The CSE can if the SEC won’t4 min read

Recently at a Capital Markets Conference hosted by UTO EduConsult, I had the privilege of listening to one Thilan Wijesinghe. Thilan who was quite on edge went on for about an hour speaking on how the current sentiment within the capital market is warranted. Then he joined a panel discussion wherein he restrained himself considerably. He was trying to make the point that multiple failures on the part of many stakeholders had brought the stock exchange to what it is now.

         He commented extensively on the pump and dump scandal. This was when shares were bought from the market at low prices and then driven up in price only later to be transferred to the employee’s provident fund. He suggested a large number of stock brokering licenses were to blame. The overcrowded market place squeezed most players. He blamed the Securities and Exchange Commission for both the licensing and inaction on the pump and dump scheme.

         The Chairman of the Stock Exchange, Ray Abeywardene, stated that he agreed completely with Thilan. Which leads to the quite simple question of why the stock exchange does not take matters into their own hands? The exchange can by itself impose regulation against certain market players.

Section 11 Disciplinary Action Against Stockbroker Firms[1]

11.3.8 SANCTIONS IMPOSED BY THE BOARD OF DIRECTORS

(1)In the event the Stockbroker Firm is found guilty, the Board of Directors may impose one or more of the following sanctions:

(a)Issue a letter of warning to the Stockbroker Firm/Reprimand the Stockbroker Firm;

(b)Impose any restriction and/or prohibition on activities carried out by a Stockbroker Firm including the following for a time period determined by the Board of Directors;

(i)Canvassing for and/or accepting new clients.

(ii)Extending credit to clients.

(c)Impose prohibitions on the Stockbroker Firm from carrying out purchase and/or sale of securities on the ATS of the CSE on behalf of its clients and/or on its own account, for a time period determined by the Board of Directors;

(d)Make an order for specific performance towards an aggrieved party; (e)Suspend the membership of the Stockbroker Firm;

(f)Terminate the membership of the Stockbroker Firm

As argued at the conference given the current structure and depression with the market it is unlikely that honest brokering business is viable. Even banks are looking to sell off their brokering businesses[2]. There are benefits in terms of public image and market behavior.

Why Don’t People Trade Debt?

This is a question I posed to Thilan following his slide highlighting our lack of debt trade in the market. He and the other big wigs in the panel had little idea of how the common man interacts with the market. They didn’t really understand the question. People choose fixed deposits and property over the market as it has been set up to prevent them from investing.

With regards to my previous criticism, I believe it is important to publicly clarify my concern. The stock exchange has already received this in previous correspondence many times.

An individual can buy and sell shares online via Atrad. People can also view the debt market via the portal. Watch → Full Watch Bond. They can see all bids and asks. You cannot, however, place bids or asks on the board.

In my correspondence with Iron One Holdings, the software developers behind Atrad I find that the system to trade online is in place. There however is regulation preventing online use of the system. To buy corporate debt you must ask your investment advisor to place the order for you. This is the reason for the error message you will get when you try to interact with the system.

The system was also designed to trade government securities. Watch → Full Watch Bill. So this has broader public interests especially with regards to the budget proposal to make government securities scripless. This proposal will probably not go through as it exists to create powerful primary dealers who take massive counterparty risks on repurchase agreements.

I shall rephrase my question; Why can’t traders purchase corporate debt online?

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[1] https://cdn.cse.lk/pdf/SECTION_11_DISCIPLINARY_ACTION_AGAINST_STOCKBROKER_FIRMS_20181220.pdf

[2] http://www.sundaytimes.lk/190210/business-times/sampath-to-sell-its-broking-arm-334772.html