Good governance activist wants SEC to regulate bond market

In an open letter to the new Central Bank Governor Dr. Indrajit Coomaraswamy, good governance activist Chandra Jayaratne called for the heavily criticized government securities auction process to be regulated by the Securities and Exchange Commission (SEC). “It is urged that the Monetary Board resolves to assign the role and responsibility for regulatory oversight over government bond issues and the related secondary market transactions to the Securities and Exchange Commission, at the earliest opportunity,” he said.

He noted that the SEC— which regulates the stock market and corporate securities—had corresponded saying that only a minor adjustment needs to be made to the SEC Act to allow the capital markets regulator to undertake this expanded responsibility. A new SEC Act is currently being hammered out to allow the regulator to bring civil charges against infractions, to which the amendments to regulate government securities could also be added. Jayaratne noted that even though the Central Bank has professionals and infrastructure required for such regulation, an independent regulator is required due to the recent bond scandals showing the Central Bank’s conflict of interest.

The Central Bank suffers from definite conflicts of interest, due its role in being the primary issuer and manager of the government bond issues (and) being the effective manger and portfolio investor of the largest securities market player in Sri Lanka – the Employees’ Provident Fund,” he said. Jayaratne said that it is commonly believed that the secondary market information data set maintained by the Central Bank does not even track the basic market prices at which the securities trade, which shows an inadequate and incomplete availability of data required for regulation. He stressed that having an independent governance framework for the securities market is an investor right.

“I trust that you and the Monetary Board will immediately begin negotiation with the Securities and Exchange Commission and the government, for the formal transfer of the oversight responsibility over government bond issues and associated secondary market dealings, to the Securities and Exchange Commission,” he said.