Rs. 2 t in erased value; battered margin traders call for relaxation of ‘hard sell’ rules

With a staggering Rs. With $2 trillion of value wiped from the Colombo stock market, investors engaged in margin trading are rightly seeking critical relief through a temporary relaxation of ‘hard sell’ rules.

Due to a series of negative developments, the benchmark Colombo Stock Exchange (CSE) All Share Price Index is down 34% to 8,135 points from 12,226 points at the end of 2021. The S&P SL20, more active, was down 38% to 2,623 points from 4,233 points. The market capitalization dropped to Rs. 3.5 trillion from Rs. 5.5 trillion.

The fall initially caused by the economic crisis and aggravated by the current political instability shocked investors. The central bank’s decision on Friday to raise key rates by 7%, announced after the market closed, was another shock for listed equity investors.

Even before the move of CBSL, capital market participants decided to keep the Colombo stock exchange closed today and tomorrow, thus the entire holiday-filled week. If it were to open today, most analysts are concerned that the market could plunge further due to CBSL’s move, which would, however, help improve macroeconomic stability over the medium term.

The stockbroking community and investors made representations last week to the Securities and Exchange Commission as well as the CSE to review and push for relief from the rules governing “forced selling,” a mechanism aimed at minimizing the risks on the part of banks and financial companies which provide margin when the outstanding amount exceeds 70%.

The consensus within the financial market community is not to enforce the hard sell for six months out of empathy and to bring stability first and market confidence as the recent drop is seen as an aberration and future fundamentals

“There was a degree of forced selling as if there was no tomorrow. There is not. Some relief is essential given that Colombo still remains an emerging market,” the sources said.

Brokers and investors are also hoping the SEC will be successful in pushing for a debt moratorium from the Central Bank.