SEC introduces restrictions on Basel III debt investments

The stock market regulator, the Securities and Exchange Commission (SEC), has introduced certain restrictions when investing in Basel III-compliant debt securities by commercial and specialised banks listed on both the main and secondary boards of the Colombo Stock Exchange (CSE). 

Apart from banks, finance companies, mutual funds, venture capital funds, leasing firms, insurance companies, both listed and unlisted corporates, investment trusts, the investors who are qualified to invest in these instruments are non-residential institutional investors and individual investors with an initial investment of Rs.5 million. 

If a trade on these debt securities was executed by an unqualified investor under the SEC’s criteria, the stockbroker firm will have to pay the trade cancellation administration fee of Rs.10, 000 or 0.005 percent of the total value of the transaction, whichever is higher, subject to a maximum of Rs.25,000.

“The broker firms are required to take the necessary measures to restrict the investor from placing the order for Basel III-compliant debt securities using the Internet trading facility. Only the ‘qualified investors’ should be allowed to place the order for Basel III-compliant debt securities through the Internet trading facility,” the SEC said.

The regulator further said in order to ensure that the secondary trading of the Basel III-compliant debt securities are carried out only by and between qualified investors, Central Depository Systems (Pvt.) Ltd (CDS) has decided to introduce ‘CDS Form 30A’ to be furnished by all qualified investors who wish to trade in such debt securities on the CSE.

“The qualified investors are required to submit the duly completed CDS Form 30A to CDS through the respective stockbroker participant/custodian banks prior to submitting buy/sell orders to trade in Basel III-compliant debt securities on the CSE.

This is in order for the CSE to establish a  mechanism to identify any trades on such debt securities involving investor/s other than the qualified investors,” the SEC said.