Price band on stocks will check manipulation, insider trading
The Securities and Exchange Commission (SEC) imposed a price band on
some stocks a few months ago after observing over a considerable period
of time, the wild fluctuations of prices as a result of some investors
pushing them. Self styled independent, analysts, advisors and other
parties, have criticised the move and said this intervention is
unwarranted and will have negative impacts.
K. C. Vignarajah, former chairman of the Ceylon National Chamber of
Industries, and a long time campaigner for a healthy stock market to
cater to decent shareholders, argues that the move is most welcome as it
will check manipulation and insider trading at the Colombo Stock
It will do justice to the large majority of honest investors and the
Following are excerpts from his interview with the Sunday Observer.
From the very inception of the introduction of the price band by SEC,
interested parties who would profit from a highly distorted stock
market, carried out strong propaganda against the move.
There have been many anonymous analysts, pundits and errant players
of the stock market orchestrating criticism against the SEC to achieve
their mean ends.
The SEC under the leadership of the Chairperson Indrani Sugathadasa
and the dynamic support, innovation and administration of the
Director-General Malik Cader have performed very well as a team. They
face concerted, coordinated, sly, sniper attacks from many directions to
dilute and distract them from their goals and toil towards ensuring
The valiant and determined effort made by the SEC towards creating a
transparent level playing field should be applauded.
Many people have said that in the matter of credit given by
stockbrokers, SEC has overreacted in imposing stringent credit
It appears that the SEC had to act due to some errant stockbrokers
giving credit to customers far in excess of even what could be termed
extremely high risk lending!
The SEC, smelt collusion and even possibly insider trading which is a
serious crime. These concerns had to be remedied quickly in the interest
of the stock market. Now that stability has been achieved, a reasonable
credit to clients of 25 to 30 percent of portfolio value would be a good
thing in many ways to ease the hardship of shareholders as well as
We have to create and nurture a vibrant stock market to support the
effort to make Sri Lanka the Wonder of Asia in a manner where a large
majority can benefit in such economic prosperity; that would make the
goal worthwhile. What we need is a caring, competitive capitalism which
would use its undeniable talents and resources to give leadership in
tapping the potential of our country.
Companies must most importantly distribute a substantial portion of
profit earned to shareholders because morally and legally this is right.
Shareholders should be given adequate, timely information of
performance, assets value appreciation and potential growth to assess
correct valuation of shares.
Errant directors also deny information. They pick up the ball and
disappear into the crowd, by delisting and even compulsorily purchasing
shares. Ceylon Oxygen PLC (Ltd later) which was a classic case of Public
Private Partnership (PPP). From 60 percent foreign 40 percent local PLC
is being transformed to a 100 percent foreign monopoly! Action by SEC
after investigation of long-term planned insider dealing must be
Some errant controlling interests do not act ethically or morally.
Even illegal actions are brazenly passed by an overwhelming majority.
They create shareholder fatigue by not paying dividends, not maintaining
liquidity with a public float of about 45 percent. They lobby and
mislead the powers, by presenting half truths and erratic statements.
In the 2006 budget speech President Rajapaksa made an excellent
recommendation to corporates to be responsible. They should distribute
at least 50 percent of net profit after tax. He mandated a dividend tax
if the payout was less than 35 percent. This has been sabotaged by a
capital expenditure loophole and should now be restored to ensure equity
and good governance which will enhance genuine investments.
A differential tax, (earlier 5 percent advantage for widely held
PLCs), plus a punitive delisting levy will increase the liquidity and
attractiveness of CSE listing and have a l stimulating effect on the
stock market, benefiting all the stakeholders.
It would also create a source of continuous, reasonable and
justifiable 10 percent withholding tax revenue stream to the government,
which when used well will benefit the entire population of the country
including non shareholders. If additional capital is required, a Rights
Issue, after a good dividend, will be oversubscribed many times over.
Foreign investors will also be attracted to the CSE and contribute to
our economy. It is a Win-Win situation for all.