Flexible rules for margin trading – CSE head

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By Ishara Gamage

Sri Lanka’s Capital market regulatory authorities have considered relaxing the existing margin trading rules or forced sell rules, after considering the prevailing adverse economic conditions, Colombo Stock Exchange (CSE) Chairman Dumith Fernando said yesterday. 

Addressing the media at the CSE premises, he said, “We are in the process of relaxing some measures with regard to forced selling.”

When equity prices fall, margin providers such as banks and brokers registered as margin providers request the stockholder, who had bought on credit, to sell, in a margin call, which tends to accelerate a downturn.

There is about Rs 14 billion of broker credit and banks have given more margin credit.

The CSE was driven almost entirely by margin credit backed local investors and low interest rates enforced by the Central Bank.

Fernando further said that there was lack of information at the moment to make the proper investment decisions.

Accordingly, the regulator, Securities and Exchange Commission of Sri Lanka (SEC), has taken steps to temporarily close the stock market for a period of five days in accordance with the provisions of the new Act, allowing investors to make investment decisions on the basis of accurate information, he said.

“We have decided to close the stock market for five days, citing the prevailing special economic conditions in the country, which has made it difficult for investors to make the right investment decisions and to focus on investors who have bought shares on marginal credit facilities.

“According to Article 24 of the SEC Act, the stock market has a primary responsibility to promote a fair, orderly, transparent and efficient securities market in Sri Lanka. According to Article 27, it is the responsibility of the stock market to work for the betterment of the public good, with a special focus on the need to protect investors,” he added.

Meanwhile, Dilshan Weerasekera, a member of the Board of Directors of the CSE, told the media that this CSE closure is only a temporary measure as investors were not being properly communicated with.

“We are on the opinion that the CSE should be kept open for trading. Under the current circumstances, this decision has been taken temporarily as there is no accurate communication of information to investors,” Weerasekera said.