Temporary stock market closure sparks debate

• SEC Act has provisions to close the market temporarily due to an “economic or financial crisis”
• But Ceylon Chamber argues that no need to close market when circuit breakers exist
• Trade chamber also says the action might be interpreted by market participants as akin to unsuccessful attempt made to hold the exchange rate constant against market forces
• Colombo Stock Exchange was last open for trading on April 8

A debate has been sparked by the stock market watchdog Securities and Exchange Commission’s (SEC) decision to close the market for five days starting from today at the request of the board of directors of the Colombo Stock Exchange (CSE) and some stockbrokers. 

A SEC statement said the CSE director board made a request to close the market temporarily citing the present situation in the country.

“Many other stakeholders of the securities market including the Colombo Stock Brokers Association have also sought the temporary closure of the market on the same grounds,” the statement said.

“The SEC carefully considered the grounds that have been adduced by them and has evaluated the impact the present situation in the country could have on the stock market, in particular the ability to conduct an orderly and fair market for trading in securities,” it added. 

“The SEC is of the view that it would be in the best interests of investors as well as other market participants if they are afforded an opportunity to have more clarity and understanding of the economic conditions presently prevalent, in order for them to make informed investment decisions.  

Therefore, acting in terms of the provisions contained in Section 30 of the Securities and Exchange Commission Kelanimulla Act No. 19 of 2021, the SEC has decided to direct the CSE to temporarily close the stock market for a period of five business days commencing from 18th April 2022,” the statement noted.  The Section 30 of SEC Act allows the Commission to close the market for a period “not exceeding five business days if the Commission is of the opinion that an orderly and fair market for trading in securities on the securities market is being or is likely to be prevented because  (a) an emergency or natural disaster has occurred within Sri Lanka; or (b) there exists an economic or financial crisis or any other similar circumstance within or outside Sri Lanka.”

According to the Act, the Commission may extend the closure of the securities market after specifying the grounds for the closure for any further period, each not exceeding five business days at a time. However, the premier business chamber Ceylon Chamber of Commerce during the weekend in a letter addressed to SEC Chairman Viraj Dayaratne requested market watchdog to reconsider the decision to close the market as such a move would create a number of challenges to local and foreign investors alike. 

The letter pointed out that the temporary market closure would prevent potential seller exiting the market at the time and price of their choice and potential buyers from acquiring shares at the time and price of their choice.

It also noted that all investors would be unable to carry out valuation and mark to market their respective investment portfolios due to the market closure. 

“Since there are circuit breakers in place to arrest a sharp movement in market indices, we believe that there is absolutely no need to close the market in this manner sending out a wrong signal to all investors across the globe,” the letter read.  “This action will be seen by market participants as akin to the unsuccessful attempt made to hold the exchange rate constant against market forces,” it further read.  “Therefore, we earnestly request you to reconsider this move and direct the CSE to operate freely even amid challenging market conditions safeguarding its reputation as an investor-friendly stock market,” the letter concluded.  Sri Lanka’s stock market was last open on April 8 as it was closed for trading during the entire Avurudu week.