Caps on prices are a hit on the free market. The Securities and Exchange Commission (SEC) on Thursday placed caps on the price movement of stocks.
If the price of a particular stock increases or decreases by 10% over its previous day’s weighted average price the following day, then that stock stands suspended for trading on that particular day.
However the net effect of this regulation is that since its enforcement on Thursday, the benchmark ASI has fallen by149.77 points (2.9%) and the more sensitive MPI by 155.02 points (2.6%) in the last two working days of last week over that of Wednesday to close the week at 5,065.07 and 5,759.45 points respectively according to stock market provisional figures.
Likewise turnover has also taken a hit, coming down from Rs. 5.48 billion recorded on Wednesday, to Rs. 1.9 billion and Rs. 2.5 billion on Thursday and Friday respectively according to provisional figures.
Investors have lost confidence in the market, Muditha Hettigama, an investor, told The Sunday Leader. One of the chief reasons for the steep decline in the bourse is because of the market’s second highest capitalised stock, the controversial Environmental Resources, having its share price fall steeply last week.
Environmental Resources share price during this period has fallen from Rs. 128 to Rs 103 according to provisional figures a 24% decline. If there was market manipulation, and there is reason to believe that there was, when considering how the bourse made steep gains in the past few days or weeks, the way to go however was to prosecute the offenders, and not to penalize the market across the board.
For instance if there is price manipulation in the Pettah market, one does not penalize all the players, other than bringing the culprits to book.
But in this instance the culprits are still at large, while the whole market is penalized, he said.SEC could have started the process by first placing margin controls, said Hettigama. Currently if an investor has Rs. 100,000 in shares, he could get another Rs. 100,000 on credit from his broker to invest in further stocks and shares, he said, effectively giving him a 100% loan against his existing stock of shares to invest in the market. On the other hand what happens to stocks that deliver excellent results by way of profits? asked Hettigama. Isn’t a 10% cap on its share price distorting the reflection of its performance? he further queried.The way to go would have had been to reduce those trading margins, said Hettigama. It’s the behaviour in civilized societies, that before regulations or laws are instituted, to give sufficient time for its people, to prepare themselves, before the imposition of such laws.
Blue Diamonds Wins The Day
The Supreme Court (SC) on Friday gave a ruling in favour of Blue Diamonds to go ahead with a proposed rights issue.
This was allegedly after the company found it difficult to get the regulator’s approval for this issue.
The SC decision adds credibility to the company, a market source who didn’t want to be named told The Sunday Leader.