A staggering 78 securities had played the Securities and Exchange Commission (SEC) imposed price band during its first year of operation as of last week.
The 78 securities were inclusive of several of those companies which came repeatedly under the price band, which has been in imposition since 23 September 2010. The price band of 10% was originally imposed for 15 market days and was subsequently reduced to five days.
The most gullible was Alufab, which saw itself in the price band six times in different periods, whilst Colombo Land and East West got captured thrice along with Blue Diamonds, though the latter’s securities included non-voting share as well.
Securities of at least over a dozen companies played the band twice, whilst within the 78 were those that came under the band only once.
Penny, speculative and undervalued stocks were frequent players of the band, whilst a few fundamentally solid companies also played. In terms of companies the first year saw 52 firms coming under the band.
Preceding its imposition, Environmental Resources Investments (ERI) and Dankotuwa Porcelain (DPL) along with Blue Diamonds were among target stocks to instil discipline via the price band, while only Blue Diamond remained erratic and susceptible. None of ERI securities and DPL came under the band.
Whilst Vallibel Finance was the first to be slapped with the price band on 23 September last year, Asian Alliance Insurance was the latest, which will finish its five-day languish on Tuesday. On the positive side, no securities were added to the price band as it marked its first anniversary on Friday.
The price band, though revised, has remained contentious. Despite recommendations for its withdrawal and replacement with the more acceptable circuit breaker method, the SEC one year on is yet to feel comfortable and confident.
The first anniversary is replete with multiple cases when securities rose irrespective of being under the price band, though within permissible levels. Of late there have been instances where some scheming investors used the price band as a benchmark to drive the stock up as there was a perception that a security playing the band had greater upside, especially among penny and speculative stocks. The latter scenario proved original critics wrong that the band was a deterrent to check volatility and many investors were happy to cash in on securities which were susceptible.
However, some analysts have remained emphatic with regard to the benefits of price band, hence suggest it should be continued. “The price band is effective to stem any extraordinarily manipulative bull runs as well as extreme volatility,” they opined.
But critics say the price band remains an overhang and is yet another thorn in an already overregulated market. Its continuity also reaffirms the lack of confidence on the part of the regulator.
“Is SEC saying one year on the market hadn’t disciplined itself and if so, the price band and other measures, both old and new, have failed to shore up SEC’s confidence, exposing the regulator’s vulnerability than the very market?” they claimed.
The price band and other regulatory factors are being showcased as key reasons for the persistent bearish sentiments throughout this year. One analyst even quipped that if not for the very stocks that SEC had perceived to be notorious as well as speculative play, the market’s status would have been far worse.
The world’s most consistent best performer for two years until 2010, the Colombo Bourse’s return year to date as of last week was only 1.5% in terms of the All Share Index whilst the Milanka Index was down 15%.
However, independent analyst cited overall lack of interest from foreign and local institutional investors as well as volatile global conditions as contributing factors for the Colombo bourse’s slip, in addition to over-regulation.
Amidst claims and counter arguments, there is consensus that equities in the current scheme of things are most attractive, hence plenty of buying opportunities. Cash however is hard to come by and new investors are relatively small in value though their numbers are increasing.