Sri Lanka stock regulator warns broker over agent

ECONOMYNEXT – Sri Lanka’s Securities and Exchange Commission has warned, TKS Securities (Pvt) Ltd, a regulated stock broker, over the activities of an agent.

SEC in a letter to TKS said directed it to halt the investment advisory functions of Investor Eye (Pvt) Ltd.

Under Sri Lanka’s rules, agents are not expected to give investment advice to clients and have to bring them to the brokerage to trade and be given advice if any.

Investor Eye had been providing research to its clients at time when some brokers are not giving any research to clients. The SEC has not specifically expressed an opinion about the quality or otherwise of the research.

However SEC had said that TKS will be held responsible for any violations of Colombo Stock Exchange and SEC rules by its agent.

Market sources say there has been some concern over advertisements run by the agent, over fears that it may tend to understate the risks of equity investments.

There are also concerns that virtual stock broking offices may start through agents without the same guidelines, rules or regulatory oversight becoming applicable to them, which will lead to a breakdown of the regulatory framework.

Some analysts say the case may merit some re-thinking of the role of agents and their oversight.

Some say if agents are capable of providing services to clients which are useful and they are innovating new business models, the rules governing agents may be clarified to bring them to the same governance framework and a mechanism for the principle to have more oversight over agents, clearly defined.

The agent has also advertised training programs for clients for a fee. Some observers say training may also be useful to people, provided authorities are satisfied that course content is not mis-leading and risks and rewards are adequately explained.

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Brokers usually also do not charge fees for research, which however cost money to generate.

It is possible also for people to get a fund manager license and be within the regulatory framework. Some foreign investors have built relationships with fund managers who are not brokers themselves as they provide better more personalised service. (Colombo/Jan09/2016)

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