FREE RIDE FOR INCOMPETENT BROKERS

Highlighting another potential spillover effect of stock exchangesponsored research, Jafferjee said it would give the brokers who do not conduct research, a free-ride because they could now depend on the CSE.

“This is a classic situation of creating free riders because now those who do not engage in or cannot invest on research can benefit from this development.

FREE RIDE...

On the other hand, there are brokerages who have come to the market with little or no knowledge in conducting research,” he said.

Although it is required to have a research arm under each stock broker, there are only a handful of brokers who have their own research department. “If you cannot have your own view on a stock, how can you advise your clients to invest or not?” Jafferjee questioned. Brokers are currently operating under financial difficulties due to the lack of momentum in the market and therefore it will be an uphill task for them to run their own research arms parallel to broking business which itself is running at a loss. According to Wijesundere, Stock exchangesponsored research is an action in response to a request made by the broker fraternity last year. Interestingly, the Colombo Stock Brokers Association (CSBA) President, Dimuthu Abeysekera was not that aware about the development. “I need more facts to comment on this. We have not yet discussed in detail with the CSE. We still do not know the cost or how much they (CSE) spend on this project. Perhaps the CSE would have felt the need for more independent research at a time when the stock broker community undergoes a tough time”, he said.