place

23rd March 2010, 365financenews.wordpress.com

Derivatives, a long-term capital market instrument will be introduced to the Sri Lankan investment portfolio shortly. It could not be implemented until recently due to lack of legal and regulatory framework, Securities and Exchange Commission’s Financial Services Academy Director Dr. Harendra Dissa Bandara told Daily News Business.

Derivatives are gaining much popularity in the emerging markets due to its successful implementation and trading where Sri Lanka could benefit. The objective of this program is to create awareness before the product is introduced to the capital market.

There will be a 2 day conference on derivatives in Colombo and over 100 local participants from the stock brokering industry, market intermediaries, unit trusts, academics, banking and financial professionals and lawyers will benefit from this conference.

Topics such as forwards and futures- products and pricing, trading strategies, clearing, settlement and risk management in derivatives will be discussed.