'Lanka's capital market has developed fast'
Historically, capital markets has played an important role in the
development of market economies and therefore the development of
efficient regulation of securities too has become increasingly
important.
"During the year under review the Securities and Exchange Commission
of Sri Lanka (SEC) continued to provide proper direction and consistency
in policies towards fulfilling our mandate of fostering a fair,
efficient and transparent capital market." Securities and Exchange
Commission of Sri Lanka Chairman, Thilak Karunaratne said.
In line with our objectives the SEC made significant strides in
developing market infrastructure, institutions, intermediaries and
investors in order to expand the role of our capital market in financing
the growth of the economy, he said.
Sri Lanka's capital market has developed faster and more
comprehensively in the last three years, more than any other period in
history.
It directly accelerated economic growth to a larger extent by
providing a boost to domestic savings and increasing the quantity and
the quality of investment. During the last three years, the Colombo
stock market provided the public an additional avenue of investment even
though many did not tread this path carefully by not assessing the risks
involved in an appropriate manner.
While fostering the development of the economy, the capital markets
also play an important equalizing role. Viz - it attracts the
participation of a large number of people in the economy by investing in
securities and other derivatives.
Therefore the role of the regulator becomes even more important as
there is a large number of stakeholders involved. It follows that a well
regulated market will encourage more people to come in as investors and
contribute to the development of the economy.
The high growth in the Colombo stock market seen in 2009, 2010 and in
the first quarter of 2011 caused a high degree of price volatility and
it also created many regulatory and supervisory issues. The SEC was
forced to step in and take several - perhaps not very popular - measures
to curb the volatility and to reduce the systemic risk in the capital
market.
2011 was a difficult year for the world's stock markets largely due
to the European debt crisis. International stocks, measured in US
dollars, lost 14.4% in 2011. Losses varied by region and, in spite of
the Euro crisis, European stocks fared the best losing 11.9%.
Pacific-rim stocks, comprised mostly of Japan and Australia, lost 14.4%,
while emerging markets fared the worst, declining 18.8%. Worldwide stock
market capitalisation fell 12.1%. As a consequence of these trends, and
also due to factors which were local in nature, the Colombo Stock
Exchange (CSE) too recorded a negative growth of 8.5% in 2011.
The regulatory reform process of the SEC is focused on strengthening
investor protection and market integrity. We made significant efforts in
reforming the legal framework with these objectives in mind. After
extensive consultations with all the stakeholders, amendments to the SEC
Act were finalised, while the Unit Trust Code was amended and gazette to
enable the regulation of exchange traded funds. The SEC is in the
process of finalising the draft bill for the Demutualisation of the CSE
to bring our capital market to be in line with those in more mature
jurisdictions.
During the year we embarked on a more proactive role to make the
capital market accessible to the masses through financial literacy
programmes. In association with market participants the SEC conducted a
live television series comprising of studio discussions. It also
organized Investor Day programmes throughout the country aimed at
imparting the required knowledge on investing in the capital market
which enabled the public to make better investment decisions. In
addition we published regular articles in news papers in order to make
the public better informed of these matters.
The SEC is of the view that for a market to be attractive to
potential investors and draw wider participation it must earn investor
confidence. In the middle of year 2010, as fears of a speculatory bubble
grew, we imposed credit restrictions in order to bring sanity in the
market. However towards the latter part of year 2011 in order to
stimulate the market, these restrictions were relaxed to some extent and
further concessions were given at the beginning of 2012.
In the face of changing conditions in the domestic capital market
landscape it necessitated us to step up our efforts in the supervisory
front to a more proactive risk focused framework. The risk based
supervision of the SEC focused on continuous monitoring and evaluation
of the risk profiles of regulated entities in relation to their business
conduct and financial soundness
We continued to remain vigilant and maintain robust surveillance of
the trading activities to ensure that the market operates in a fair and
orderly manner and promote efficient price discovery. The SEC is able to
monitor trading activities on a real time basis to detect a wide range
of possible market misconduct. This enabled us to act promptly to curb
potential market misconduct and enhance investor protection. |