Case for efficient information system at Colombo bourse

21 December 2015 06:30 pm Views - 1550

An efficient information processing system is necessarily vital to establish a fair trading platform for share market investors. Information comes mainly in three forms. That is old or past information, publicly available new information and information not publicly known.

In order to establish fairness, regulators are implementing rules and procedures to ensure all sorts of information are available to investors. This is expected to prevent few selected investors making exceptional gains, which is unfair on a larger number of investors.

Availability and access to information need to be improved at Colombo Stock Exchange (CSE) to support fairness to its investors. 

Sri Lankan equities do experience insider trading, resulting exceptional gains to a few selected persons in the past. Efforts are underway by the regulators to take legal actions against the parties. 

However, prevention mechanisms are not stringent enough to discourage unfair trading. Policies and procedures need to be improved to minimize the degree of insider trading, without affecting the free market forces and its investors. Retailers and investors who trades on sensitive information play a vital role on market performance in the short to medium term. 


Suggested changes to improve information efficiency 
1. Using stock exchange website as a common distribution point 
Introducing rules to restrict listed companies publishing information in any media before making corporate disclosures through the stock exchange website. 
For an instance, publishing financial statement on the CSE site before any other source is a good practice. In some cases, sensitive information such as expansionary plans are not published on the CSE website and if published adequate information is not disclosed properly. This could result in an insider trading situation with certain investors having access to more details to make exceptional profits. 

Rules should be stringent and companies who violate directives should be fined. Dissemination of information through one central point may result in efficient information availability.

2. Improving investor relation etiquettes between management and analysts
Investor relations between senior management of listed companies and equity analysts who in turn represent equity investors need to be improved further. Every listed company need to have an officially appointed contact person who can support analysts in order to get a quality research product, which is also highly essential to attract new investors to the market. 

Moreover management should be kind enough to arrange meetings with analysts and educate them in order to avoid misuse of information and discourage erroneous rumors in the market. On the other hand analysts should also have a duty to perform by coming up with best possible research with properly justified assumptions that will not mislead or affect the true and fair view of an investment opportunity. Moreover recommendations should be unbiased.


3. Quick responses by companies to misleading news reports 
Stock Exchange should promote listed companies, as a practice, to quickly respond to the misleading news reports on other media. They should clearly explain the situation by sending a circular to investors through the CSE website.