SEC probes, margin calls put ‘mafia’traders in a tizzy
Probes by the regulator and colossal debt accumulated through margin trading have ‘swallowed’ some high net-worth traders who are attempting to influence the removal of key officials at the Securities and Exchange Commission (SEC).
The investigations against them are ‘rapidly’ unraveling manipulative patterns, while their margin calls by banks are getting closer, an official from a brokerage, planning to quit the Colombo Stock Brokers Association (CSBA), said.
The association is divided over issues raised by its membership. For example most CSBA members were unaware of the presentation that was to be made to the President at the July 20 meeting he had with the stakeholders recently and that they didn’t have a hand in preparing it. “We were given 20 hours notice to prepare for this meeting and some of us didn’t know that Mr. (Dilith) Jayaweera, an investor, was planning to make a presentation,” he said.
He said that some CSBA members felt the presentation (the only one made at the meeting) had little to do with the request for credit extension but blamed the SEC for over regulation and accused the media of creating a fear psychosis. He said that the presentation ‘was a side show’ while there're underlying burning issues. “The new surveillance system that the SEC has put in place is an effective and integrated surveillance and monitoring system which generates alerts out of unusual market movements,” he said, ex- plaining that it identified unusual trading patterns, such as chronological connections with customer orders. He added that during last year the SEC’s Surveillance Department, headed by Chandu Epitawela was able to detect possible market violations and picked up many trading patterns which are questionable. “The executors of these transactions are high profile.”
He said that last year under the past Chairperson, Indranee Sugathadasa these reports were put to some meetings of the SEC, where investigations were encouraged to be started. “Since she left the probes were at a standstill but when the new Chairman Thilak Karunaratne stepped in, he wanted all of them to be reopened. This is what has got most of the ‘agitators’ started and lobbying the President,” he explained.
Small cog
Though the SEC’s Surveillance Department is a small ‘ cog’ in the wheel, it’s easy to suppress detections at this level. Once a referral is up, it’s on record. While there was a high growth in the Colombo stock market seen in 2009, 2010 and in the first quarter of 2011, it also caused a high degree of price volatility and many regulatory and supervisory issues.
“This was the reason that the regulator was forced to step in and take several – perhaps not very popular – measures to restrain the volatility and to lessen the systemic risk in the market,” a stockbroker who was present at the meeting with the President told the Business Times.