Efficient capital markets require a broader based share-ownership structure, liquid shares and a wide choice of companies to invest in, along with regulation that safeguards shareholder rights especially small shareholders if they are to be encouraged to enter the market.
The SEC in Sri Lanka seem to forget this responsibility and instead of enabling wider ownership of shares, ensuring companies conform to regulations, within practical boundaries bearing in mind the size and capacity, they tend to concentrate on administration, compliance and housekeeping, that is laughable in this tiny market that is manipulated brazenly by high net worth individuals which the Regulator dare not cross swords with as they are too influential and powerful.
Let us get out of this small mindedness and try and stretch out to the nation at large and try and attract the gambler in the psyche of the people and put terminals at betting shops to allow people to day trade at low transaction cost. All they have to do is to sign a deal with two or three large betting business owners, and at a stroke 5000 betting shops all across the island are brought into the fold as investors. Some of the money that goes into betting on Horses can then be channeled into the stock market. One would say the immense profits that the Betting shops earn would be compromised by this less profitable avenue for them. All one has to do is to suggest that this franchise is given to another body to bring them to heal if they perceive a diversion of the pool of funds available to them.
I am not sure if the betting shops are regulated, but this will be a golden opportunity to legitimize this business and turn it into another revenue generating activity for the government whilst at the same time enabling that class of shareholder to own shares in Sri Lankan companies. I was distressed when a senior official at the CSE once told me that that they did not want such people, unaware of the risks, to invest in the market. However I would counter that these people will be betting (I know that is not the operative word that should be used) on shares knowing that the risk of losing is lower than the English Horses, but for a professional gambler, would actually hold a greater degree of certainty.
This new class of shareholder will make it more difficult for the Colombo based stock manipulator/investor to influence the market with a little money. More money chases stocks which grow, which helps more new and rights issues, which in turn directs the small man’s money into the Sri Lankan capital market instead of the bookie. The bookie in turn legitimizes his business and earns a commission.