Price band lifted, new formula by SEC

The Securities and Exchange Commission (SEC) lifted the 10 percent price band imposed last month and introduced a formula to streamline trading at the Colombo Stock Exchange (CSE).

SEC sources said the new formula will help stabilise the capital market and bring order to the stock exchange.

The SEC imposed the price curb last month to control abnormal share price increases and regulate the market. According to the band the price of a share could not go upward or downward beyond 10 percent based on the previous day’s closing price, during a day’s trading.

SEC sources said though the market performed negatively immediately after introducing the band activities stabilised and within a month the turnover exceeded rupees two trillion.

Sources said the price band was introduced to avert a capital market bubble which would lead to an economic crisis caused by abnormal increase in share prices.

The 10 percent price band on listed securities will be lifted tomorrow and the new formula based on price volatility and volume traded will be in force.

Based on the preceding five market days under the new formula securities captured will be on a list published to the market by the CSE and will remain there for 15 market days.

“Companies cannot increase or reduce the price of a share without adequate reasons. The new formula will ensure the safety of the investors”, sources said.

The 10 percent price band will be imposed on securities captured under the new formula. The price band will not be applied on the first day of trading on any securities, crossings, debentures and securities of which the previous closing price is below Re. 1.

A stock market analyst said regulators should not complicate the market and added that excessive tampering will not benefit the market.

“Civil sanctions are welcome but the entire market should not be made to suffer. There has to be certain amount of free market activity in a stock exchange”, he said.

The SEC directed CSE to mandate stockbroking companies to refrain from extending credit to investors beyond T+3 days effect from January 1 2011.

SEC has issued licences to three stockbroking firms which increases the number of broking companies at the CSE to 24. (LF)