My thoughts in this area were prompted by remarks attributed to the Chairman of the Securities and Exchange Commission of Sri Lanka and its Director General. There were inferences that the recent events in the United States of America, where the Sri Lankan born Mr Raj Rajaratnam, the Hedge Fund Manager of the US$3B GalleonFund was arrested on charges of ‘insider trading’, had even the remotest connection to similar activity in the Sri Lankan stock market.
There were categorical statements that said that all RR Sri Lankan share transactions would be investigated for possible insider trading. Additionally the SEC chief has said that they would cooperate with the US authorities if necessary.
These two statements if it is limited to just that is unwarranted, uncalled for and not necessary. If I were an overseas investor in the Sri Lankan market, and I read that enforcement chiefs in Sri Lanka make such statements, I would have no respect for their integrity or professionalism, nor would I want to invest in Sri Lanka as my transactions in Sri Lanka would potentially be subjected to investigation if I was involved in any action that resulted in my arrest in the country of my residence.
These people clearly don’t know who they are and what they are about. This is an Emerging Market Economy and Stock Market Investors have to be attracted to invest in this market because the rewards are perceived to be high bearing in mind the relative level of risk attached to the market. Investors initially will not be the bluest of blue blood in Western Countries, but money from various legitimate or illegitimate sources could be channeled into this market via the Nominee accounts of reputed banks. It is not the job of the Sri Lankan authorities to question the source of funds, as it has come into the country legitimately. The investing bank through which the funds come have that responsibility.
Is one going to imply that if a Saudi Prince invests money in Sri Lanka, the SL government is going to investigate if his funds are legitimate? We have no idea how those funds were obtained. There could be kickbacks, commissions, drug deals all rolled into one, but it is out of the sphere of influence and investigation of the Sri Lanka authorities. If one takes the case of the considerable undeclared assets of resident Sri Lankans overseas, who then invest in the SL market through a nominee account of a foreign bank, have the Sri Lankan authorities the right to look behind to have the beneficial owner disclosed? Look at potential manipulation closer to home and not come up with knee-jerk reactions to outside forces.
Lets not forget, Mr Rajaratnam invested money in his own name, and in the name of the Fund where it was on behalf of his clients. It was open transparent. If there was insider trading, that is an internal matter for the Sri Lankan authorities and nothing whatsoever to do with an investigation in an overseas country. These comments therefore have a detrimental affect on investor sentiment in Sri Lanka and to this extent these gentlemen if I can call them such are accountable for their actions that cast doubt on efficiency and efficacy of the Sri Lankan Stock Exchange. Their job is to inspire confidence that they have everything under control.
Their statements should have read as follows: “We are watching with interest the news that a significant investor in the Sri Lankan market is faced with insider trading charges in the US. As far as the Sri Lankan Stock Market is concerned we have no reason to believe that there were any wrongdoings. We monitor our market very carefully for unusual trading activity and call for explanation in such cases and investigate them if we have sufficient grounds for so doing.
Mr Rajaratnam, personally, does not have any significant stakes in any of the companies in the stock market and we do not expect any adverse reaction if he has to dispose of these stakes. It is unlikely that there will be a sudden disposal of his shares arising from his problems in the US. There are even lesser stakes, held by the Galleon Fund in Sri Lanka, and any substantial redemption in the US will not have a significant effect in the Sri Lankan companies where the Fund holds investments. We would like to reassure investors of the integrity of the Stock Market in Sri Lanka and that we monitor the market closely to ensure compliance.”
NB His personal stake in JKH of 8% is not considered significant bearing in mind the high market capitalization and the fact that the shares are both widely held and extensively traded, being one of the most liquid shares in the Sri Lanka market. Anyway all his shares are placed and not dumped as he is a strategic investor.
These two officials must realize that their primary job is to give potential and existing investors in the Capital Markets of Sri Lanka, the confidence that they are well regulated to protect their interests from market manipulation and illegal activity. They should be careful in the use of words not to scare potential investors to Sri Lanka, as the government is doing that job well, and reply to any enquiry from the Press, only to what is relevant and to the point. I attribute some of the blame to the short term market turmoil to these irresponsible statements. If I was their boss, I would fire them or at least publicly reprimand them, so that they cease to shoot from the hip in future. Any comments readers?
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5 comments:
Very pertinent post. I think it was a case of every one trying to grab a share of the limelight.
' but money from various legitimate or illegitimate sources could be channeled into this market via the Nominee accounts of reputed banks. It is not the job of the Sri Lankan authorities to question the source of funds, as it has come into the country legitimately.' - Interesting.
international and especially reputed banks under money laundering rules have to ensure that they perform the necessary checks on the money that is deposited into their accounts. No other country has jurisdiction over that money, unless there are bilateral agreements of disclosure.
Just for argument if the funds RR invested in his name came from a Bank account in his name in the US, then as far as the SL authorities are concerned thats it. They cannot look beyond that. If however the US investigated the source of these funds and found it was LTTE money, then it is the US that has to request SL authorities to freeze such funds in accordance with international treaties to which we are signitories or to a bilateral treaty. Interestingly the US and SL are notorious for not being signitories to UN treaties!! Otherwise the SL govt. has no right to freeze or confiscate the shares or funds.
This is a very interesting post. The biggest issue we have is that many of the decisions being made with regard matters of state are "knee-jerk" as you quite rightly pointed out.
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