ECONOMYNEX T – Sri Lanka’s Securities and Exchange Commission has lost its repuration by failing to probe suspicious trading activity in 2010 and 2011 and is taking steps to re-build its effectiveness, an International Monetary Fund assessment has said.
"The SEC has suffered reputational harm as a result because the public had expected the SEC to take action to address apparent trading irregularities by certain high-profile market participants," an IMF report said.
"At the moment, the investigation team has prioritized several re-opened matters involving trading activity in 2010–11, which was a highly volatile period for the CSE.
"These matters had been prematurely closed without thorough investigation. "
By 2015 Sri Lanka’s SEC had only two investigation officers, the report said. The SEC has now taken several steps to boost its capacity and a new law is also on the way.
Sri Lanka became the world’s best performing market during the height of the stock market scams where firms with weak fundamentals were pushed up and dumped on especially on the central bank managed Employees Provident Fund.
Stock soared after a war ended in 2009 and the economy recovered and the central bank also followed pro-cyclical policy. In 2011 it cut rates as credit growth picked up.
The bubble ended in a balance of payments crisis.
In the US the Securities and Exchange Commission was also set up after a stock market crash following the so-called ‘roaring 20s’ economic bubble fired the Federal Reserve, which undermined a gold peg.
So-called ‘insider trading’ was criminalized in the wake of many scams seen during the Fed fired bubble.
The bubble ended with a stock market bubble and the Great Depression with the US dollar being devalued from 22 to 35 dollars to the ounce of gold.
Before a money printing Fed was created in 1916 the US dollar had held its value at 20.67 dollars an ounce from 1799.
The 2011 bubble in Sri Lanka ended with the rupee falling from around 113 to 130 to the US dollar. (Colombo/May23/2019)