It appears that Sri Lanka’s Securities and Exchange Commission (SEC) believes in the old adage ‘prevention is better than cure,’ as the country’s stock market regulator has proactively taken action to prevent securities law violations by utilizing a robust surveillance system.
During the year 2016, the SEC sought explanations from 36 brokers/traders and 23 investors with respect to 38 suspected market violations, the recently released SEC annual report stated,
“As proactive action to minimize the potential negative impact on the market, the SEC, having analyzed abnormal market behaviour, contacted the relevant brokers/ traders or the investor/s involved immediately to seek clarifications.
If the clarifications provided were not satisfactory, they were informed that their trades were under observation. In case of repetitive suspicious unethical trading the relevant parties were summoned to the SEC to be warned,” the annual report stated. In addition, the SEC receives referrals from the CSE and also conducts media reviews.
During the year under review, the SEC completed 7 comprehensive surveillance referrals; including five possible cases of insider dealing, one possible case of front running and one possible case of market manipulation. Three referrals were found to warrant further investigation.
Meanwhile, the SEC re-opened eight previously concluded investigations during 2016. This was in addition to the three investigations which were re-opened in 2015.
The Colombo bourse experienced a so called ‘pump and dump’ phenomenon as the market re-rated after the end of the 30-year separatist war with the separatist terrorist group, the LTTE.
However, the SEC investigations into these alleged cases were suppressed by the certain powerful high net worth investors and who had influence among country’s political elite at the time. “We continued to upgrade our investigative skills in order to effectively detect and investigate potential securities law violations. During the year, the new investigation team was able to complete three investigation and four others are at different stages of completion,” SEC chairman Tilak Karunaratne said in his annual review
IOSCO hails investor education programmes
Meanwhile, International Organisation of Securities Commissions (IOSCO) has admitted Sri Lanka’s SEC to Committee on Retail Investors (Committee 8) taking into consideration the extensive investor education programmes undertaken by the SEC.The Committee consists of 36 members and its primary mandate is to conduct IOSCO’s policy work on retail investor education and financial literacy.
Daily Mirror and our Sinhalese language sister paper Ada also contributed to this achievement by publishing investor educations articles on a weekly basis in collaboration with the SEC. “The article series in the Daily Mirror and Ada covered investment products, risks and potential pitfalls, recent developments in the market, directives, safeguarding your investments, key investment concepts etc.” the annual report stated.The IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation and comprises of 125 ordinary members. SEC continued its membership in the Asia Pacific Regional Committee, Growth and Emerging Markets Committee, MMOU Screening Group and the Committee on Enforcement and the Exchange of Information.
Meanwhile, the SEC was selected to host the Annual General Meetings of both the Growth and Emerging Markets Committee and the Asia Pacific Regional Committee in 2017.