SEC Act to allow new financial products and exchanges

The new Securities Exchange Act is expected to bring about new products and exchanges in the Sri Lankan capital markets. The aim of the new act is to modernize the legal framework which has been long delayed in its passing.

SEC Chairman Viraj Dayaratne said, “After demutualization, we are looking for a strategic investor to come in.”

Alongside the Colombo Port City Sri Lanka is expected to position itself as the leading capital market infrastructure in the South Asian region and to achieve this goal the new act makes licenses for capital market exchanges from a fixed five-year term to an indefinite period. Dayaratne said, “A time period of 5 years might not be enough for foreign investors.”

Dayaratne was speaking on October 6 to market stakeholders in a hybrid virtual and physical event exploring the new SEC Act.

Dayaratne signalled that the commission would be accepting new capital market products in the Sri Lankan market. He called on capital market institutions to “provide (investors) a variety of new products based on their risk-return preferences.”

The new act even allows a stock exchange to list its own securities on the exchange. The new act has built-in safeguards to prevent the conflict of interest that would come about by operating an exchange and listing the institutions own equity on that exchange.

The new legislation has been drafted with the express purpose of enabling the usage of state of the art infrastructure.

Dayaratne noted that many parties had failed to bring about a new act. He noted that the current Minister of Finance, Prime Minister, and Former Minister of Capital Markets were instrumental in bringing the new act into law.

The new act extends the scope of the commission into the oversight of unlisted securities. Under the new law, there is scope for the establishment of a Central Counterparty that will facilitate the issuance of more sophisticated financial products.

Stock Exchanges will be further empowered to set up their own listing rules for companies. The new rules allow companies to raise capital through securities in a better framework that brings about more rules with regard to disclosure. Unlisted entities may also be subject to increased rules for instance crowd-funding arrangements will be subject to regulatory oversight.