CSE’s week-long closure draws criticism; ‘bad signal’ to outside world

A pillar of the free market economy, the Colombo Stock Exchange (CSE) has decided to close trading for the whole of next week (April 18 to 22), amid criticism that it sends a bad signal to the international community from a country that has declared itself “temporarily” bankrupt.

Colombo University Economics professor Sirimal Abeyratne said coming on top of last week’s announcement of a temporary default in Sri Lanka’s foreign debt obligations, this was another major blow to the country’s confidence in the eyes of the international community. “This means there is a crisis in business, too,” he said.

The move was announced by the Securities and Exchange Commission of Sri Lanka (SEC) on Friday.

The decision has been based on the political instability and economic uncertainty in the country. The SEC is of the view that it would be in the best interest of investors and other market participants if they are afforded an opportunity to have more clarity and understanding of the present economic conditions, for them to make informed investment decisions, the SEC said in a statement.

But some brokers disputed the statement, saying the closure decision was made without consulting capital market stakeholders.

“A few brokers who are not members of the CSBA (Colombo Share Brokers Association) were of the view that the CSE should be allowed to operate. Such ad hoc closures will only compromise the integrity of capital markets and worsen the already dented investor confidence. A period of five days would have elapsed since the preemptive announcement of an external debt service suspension providing sufficient time for all investors to digest the information and there is no reason to believe there are any hindrances for the operation of an orderly and fair market next week. Furthermore, it is also against global best practices,” one broker said.

The closure was also prompted by repeatedly suspending the market for short spells during trading (referred to as circuit breakers), last week, when the S&P index fell below 5 percent. Circuit breakers (suspending trading for 30 minutes) occur when the index falls by 5 percent, then 7.5 percent and then by 10 percent. Trading was stopped on multiple occasions.

A stock analyst said heavy margin (more credit) calls kept coming and it would be chaos if it persisted. The country’s political situation is adding fuel to the fire, he said, noting that foreign investors who were slowly coming into the CSE were now apprehensive. Margin providers are those who provide credit to investors.

Earlier this week, Tundra Sustainable Fund Chief Information Officer Mattias Martisson (Tundra is one of the key foreign investors in the CSE) welcomed the decision to restructure the external debt in the country saying that servicing this debt has been the main issue for foreign investors over the years. “If there is significant relief, those concerns will lessen. It is a re-set of the economy which frees up funds for other parts of the economy.”

Negotiations between the Government and the International Monetary Fund (IMF) for a bailout package begin next week in Washington.