The Colombo Stock Exchange (CSE) yesterday withdrew what was dubbed as a ‘contentious’ circular issued in January 2021, followed by a clarification in early February.
The circular centered on regulatory measures on monitoring credit exposure undertaken by stockbrokers and dealers.
The withdrawal follows stockbroker firms making representations with regard to system limitations and practical constraints regarding the submission of certain information required by Circulars bearing number 06-1-2021 dated 29 January 2021 and 01-02-2021 dated 1 February 2021 issued by the CSE.
“Accordingly, it has been decided not to pursue with the said requirements,” stated the notice issued by CSE Chief Regulatory Officer Renuke Wijayawardhane.
The original circular listed several stocks (which have traded mostly in the recent past) and meant brokers had to give a breakdown of the credit exposure. This triggered a huge debate and concern within the capital market, including listed companies, brokers and investors. Subsequently, the CSE clarified over the misconception whilst it was noted that what was obtained monthly previously, the new requirement was weekly. However, concerns persisted, prompting most to point to the circular as the cause for the market's fall in February, though some opined that the January rise (market capitalisation up by Rs. 829 billion) was way too much.
The withdrawal of the circular took place yesterday, when in parallel, the CEOs of the stockbroking firms were to handover to the Securities and Exchange Commission (SEC) a signed a letter calling for the same. In the late evening, a statement titled "CSE gives a positive hearing to broker concerns" said following discussions at the stakeholder meeting, it was decided to withdraw the circular.
“What this means is request for client info of top 10 credit given stocks which cannot be generated, need not be given and clients need not be worried of their names going to CSE,” quipped one broker.
During the pre-scheduled meeting, the SEC, led by Chairman Viraj Dayaratne PC, Director General Chinthaka Mendis and CSE CEO Rajeeva Bandaranaike and CEOs of stockbroker firms discussed the way forward. It was emphasised that the onus of client credit will be with broking firms, whilst adhering to best practices in place for some time.
(FT)