Several struggling stock brokers have written to the Colombo Stock Exchange (CSE) requesting permission to temporarily halt their operations mainly due to low activity levels in the bourse, Mirror Business learns.
This was confirmed by Securities and Exchange Commission (SEC) Chairman Dr. Nalaka Godahewa during an inquiry.
“There is a proposal by several brokers requesting temporary deactivation of their operations. The CSE has forwarded it to us and we are considering it. We have not discussed it with the Commission yet, but at the secretariat level, we are looking at it positively,” Dr. Godahewa said.
He further said, it was not a “bad idea” as it has happened in many other markets as well.
“You allow those who are struggling to remain deactivate for a while. It will give more opportunities for others who will continue to operate in the market,” he noted. Altogether 29 stock brokers currently operate in the CSE, and many are of the opinion that the number is too high for all to sustain their businesses.
A number of new broking licenses were issued just after the conclusion of an almost three decade war in 2009—at a time when the market was undergoing a re-rating.
In 2010 and 2011, the daily average turnover stood over a couple of billion with the arrival of new set of retail investors into the market, providing ample opportunities to brokerages to make money.
However, in 2012, with the market undergoing a painful correction, the euphoria died down and many new retail investors burnt their fingers.
The daily average turnover in 2012 plunged to Rs.883.6 million, creating a highly competitive environment for brokers to operate. The daily average turnover in 2013, according to latest CSE figures, stands even lower at Rs.828.4 million.
“I think there are far too many brokers in our market. But like the Central Bank who has told the finance companies to consolidate, we have not told brokers to do so. The industry has to decide on its own. We are not going to tell them how to do business,” Dr. Godahewa stressed.
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