Market regulator says CSE given complete autonomy on IPO approvals

• Move expected to expedite IPO process and attract more new listings
• Confident that new SEC Act will be enacted in the first quarter of this year
• Says regulatory and supervisory framework strengthened in the face of heightened market activity 
• Acknowledges role played by local investors; highlights need to follow formal social media channels for investment decisions

The Securities and Exchange Commission (SEC) has decided to give full autonomy to the Colombo Stock Exchange (CSE) on the Initial Public Offering (IPO) process and has relaxed the Listing Rules on the same to encourage more listings on the Colombo bourse.

“The Commission at its meeting held last Wednesday approved a new framework for listing companies, affording complete autonomy to the CSE in the process and has also relaxed the Listing Rules in order to encourage more listings,” a SEC statement issued yesterday said.

This would expedite the IPO process, as only CSE’s approval is required for a new listing now. Earlier, a new listing required the approval of SEC, after it received CSE approval.
“This is expected to attract SMEs and startups and many other initiatives are in the pipeline,” the SEC said.

The government’s budget 2021 also announced a number of incentives by way of tax breaks to lure new companies to the CSE.

Accordingly, it was proposed to offer 50 percent tax concession for the years 2021/2022 for companies listing on the CSE before December 31,2021 and to maintain corporate tax rate of 14 percent for them for the subsequent three years upon listing. 

The SEC also expressed confidence in the new SEC Act being enacted in the first quarter of this year.

“…(the Act) has several salutary features which will amongst others, strengthen and streamline the regulatory regime, enable the development of the market, provide protection to the investors as well as provide for the demutualisation of the stock exchange,” the statement said. 

Meanwhile, the SEC said it has strengthened its regulatory and supervisory framework by enhancing the capability and capacity of its Supervision and Surveillance Divisions in the face of heightened market activity.

“In order to ensure the integrity of the market and to protect the large number of investors in the face of the surge in the daily number of transactions, the regulatory and supervisory framework of the SEC have been strengthened by enhancing the capability and capacity of the Supervision and Surveillance Divisions,” the statement noted. 

Last Friday, the CSE saw 61,722 trades which is the highest number of trades ever in a single day and the All Share Price Index (ASPI) gained 291.34 points which is the highest ever points gain in ASPI’s history. The CSE also saw its highest ever market capitalisation of Rs.3.38 trillion. The turnover for the day was a staggering Rs.12.4 billion. 

The ASPI has recorded a significant growth of 75 percent during the last eight months.  The blue-chip S&P SL 20 Index has surged by almost 65 percent since May 2020. 

The average daily turnover of the CSE during the first fifteen days of the month of January 2021 is Rs.7.94 billion compared to Rs.1.8 billion during year 2020. It is a huge leap from the daily average turnover of Rs.711 million recorded during 2019.

“This phenomenal performance of the CSE indicates the strong confidence the investors have on the market. It is heartening to note that local investors have stepped in at a time when there has been a foreign outflow and their contribution amounted to 80 percent of the 
total market turnover in 2020,” the SES 

statement said. The SEC attributed the strong performance of the market to prevailing low interest rates, the government’s commitment to develop the capital market, the creation of a State ministry for capital markets, and the recent digitalisation of the CSE.

A new mobile app introduced by the CSE with multiple features has enabled investors to open a Central Depository System (CDS) account from the comfort of their homes or on the move using their mobile phones.

The SEC said out of the total number of new accounts opened by resident individuals during the period September–December 2020, 92 percent have been opened online through the mobile app.

“The second phase of digitalisation which will be completed by March of this year will enable the decentralisation of the account opening process of company accounts and foreign accounts, the introduction of a smart wallet, enable account holders to make certain changes to master file accounts as well as the introduction of an E-portal where clients can directly access and view their accounts,” the SEC said. 

While acknowledging the role of social media played in the recent surge of market activities, the SEC highlighted the importance of following the official channels of the SEC and CSE and other accredited investment advisors in making decisions to invest in the stock market.

The SEC launched its own social media platform with a Facebook page, Twitter account and a YouTube channel in mid last year attracting a large viewer base.

Meanwhile, at a recent meeting with the CEOs of stock broking firms, the SEC had re-iterated the need for self-regulation of the broking industry especially with regard to extending broker credit and other market activities. 

“The need to introduce a set of supervisiory guidelines for broker firms with the aim of maintaining industry best practices was also discussed and it was agreed at this meeting to finalise the draft that had been prepared jointly by the CSE and SEC,” the SEC said.

“At the Commission meeting of SEC held last Wednesday, approval was granted to implement these guidelines. Further, at the request of stock broker firms, a surveillance handbook has been prepared by the CSE which sets out in detail, the conduct that is prohibited in the entire process of trading. Following discussions with the CSE, this handbook was finalised and approved by the SEC,” the SEC added.