In a sign of further tough action to instill greater discipline, the Securities and Exchange Commission (SEC) this week suspended an estimated 12 brokers from extending further credit to clients due to lack of capacity.
The SEC action follows revelation that these brokers liquid asset less obligations as at 22 August was negative and they are unable to cover the value of the debtors over T+3 days on the same date. Given the precarious situation, SEC has directed the relevant brokers with effect from today (15 September) to provide the liquid asset statement daily to the regulator until the position is maintained at zero leverage.
This is in compliance with the SEC directive issued in mid-August easing credit rules.
SEC has also warned that failure on the part of brokers concerned to implement the fresh directive will leave the regulator with no other option than to take disciplinary action without further notice.
Irked by the SEC action a furious Colombo Stock Brokers’ Association met at emergency session yesterday over the matter.
Earlier in the day, some analysts blamed yesterday’s dip in the market over what they alleged as “market throttling” move by the SEC. Both ASI and MPI dipped by over 0.5% sharply than Tuesday whilst turnover was a below average Rs. 1.6 billion. They opined the market will fall further.
Brokers are venting purely because at present 80% of the market’s activity is driven by credit but SEC action was anti-market. Some brokers allege that day trades were also being stifled by the SEC action.
However those who support tougher action claimed that soon after the easing of credit rules brokers who hadn’t topped up their net capital were turning more reckless unfolding a fresh system risk in the market.
SEC’s selection of items under liabilities to determine the net liquid capital was originally opposed by the brokers who had wanted a review which was turned down by the SEC saying some recommendations contravened Sri Lank Accounting Standards.