The Crisis of Investor Confidence due to the introduction of the CSE’s ATS7.1 System Upgrade to the computerized trading desk.
The performance in 2012 of the crisis hit Sri Lanka Stock Exchange has been disastrous and many small investors have lost their life savings, taking up shares based on recommendations of Brokers who have helped many large investors, to pump and dump. There has been no one whose license has been suspended due to this kind of action, adding further proof that it is heavily weighted against the small investor who should invest using fundamental principles of stock market investing.
Added to this the CSE has introduced a disastrous new trading system, that has left even Brokers in despair due to the lack of commonsense in its new functions. It goes to show that those who developed it do not understand stock market dynamics, and most of all the Colombo Stock Exchange (CSE) does not understand that either, as it was they who introduced it after spending an obscene amount of money, which even they are embarrassed to disclose. Most of the top brass would have to resign for such brazen lack of financial conservatism. It is not their money, so they do not care attitude!!
In other countries the Board would take responsibility for the mess, and resign and also fire all the staff directly involved in permitting the introduction of the ill fated system, as they are playing with the hard earned money of hundreds of thousands of small investors, the people most vulnerable in this sort of disastrous introduction. BUT NO, NOT IN SRI LANKA that does not happen as higher ups make sure they warm their seats for as long as they can get away with the charade or until they are found out. Most people at the top are their by chance, and NOT competence.
I note below an extract of the comments made by the CEO of the CSE taken from a recent issue of the Island newspaper and I quote:
She also said that the brokers were consulted at the time that the system was upgraded from ATS 4 to 7.1 for which their approval was provided and also from the Rules Committee and the Boards of the of the Colombo Stock Exchange and the Securities and Exchange Commission. "It was at that time that it was decided that the normal lot and the odd lots will be on the same board unlike in the manual system. That is why many people are upset and brokers and investors were concerned about the share trading and the fragmentation of the share," she said.
If one accepts this statement, then I implicate all brokers in this as well as both CSE and SEC. What does this mean? It simply states that our whole stock market related experts are incompetent. No one has accepted responsibility, naturally as they are all seen as donkeys. I would say they are all asses. This is a terrible indictment of the people who run, manage and regulate the Stock Market of Sri Lanka that they know nothing about the purchase and sale of stocks. We expect to attract foreign in Investment! you've got to be kidding!
In a highly illiquid market, when one allows trading odd lots, (even a share trade of 1 share in the system to automatically allocated from a say 100,000 shares put for sale at Rs1) then the ridiculousness of the system is apparent, when even the seller has to incur trading costs (due to minimum charges) of 20 times the value of the share put up for sale! How on earth was this permitted? And passed the scrutiny of our so called experts?
I would say sack the lot of them, including fine all the brokers Rs5M each for not pointing this out. It is only then that future proposals will get the knowledge of capable people to inspect, disect and comment sensibly on a proposal using basic common sense. It appears to me that common sense is not one of the capabilities of our financial services industry. Does the public realize that they rely on financial information from their advisers who have now proven to be incompetent at their jobs.
It is time we set up independent advisory firms specializing in giving unbiased information for a fee, and who should be held accountable, and against whom there would be recourse to the law for misleading and suspect information. I somehow doubt this will happen in my lifetime, but it is nevertheless worth a stab at proposing, implementing and shouting loud about it so the investing public are aware of the shenanigans taking place under the noses of a bunch of incompetent buffoons who appear to run the Regulatory Industry aka CSE!!
I am aware how a transaction of one share can affect market cap, and all the trading statistics incorrectly, enabling mischief makers to constantly manipulate the stock indices to suit their own purposes. This has been made even easier since the introduction of the ATS 7.1 version. In fact it should have been made more difficult, so even the proposed upgrade is regressive and not progressive.
I appeal therefore for common sense,(‘Kalpanakaranna’ a recurring theme in this blog) in introducing an upgrade to the trading desk platform. Otherwise the damage it will do is incalculable, apart from the damage that has already been done. It is with regret that I note that few financial journalists have commented on this vital news, as I suspect even they are incompetent in understanding the problem, not well versed in how stocks are traded. All this leaves the poor investor SCREWED.