SEC committed to build capital market
The Securities and Exchange Commission of Sri Lanka (SEC) plans to
amend existing regulations, develop new products, obtain advance
technology and infrastructure and improve practices during 2011-2013,
said Chairperson of the Securities and Exchange Commission of Sri Lanka
(SEC) Indrani Sugathadasa.
She said that the SEC has identified the amendment to the SEC Act as
a priority to create a conducive infrastructure to the capital market.
The present SEC Act was introduced in 1987. Though there were three
amendments thereafter, an overall review of the provisions to align it
to global market trends has not been done.
Introduction of the new Takeovers and Mergers Code, new market
intermediary rules and guidelines to register auditors of listed
companies will strengthen the functioning of the capital market in Sri
Lanka, said Ms Sugathadasa.
The per capita income in Sri Lanka is expected to double in 2016. It
is estimated that Rs. 1 trillion of this will be generated from sectors
other than the banking sector, a significant portion of which will be
generated from the corporate debt market.
The anomaly which existed in the treatment of withholding tax on
corporate debt securities as well as the anomaly of the risk reward
structure was addressed and we expect the debt market to develop
The SEC will follow up on the Corporate Bond Market Development
Implementation Plan approved by the Commission. Also the SEC will liaise
with the CSE on encouraging trading on the DEX System.
She said that steps have been taken to frame suitable guidelines to
encourage the introduction of new funds namely Real Estate Investment
Trusts (REITs) and Exchange Traded Funds.
This will undoubtedly give rise to more investment opportunities for
investors and will contribute to the expansion of the number of
investors in Unit Trusts.
Ms Sugathadasa said that Sri Lanka's capital market has developed
faster and more extensively in the last 18 months than any other period
in history. In a relatively short span of time, the capital market's
role in funding and mobilising savings has become more comparable to
that of the banking sector.
She said that the capital market has also firmly established its
profile as an indicator and facilitator of growth within the Sri Lankan
economy. This promising growth in the stock market was mainly backed by
peace prevailing across the country.
The economy has continued to benefit from stability after the 26-year
conflict. The phenomenal growth in the stock market is a positive sign
that Sri Lanka's business landscape is changing for the better.
The effects of growth will, no doubt, spill over into the national
economy. The government's stability has given investors a positive
outlook. The positive growth momentum of the country so far has factored
into the capital market through continued gain in the indices.
With the 26-year-old war that overshadowed Sri Lanka coming to an
end, Sri Lanka is poised to embark on an accelerated development
process. In the medium term the government is targeting an economic
growth in excess of 8% and anticipates market capitalization to increase
to Rs. 3 trillion.
The proposals outlined in the Budget 2011 will provide further
impetus to the development of the capital market of Sri Lanka. The
Budget 2011 incorporated many important proposals the SEC had made thus
eliminating the impediments that prevailed in the market.
In order to promote Unit Trusts to mobilize savings several
significant proposals were included in the budget. The turnover of the
Unit Trust industry is to be exempted from Economic Service Charge
whilst foreign investment restrictions placed on Unit Trusts investing
in Government Securities was relaxed. To encourage companies to list on
the Colombo Stock Exchange, expenses on listing a company will be
deductible subject to a limit on the value of the Initial Public
Offering and the anomaly which existed in the treatment of withholding
tax on corporate debt securities was also addressed.
These incentives will further create a supportive environment for the
SEC to achieve its goals and objectives.
The Key strategic goals identified by the SEC are to facilitate
improvements in the capital market infrastructure and liquidity,
introduction of new products to the capital market, encourage and
facilitate the widening and broadening of Issuer base and investor base.
She said that from this year Market Capitalisation is expected to
increase at least by 20 percent per annum. Within a macroeconomic
environment of high GDP growth and low inflation supported by fiscal
discipline and political stability in Sri Lanka, more companies and
infrastructure projects will consider financing their projects through
the equity market
It is expected that 50 to 60 new companies (of which approx 25
finance companies as directed by the Central Bank of Sri Lanka), will be
listed on CSE in 2011.
Hence, it is anticipated that market capitalisation will increase to
Rs. 3 trillion by 2011 from the current Rs. 2 trillion. The SEC is also
exploring the possibility of introducing Cross Boarder Listing on the
The SEC thinks that it is important to increase the number of active
investors in the CSE as well as to increase awareness among the
investors. The importance of this goal is to broaden the investor base
to increase the liquidity of the market to minimise market manipulations
and other market abuses.
The stock market should venture into rural areas further in order to
achieve our objective of widening and broad basing the investor base.
More investors in the stock market will create more liquidity. The
liquidity of the stock market provides investors the ability to quickly
and easily sell securities.
This is an attractive feature of investing in stocks, compared to
other less liquid investments.
The CSE has already ventured into four provinces. The development
projects that are under way in the Northern and the Eastern provinces
has shown a full swift where society is keen in knowing latest
developments at the stock market and to invest in it.
The five branch offices of the CSE have performed exceptionally well
during 2010 and the SEC would like the CSE and stock brokers to venture
into other areas such as the East by establishing branch offices.
The Unit Trust industry, a vital segment of the capital market of Sri
Lanka is the best conduit to mobilise savings of the less sophisticated
small investors. The SEC encourages small-scale investors to begin
investing through Unit Trusts as it is less risky than investing in the
market directly. The SEC already has suggested a marketing plan to
promote Unit Trusts within Sri Lanka.
Sri Lanka is undoubtedly poised to take off in 2011. The stock
exchange, as an indicator, speaks for the economy's health and prospects
for the local and foreign investors. President Mahinda Rajapaksa has
opened the door for foreign investors to invest in Sri Lanka and the
political stability of the country provides confidence to both local and
"Let me reiterate our resolve to build our capital market and set it
on a strong foundation over the next few years and to contribute towards
the President's efforts of placing Sri Lanka as 'the emerging wonder of
Asia'", she said.