The new Securities and Exchange Commission law contains many salutary provisions that will ensure the efficiency, predictability and consistency of the regulation of the country’s securities market, said Viraj Dayaratne, chairman of the Securities and Exchange Commission of Sri Lanka (SEC), elaborating on the ‘New Law and the Way Forward’ via a virtual discussion last week.
He said the new law allows for the use of advanced infrastructure and addresses the different fundraising needs of issuers, while the ability to introduce a variety of products gives investors a wider choice based on their risk and reward characteristics.
By finalizing the law, while retaining the fundamental provisions found in previous versions, the current Commission has taken steps to eliminate ambiguities and gray areas to ensure that there will be no difficulties in its application and its implementation, said the SEC chief, adding that there had been extensive consultation with all stakeholders and the public in this long drafting process and their contributions were of immense help in formulating this law.
The new Securities and Exchange Commission Law No. 19 of 2021 was certified by the President on September 21. It repeals and replaces the Securities and Exchange Commission Act No. 36 of 1987.
The law which has been in preparation for a long time contains well thought out provisions which have taken into account the latest developments in securities markets around the world and adheres to the principles and standards proposed by the International Organization of Securities Commissions (IOSCO).
It enables strong regulation while facilitating market development and will meet the current and future needs of the Sri Lankan securities market.
The process of drafting a new law began in 2007, following a gap analysis and extensive research into laws from other jurisdictions. The initiative benefited from technical assistance from the World Bank and experts in Sri Lanka.
The first project was completed in 2013 and approved by the Commission at the time. As this had not been done, improvements had been made to this draft by the next Commission and after receiving Cabinet approval, the draft law had been tabled in Parliament in 2018 but had not been debated.
Other changes had been made to this bill by the previous Commission during the period 2018-2019.
The SEC law consists of seven parts which are then divided into several chapters. An important feature is that at the beginning of each part, the “object and purpose” of that particular part is described in general terms. This gives an indication of what one seeks to achieve through the provisions contained in this part.
A key feature of the Act is that an authorized stock exchange can list its securities on its own stock exchange. A clearing house acting as a central counterparty (CCP) is recognized and a CCP has been defined. Detailed provisions dealing with default rules and procedures have been included to address situations where a Clearing Member is unable to meet its obligations with respect to unsettled market contracts. Default procedures were designed to make transactions final.
It is also relevant to note that the law redefined “market intermediaries” and added some additional categories of people. They are “Corporate Finance Advisor”, “Market Maker”, “Derivatives Broker” and “Derivatives Trader”.
The introduction of market makers is important because it will ensure a continuous and efficient exchange of securities between buyers and sellers, Dayaratne said.
The progressive provisions of the Act are expected to ensure that all market participants have the necessary confidence and environment to engage in their activities, which is the ultimate goal of a capital market. .
The Commission, as the market regulator at all times, will be aware of the dangers of over-regulation and will therefore be committed to finding the right balance.
At the same time, it should be emphasized that if all market participants practice self-regulation and act within the limits of the law, it will not be necessary to use most of the provisions contained in the law.