SEC kills retail investors under guise of archaic regulation
Sri Lanka is indeed a land like no other. Where else in the world, are capital markets governed by bureaucrats who at their whims and fancies impose archaic regulations? A sound example of indifference and pure arrogance was witnessed on Thursday August 5 as SEC imposed a price band to the Colombo Stock Exchange (CSE) in a purported bid to limit “market manipulation”.
The CSE is undoubtedly Sri Lanka’s focal indicator of economic robustness. Over the last 15 months since the end of the conflict, the CSE’s remarkable performance has pitted it against the world’s best and earned it the title of “Asia’s best performing market”. On the back of this Bull Run, Sri Lanka has gleaned international acceptance as an economy poised for precipitated growth and has been hailed as an emerging market with great potential for international investment. Over the last year, scores of international fund managers – who in the past were wary of Sri Lanka and CSE - have visited and assessed it for stability as well as risk and reward potential. Read More
“I commend the SEC for price band”
On August 4, 2010, on the directive of the SEC, the CSE instituted a 10% upward and downward price band on all listed securities within any trading day based on the previous day’s closing price. This was in response to the unusual price volatility of some stocks. Over the subsequent three days, the market declined by 6.7%. But it rebounded 4.7% on August 10, and closed marginally lower on August 11. Price limits are pre-specified upper and lower limits within which stock prices are allowed to fluctuate in a single day. The main purpose of price limits is to moderate excessive volatility that may result from market manipulation and excessive speculation. Price limits have the effect of reducing daily volatility, and spreading volatility over long periods of time. This is particularly important in Sri Lanka because of illiquidity and the highly concentrated share ownership. Price limits have been used in many markets, both developed and emerging. The developed markets include Austria, Belgium, Finland, France, Italy, Japan, Portugal, Spain, and Turkey while emerging markets include Ecuador, Egypt, India, Jordon, Kenya, Korea, Mexico, Pakistan, Peru, Philippines, Taiwan, Thailand and Venezuela. Some countries use narrower limits such as 5% while others use wider limits such as 50%. Some countries specify different limits for different stocks, mostly based on the price of the stock. Read More
30 reasons for Great Depression ii by 2011
By 2011? No recovery? No new bull? “Hey Paul, why do you keep talking about a bigger crash coming by 2011?” Readers ask that often. So here’s a sequel to my predictions of 2000 and 2004, with a look three years ahead.
First. Dot-com crash
We pinpointed the dot-com crash at its peak, in a March 20, 2000 column: “Next crash? Sorry, you won’t see it coming.” Bulls-eye: The dot-com bubble popped. The economy went into a 30-month recession. The stock market lost $8 trillion.
And today, over eight years later, the market is still roughly 40% below its 2000 peak. Read More