Thursday, June 16, 2011

A new young Chairman at the Colombo Stock Exchange

It is welcome to see a new chairman, Krishan Balendra(38) from John Keells, being elected to the CSE in Colombo this week, who clearly shows experience in dealing with Capital Markets obtained overseas. I trust he will put his knowledge to good use to take the CSE and allied institutions to the next level.

One of his first pronouncements was that the CCP and DVP transactions clearing systems will be implemented as soon as possible in line with mature markets. That is most welcome as well as his commitment to bring in more companies in the CSE by way of listings.

He faces some huge challenges as his tenure will be during the next stage of a market where there will be a shakeout and speculation is expected to give way to rational market making, if Sri Lanka hoped to attract foreign investment into its fledgeling market. If he does not already realize it, the Brokers and the top investors engage in market manipulation which makes Raj Rajaratnam's crimes pale into insignificance.

A look at the past month, where the penny stock speculation has reached explosive proportions at the expense of investors, will point to where the market is heading. The IPO business which is part of the strategy to get companies into the market is failing due to the greed of the promoters of the IPOs including his own John Keells group. A case in point being the Expolanka IPO which fell below issue price within 24 hours. John Keells that invested a large sum in this venture at a knockdown price at the pre IPO private placement encouraged investing in the IPO. A conflict of interest therefore is apparent at the expense of the hapless investor!

If I have any advice to give him, all I would say is cast your other hats aside for a moment and look at what you are trying to do. It is to increase the value and standing of the CSE first and foremost over personal interest. In order to do that you have to clean up the internal workings of the CSE full of rather inward looking time servers and the governance and ethics of the brokers where the rule book needs a complete overhaul to come anywhere near what is acceptable in a mature market. If you put strong governance policies in place you will be able in a few years to gain the respect that it needs for international investors and this after going through a market crash to get sanity back into the market and create brokers who are true advisers for clients holding the client interest paramount.

I wish you all the very best in this very important, but extremely challenging task.


Anonymous said...

nice post. quite positive but yet critical. i hope he reads it!

Anonymous said...

In defense of JK Capital, the fact that they mispriced EXPO is a black mark, but not that bad.

Pricing an IPO is more of an art than a science. It is a balance between getting the best for the company, as well as doing well by investors in the IPO.

Sometimes you get it wrong. From the aftermarket, it looks like the IPO should have been priced at 10-12. It was mispriced, and I am sure JK Capital did not want this outcome as they will lose business because of it.

As for the new Chairman, I think this is the first Chairman I can remember that is so well suited for the position. It is going to be a very tough job however as there are many sinister elements that will probably end up causing a crash in the market when all is said and done.

What he does to help minimize this crash, and rebuild the market will be the real tell on his performance. So I say, give the man some time. A few years before we criticize him so aggressively. Like you said, it is a VERY tough job and most of the others have done nothing much but sit on the throne.

Good luck Mr. Balendra!