By Amrith Gunasekara
With the latest upgrade that came the Colombo Stock Exchange saw with transition to - ATS 7, the market sentiment has been completely destroyed, almost all investors opine.
And in fact the market had seen considerably low turnover levels apart from few days which recorded large deals and according to analysts it is clearly evident that retailers had turned away from the market due to the problems in the lately upgraded system.
“After the implementation of ATS 7 there is hardly anything that could be called ‘the market’” a top Stock market analyst and a fund manager stressed adding that it had resulted in the disappearance of foreign buying as well as local institutional buying since investors do not want to put BUY and SELL quotes on the board as you may get hit for only one share by the end of the day!
Top sources from the broking industry say that however all these mess was started when Indian male officer and a female officer started providing consultancy services to the CSE few years ago. They had advised the CSE to reduce the minimum lot size to 1 instead of 100 shares purportedly to increase the liquidity to which there was tremendous resistance from the brokers.
“However CEO and then CSE Chairman, ignoring this opposition from the brokers went ahead and proposed it at an EGM specially called for passing objectionable proposals.” A stock market analyst said adding that at the EGM the proposal of the CEO and the Chairman was defeated by the member Stock Broking firms.
“Despite this the SEC was got round by these officials to send a directive to effect the disastrous change. However, the minimum lot size at one was introduced with the new ATS 7 system only few years later on 24 February 2012 due to the inefficient software provider” he added.”
“There is now some speculation among many investors in Colombo as to whether the CSE suspended trading in five securities in August 2010 and introduced Price Bands because the ATS 6 trading system could not cope with turnover per day of over Rs.5 billion” he pointed out.
“It was in fact evident since the latter part of 2010, the market continued to have system problems — the system crashed one day. For the first time in Sri Lanka’s capital market history the CSE trading system crashed and the whole market activity was stopped on 19 September 2011” he stressed.
The industry questions why there was no one in the Ministry of Finance & Planning to question about such mismanagement of the country’s vital capital market system that is the barometer of the economic activity of the nation. “Nobody took action against the software developer in question or the Management of CSE.”
The backups of the system took so long to upload its data back again,” said an IT manager from the stock broking industry. However later it transpired from CSE sources that a consultant brought in by the CSE had put the blame on a very senior IT official of the CSE which lead the IT official to resign and join a leading brokering house.
Meanwhile investors and brokers outline further, the order books of many shares have also become a mockery day by day since there is only one share buyers and sellers for every 10 cents according to stock traders.
“Under this scenario we urge the Colombo Stock Brokers Association to lobby with the CSE and the SEC to immediately replace the minimum lot size to 100 like before and to have a separate board for odd lots to be traded” another leading Fund Manager pointed out.
According to him it has been noted that when there is buying or selling a particular large quantity of stock, an inquisitive investor or even a broker could go to the extent of buying or selling one or two shares in order to just find out who is the contra broker.
“The funniest part of the system is that now there are instances where the seller ends up paying the brokerage to the broking house and not getting any sales proceeds after someone buys only one share from him” He explained that when there’s a particular investor who may want to dispose of 100,000 shares (each share valued at less than Rs.15) from his portfolio and if a buyer only buys one share the original investor who disposed of the share ends up paying a total of Rs.15 from his pocket as minimum CDS fees is Rs. 5 and minimum brokerage is Rs.10 per transaction after losing the share as well. “In case of stocks of less than Rs.1 in value the whole process has become a tragic comedy” he added.
According to the stockbrokers, MIT at a recent meeting with CSE and CEOs of stockbroker firms had accepted that there are faults in ATS 7 and that the system will be improved within the period from March to April.
While it was obvious that the ATS6 provided to the CSE has expired last year and could not a handle large turnover, the question is as to why the CSE awarded the contract for a new system to the same vendor without calling for proposals from other software vendors.
“It is irrelevant whether the vendor in question is doing well in other stock exchanges if what they have provided to the CSE is not good enough” an IT Consultant commented.
He said that even MIT’s new system at the London Stock Exchange had faced issues as well.
“Concerns have been raised over two aspects of the system implementation in LSE:
i) the fall in market share in Turquoise since the migration and;
ii) the needlessly high levels of risk that Xavier Rolet is taking in the project to implement Millennium Exchange on the main market.
The purchase of Millennium Information Technologies of Sri Lanka by the London Stock Exchange was said to be a ‘controversial’ act taken by Rolet as one of the first moves after taking the helm of the London Stock Exchange according to reports from Europe.
The trading platform in question was hitherto unproven in high volume markets, having been sold largely to smaller African and Asian exchanges. Thus it was with great interest that the system was made to go live on the Turquoise platform (now part of the London Stock Exchange) on 4 October 2010.
The migration from the Central Technology from the Cinnober system to the Millennium one seems to have been successful albeit for some hitches on the first few days of trading. However, the transition has seen Turquoise’s market share taking a significant hit to an average of about 5.2% from about seven per cent pre-MIT.
Many stock exchanges forget that brokers have to run businesses and that redeveloping their connected trading systems to a new platform involves spending money. Thus, when reaching a decision as to whether one should spend hundreds of thousands of pounds redeveloping their interface to Turquoise, which only had seven per cent of the market share behind BATS, Chi-X and the incumbent exchanges, some brokers may well have decided to pull the plug altogether. This may explain the loss of market share in the transition.
Meanwhile, many thousands of investors had been blaming the Colombo Stock Brokers Association for not protesting effectively.
When Ceylon FT inquired from many stock brokering firms’ CEO’s they said they were unable to do anything as it was up to the President of the CSBA to raise concerns. President of CSBA was not available for comments.
Investors are furious and want to know the action the stock brokers, CSBA and CSE is going to take in this regard.
When Ceylon FT contacted the SEC they referred us back to the CSE and thus these simple issues are apparently not being addressed. (Ceylon Today Online)