Colombo Bourse likely to buzz this week- Analysts

By Azhar Razak

Sri Lanka’s stock market is expected to bustle with more activity again from tomorrow as a highly-debated ten percent price band rule becomes ineffective and is replaced by a formula to curb fishy transactions, analysts opine.
According to them, the bourse will flurry again with activity, similar to the pre-price band period that was however driven by speculations rather than proper fundamentals.
“The market has been fairing pretty well even when the price band was in place. So there is no reason why it should not continue to do so,” a top market analyst, who however wished to remain anonymous, told The Bottom Line.
The analyst said the market will be further boosted by the more recent positive reports of the economy, political stability, strong financial performances reported by firms in the recent quarter and other macro economic factors.
“I feel the removal of the ten percent price band rule by the SEC will be taken in a positive light by the retailers although regulation is only one aspect of what investors will look into prior to investing and factors such as transparency also plays a part specially for long term investors,” Nikita Tissera, manager, research, at SC Securities said.
Alternatively, he said, SEC could have even kept the price band rule in place as investors had started getting used to the system but made other changes such as to ensure flexibility is given to genuine long term investors.
Capital Trust Securities director Sarath Rajapaksa, meanwhile, said the market was anyway expected to take a bull run irrespective of the price band rule being in place as the country is presently bustling with positive sentiments.
“What is further encouraging is to see that the banks have also lowered interest rates following directives given by the Central Bank as non-availability of cheap financing had always been a major detriment to investor activity,” Rajapaksa pointed out.
Critics of the price band rule had earlier argued that the rule had imposed a flat punishment to all listed securities in the market due to actions of a few ‘so called manipulators’ whom the SEC had even not named todate.
The new formula that replaces the price band takes into account ‘unusual activity’ in both volume and price movements based on the last five trading days of the share which will then be captured into a list and will remain there for 15 days.

During this time, SEC will place restrictions on these shares such as the applicability of the 10 percent price band and the 50 percent margin upfront for trading such shares. On a further development, the SEC has also asked all stock broking companies to refrain from extending credit to any investor beyond three days from January 1 next year.
“If credit is to be extended beyond this specified period it could be done only through a Margin Provider duly registered with the SEC, the regulator said in a statement made to the Colombo Stock Exchange recently.
However, according to Sarath Rajapaksa, the new changes to be introduced from January 1 will harm the small retailers who used margins to sell and would only provide more benefits for big corporates to do their ventures.


http://www.thebottomline.lk/2010/09/19/page2.html

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