South Asian exchanges join to strengthen corporate practices

Channa Kasturisinghe

REGULATION: Corporate governance has become the hot topic among regulators and other stake holders representing securities markets in the South Asian region and they are debating ways of ensuring best practices while minimising regulations that could stifle the development of the market.

Representatives of South Asian Federation of Exchanges (SAFE) who gathered in Colombo last week shared the view that it was vital to strengthen cross border cooperation to ensure regulatory consistency among member countries to tackle common issues.

However, the participants' opinion differed on the issue whether corporate governance should be voluntary or it should be made mandatory.

India has already brought in regulations making corporate governance an essential aspect for all the listed companies while Sri Lanka is planning to make it compulsory by January next year.

The Director General of the Securities and Exchange Commission of Sri Lanka (SECSL), Channa De Silva told the South Asian Capital Market Conference in Colombo that some market participants have seen the efforts to bring in such regulation as an attempt to disturb a market which is already performing well.

"But it has become vital for the companies to comply with listing rules and to adhere to best corporate practices. We have also noticed instances of market manipulation where brokers also involved. Stringent regulations are also needed to curb money laundering using securities market," de Silva said.

He stressed the need for regulators to have comprehensive inspection, investigation and surveillance powers according to the guidelines of International Organisations of Securities Commissions.

"However, regulations alone cannot develop a capital market. The regulator should play a fatherly role as well as a motherly role which is to nurture and support the development of the market," de Silva said.

He said the SECSL in addition to its regulatory role has played a key role in formulating a 10 year comprehensive capital market master plan for Sri Lanka which would be put into action soon.

K. Hari of National Stock Exchange of India said that corporate governance was made mandatory in India in three stages.

"We first made it mandatory for the ten top companies and in the second stage we included 500 companies. In the last stage it was to cover all the players in the market," he said.

Hari said regulation was essential as usually the small investors who have to suffer for the malpractices of big corporates.

However, some were of the view that over-regulation can easily lead to undermining of innovation and competition in financial markets.

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Takeovers Code to be amended

The Director General of Securities and Exchange Commission of Sri Lanka, Channa de Silva said that amendments will be introduced to the Takeovers and Mergers Code soon.

The code which governs the procedure to be followed in any acquisition or merger transaction a listed public company was introduced in 1995 and was amended in 2003.

De silva said that amendments will be introduced after studying similar pieces of legislation used in the countries in the region. The code requires a mandatory offer to be made once a person or a group of persons acting in concert acquire a holding of more than 30 % of the voting rights of a company.

There was a trend of corporate take overs during the recent past in Sri Lanka and most of them had been controversial. However, De Silva said the plans to amend the Code was a long felt need.