The Securities and Exchange Commission (SEC) yesterday directed the Colombo Stock Exchange (CSE) to lift the 10 percent price band with immediate effect, although no reasons were cited for the decision.
“At the 299th Commission Meeting of the Securities and Exchange Commission of Sri Lanka (SEC) held on 18th April 2012, it was decided to direct the Colombo Stock Exchange to lift the 10% price band, imposed for 5 market days on certain securities, based on an agreed formula which takes into account volatility and volumes, with immediate effect,” the statement by the newly appointed SEC Acting Director General Prof. Hareendra Dissabandara said.
It also said SEC will continue to monitor the market, and the price band may be re-imposed in future if the situation so warrants.
The 10 percent band was implemented by the SEC in 2010 August as a measure to curb stock manipulation and unusual price movements of certain illiquid stocks. However, the implementation of it faced a lot of criticism from both investors and stock brokers saying that it would kill the upbeat market sentiment.
Incidentally, this criticism towards the price band and several other measures brought forward by the SEC to rein in misdeeds taking place at the market place even led to the ousting of the then SEC Chairman and the Director General from their seats.
According to some stockbrokers and investors, the repressive 10 percent price band (as they claimed) was partly responsible for the downfall of the Colombo bourse.
However, when sensibly analyzed, other factors such as rising interest rates, lack of liquidity and foreign buying, unscrupulous IPOS (Initial Public Offerings) could be identified as more significant reasons for the market downfall.
In 2009 and 2010, the Colombo bourse was rated as one of the best performing markets in the world and the benchmark All Share Price Index (ASI) rose over 7,000 points, with predications indicating it will hit 7, 500 point mark in mid-2011.
But, in 2011, the bourse gradually came down and currently the ASI is at the 5, 400-5, 500 levels and has turned out to be one of the worst performing Asian markets this year.
Probably, due to the mounting pressure from the investor and brokering communities, investor, the SEC in April 2011 relaxed the price band by reducing the period of market days to which public listed companies would be placed under the band from the 10 market days to 5 market days. However, this move didn't boost the market as the reasons for the collapse lied somewhere else.
Speaking about the lifting of the price band, Colombo Stock Brokers Association President Sriyan Gurusinghe said, “We welcome the move by the SEC to remove the price band. It's something that we have been asking them for some time now. We have discussed and agreed upon this, and we are very pleased with it.”