Capital market watchdog clamps down after trading abuse jolts Colombo bourse

• SEC confirms those primarily responsible for the abnormal prices on Jan. 7 have been identified
• Says several individuals already been summoned, trading records scrutinised and a full investigation under way

By Shabiya Ali Ahlam

Capital market watchdog, the Securities and Exchange Commission (SEC), confirmed it has identified the key players behind the price distortions that triggered an unprecedented halt on the Colombo Stock Exchange (CSE) last week.

The regulator signalled tough enforcement action as it moves to contain the fallout from one of the market’s most serious credibility shocks.

“We have identified those primarily responsible for the abnormal prices on 7 January. There may be other parties involved,” Securities and Exchange Commission (SEC) Officer-in-Charge and Deputy Director General Tushara Jayaratne told Mirror Business, confirming that several individuals have already been summoned, trading records scrutinised and a full investigation is under way.

“These individuals understand how the system operates. Their actions were deliberate, not mistakes,” he said.

The probe follows a trading fiasco that forced the CSE to halt the market just 24 minutes into the session on 7 January and cancel all trades. This was after abnormally high-priced transactions in the newly listed Wealth Trust Securities Ltd. raised fears of systemic risk spilling into the wider market.

The SEC said market buy orders in the debut listing were matched with unusually high sell orders, creating sharp price distortions.

According to the SEC and CSE, some investors who sold at inflated prices then leveraged the resulting buying power to snap up shares in other listed companies, intensifying the risk of disorderly trading beyond a single counter.

With SEC clearance, the CSE halted trading at 9.54 a.m. The move was described as necessary to protect investors and safeguard market integrity.

In a swift regulatory reset, the exchange has barred market orders on the first day of trading for new listings with effect from 8 January. Jayaratne said the safeguard would not undermine price discovery, noting that while a handful of investors attempted to place excessive sell orders the following day, they were flagged, warned and blocked from execution.

“Most investors acted responsibly; only a few attempted such actions,” he noted.

Initial findings point to retail investors trading through internet platforms without advice from licensed investment advisors, the SEC said. The investigation remains open and could uncover connected parties.

“If our investigation confirms that anyone manipulated the market or contributed to this issue, we will take strict action in accordance with the Securities and Exchange Commission Act,” stressed Jayaratne.