Markets

Opinion:

Colombo Stock Exchange facing grave crisis

Since the end of the economy debilitating 30-year war the Colombo Stock Exchange (CSE) rose impressively epitomizing the post crisis economic revival engineered by the Mahinda Rajapaksa regime.

In fact the CSE's performance last year made it the number two in the list of best performing stock markets in the World for 2009.

During the first half of this year the market was rising steadily and even at a faster rate than in the previous year and was most likely to be the World's Best Performing Market in 2010 when disaster struck last week.

A couple of articles in a financial newspaper that normally supports the cause of the Opposition, critical of some of the best performing shares in recent times prompted Colombo Stock Exchange (CSE) to halt trading in these popular shares triggering an abysmal fall in the market.

Two days later the they imposed a rule restricting price changes in all the shares to a price band of ±10 percent from the previous day's closing price. Result was that the market that was about to celebrate the conquering of the psychologically significant 6000 mark on the sensitive Milanka Price Index (MPI) crashed by over 70 points on Thursday and by a similar amount on Friday.

Investors were seen exiting from the stock market in hordes and more would follow unless these rules are withdrawn forthwith.

It will be impossible to attract international investors and the large foreign funds to a market where there are "price controls".

If any irregularities in dealing with particular stocks are suspected the regulators should conduct proper investigations, discretely without upsetting the rhythm of the market and punish the culprits, giving due regard to the sensitivities of the market and its participants.

Abrupt and summary actions could do irreparable damage to sensitive financial markets.

Major factors that contribute towards the attractiveness of a financial market are its fairness, reliability, integrity, openness, independence and freedom from undue outside interference.

Investors have lots of choices when it comes to deciding on where to invest their money and they will never choose a market where there are restrictions on price gains or where rules change overnight jeopardizing the safety and security of their investments.

Therefore if we are to develop the promising financial sector in Sri Lanka to make it a major financial centre in the world we have to follow the norms and practices in world's leading financial centres such as London, Hong Kong, Singapore, Tokyo and New York.

- Sarath Rajapakse