SEC promotes day trading - cuts transaction costs

Important mechanism to provide liquidity:

HIRAN H.SENEWIRATNE

The Securities and Exchange Commission of Sri Lanka (SEC) is in the process of reducing transaction costs by 30 per cent for day trading activities in the Colombo Stock Exchange (CSE).

Channa de Silva

At present, day trading transactions account for approximately 5 per cent of the total daily turnover in the market.

Therefore, with the reduction in brokering charges/transaction costs it could double trading activities in the long run, Director General SEC Channa de Silva told Daily News Business.

He said Sri Lanka’s transaction costs are possibly the highest in the world and brokering fees or transaction costs especially for day trading should be brought down.

The purpose of this move is to reduce the transaction costs and also create a culture for day trading activities in the market. This is also an important mechanism to provide liquidity to the market, de Silva said.

At present brokering charges for both buying and selling are more than 2.8 per cent and brokering charges have now been removed for selling day trading transactions.

If 30 per cent is reduced on buying for day trading, which is around 1.4 per cent trading volumes could be doubled in the market, he said

He said that 75 per cent of retail trading comes from day trading business in India, which enabled to create a vibrant and strong market. In view of this Indian scenario, the CSE and SEC are looking at possibilities to bring down the fee or cost accordingly.

Having a vibrant day trading market in the CSE will reduce the pressure for investors who want to exit from the market and it will reduce the impact cost to a great extent, he said.

The Director General said that initially they will introduce this concept for six months to review the possibility of this move and will implement it based on the performance in the market.

It is believed that reducing transaction costs is a vital component, which creates market efficiency, he said. So far no decision has been taken on this aspect.

However, stockbrokers say it is not timely to introduce this new concept when the market’s daily turnover is at a low ebb and this will affect brokering houses in the country.

They also said that a reduction of the brokering fee will not have a positive impact during a time of recession.