This was an email I sent to the CSE when they were calling for comments on proposed changes to the Watch List. I thought the matter to be trivial. The link referred to in the email is broken. I now regret having drafted this email so poorly. It lacks structure and purpose.
3 min read
I shall address my comments by the order that they are written on the PDF document https://cdn.cse.lk/pdf/index-gallery-pdf/Proposed-Enforcement-Rules-30th-March-2017.pdf. I shall try to keep my comments brief.
1. Renaming the Default Board
I am in agreement that the board must be renamed but you have chosen to go in the wrong direction. I suggest the title Non Compliant Companies. This accurately describes the companies under the list and also goes further to warn investors of institutions like Adam Capital that need to be avoided. Online Trading Applications should also be forced to warn investors to avoid these stocks. Identification of bad companies can help the entire economy by helping expedite winding up proceedings on bad companies.
2. Corporate Governance
The regulatory body should not constrain companies on their corporate governance. Such regulation is just regulation for the sake of regulation. Let a company structure itself in whatever way the shareholders deem fit. Further companies that are non compliant are probably non compliant for a reason. Adding additional compliance requirements like a compliance statement would do little to solve the problem. The SEC should appoint a body that takes over companies that are non compliant over medium periods of time. Further to allow such regulation, compliance requirements should be kept to a bare minimum.
3. Submission of Financial Statements
Again the suggestions here do little to solve the true issue here which is the dishonesty of financial statements. Large corporate institutions are already in bed with the regulator and have the power to influence the audit of their businesses. Further companies with complex financial structures like Softlogic and Vallibel are perennially consuming companies to continue (what I believe to be) a massive Ponzi scheme. Short of forcing them not to expand in the short run it would be difficult to gauge their true financial strength. These companies should be forced to insulate their financial institutions from the rest of their holdings when reporting. Companies can manipulate payments and borrowings so as to suggest that their internal lending is performing well while keeping lines of credit open to their failing businesses. Also share market performance should account for volumes. Companies should show their volume weighted moving averages and their volume weighted average for the period. An annual trade summary should also be within the document.
As mentioned in the correspondence to me from Ms Nilupa Perera we must look to account for the base value of a share when reporting the top gainers and losers. I personally like to look at shares that have fallen out of favor with the market. As the market does not account for the base value it is not possible for me to see these shares.
I am sorry for tapering off in my commentary towards the end of the document but I felt this was targeted more at the companies than the small time shareholders and I was short of time. I would like a CSE shirt (Small) to be sent to my house.
I have also copied in the Central Bank so as to help push the idea of a Bad Debt Bank. A new institution should be set up funded by grants from the treasury to take over troubled companies. This would help prevent larger losses down the road by the state owned banks and the treasury because of poorly managed institutions. It would be good for the economy as well as it would help reallocate resources quickly and allow the economy to better shape itself to the global environment. I also want to note that RACIST BACKWARD INDIA is faster at reform than Sri Lanka. Shame on the Central Bank and the SEC.