New ASPI index calculation method to tackle low market liquidity

The Colombo Stock Exchange (CSE) will revisit the methodology of calculating the All Share Price Index (ASPI) to determine the possibility of index movements being linked to the public float of listed company constituents of the index to deal with stocks data highly volatile and liquid, officials said.

This was precipitated by illiquid LOLC Development Finance PLC’s (NIFL) recent unprecedented share hike triggering Securities and Exchange Commission (SEC) intervention, capital market sources told the Business Times on Wednesday. Currently NIFL is detailing plans to increase its liquidity or delist the share,

The new method would allow the ASPI to reflect the price movements of the overall stock market more accurately in relation to shares that are freely traded or popularly called the illiquid shares.

The CSE will also review enforcement rules pertaining to the securities of listed companies which are transferred to the Second Board due to non- compliance with the minimum public holding requirement with the objective of discouraging such companies from remaining on the said Second Board for excessive periods of time. “The CSE is looking at what can be done to encourage these companies to remove themselves from the second board and to be compliant,” a senior CSE official told the Business Times.

He said the CSE is closely monitoring the recent share hikes of six hotels during this week. Shares of Royal Palms, Eden, Kingsbury, and Citrus rose on Monday with Royal Palms’ shares rising as much as 50 percent. “The earnings forecasts show that even if hotels in general are full, for the next two years they will not be able to recover the losses incurred in the past two years. So, there maybe some manipulation in these stocks,” an analyst pointed out.

However, some others said that the vaccination fast-track and the prospect of returning tourism would have driven up the share prices of the mentioned stocks. “There are some fairly large players with big positions in hotel sector shares who want out. They may be pushing these stocks,” another analyst said noting that there are serious allegations against some of these players on spreading false stories through social media such as WhatsApp groups.

The Securities and Exchange Commission has reiterated that they are watching social media interactions regarding stock market information closely.