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BMS (Level 04) 2014/15

Reg. No. 513292189

MCU 2208
Assignment No. 410

The role of Securities & Exchange Commission (SEC) in Sri Lankan Financial Market
The Securities and Exchange Commission of Sri Lanka (SEC) was established under the
Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987 as amended by Act No.
26 of 1991, Act No. 18 of 2003 and Act no. 47 of 2009. The Commissions role is to protect the
interests of investors, to promote professional standards and to advise the government on
the development of capital markets.
The SEC regulates and governs the CSE. It has the authority to determine requirements for
new listings and the power to investigate misconduct in the market and to refer cases to the
legal actions.
At present, it has mainly 09 departments as follows;

Divisions of SEC

Legal and Enforcement

Corporate Affairs




Capital Market Education, Training & Research

Capital Market Development

External Relations and Market Developments

Finance and Administration

The Vision of SEC

As declared by the SEC, their vision is To become the benchmark regulator in South Asia for
effective, efficient and proactive capital market regulation

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410

The Mission of SEC

The mission of SEC is To promote, develop and maintain a capital market that is fair, efficient,
orderly and transparent
The SEC has several important objectives in order to maintain a fair and efficient capital
market in the country. Those objectives are,
The regulation of the securities market and to ensure that professional standards are
maintained in such market.
The protection of the interest of investors.
The creation and maintenance of a market in which securities can be issued and traded in
an orderly and fair manner.
The operation of a Compensation Fund to protect investors from financial loss arising as
a result of any licensed stock broker or licensed stock dealer being found incapable of
meeting his contractual obligations.
These objectives are made to Protects Investors, Prevent Systematic Crises, Maintains Market
Integrity, Facilitates Capital Formation, and promote the market in the country.
In order to achieve these objectives, the Securities and Exchange Commission act has given
powers to SEC to carry out its activities. Some of those activities, functions are as follows;
Powers, Functions and Duties of SEC

Securities and Exchange Commission is the governing body who grants the licences to
corporates to operate as a stock exchange and ensure the proper conduct of its
business activities by monitoring them broadly. SEC also grants licences to persons
who are willing to operate as a stock broker or stock dealer. Those individuals are also
monitored by the SEC to ensure those stock brokers/stock dealers act according to the
rules and regulations.

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410
------------------------------------------------------------------------------------------------------------------------- Granting licences to Unit Trusts is another function of SEC. Once the licence was
granted Unit Trusts are monitored by SEC.

Market Intermediaries play an important role in the financial market. Granting

certificates and registering such companies/individuals to carry out business as a
market intermediary is another duty of SEC. After granting approval, such
intermediary companies/individuals are monitored and supervised by the SEC in order
to make sure that they are conducting their business activities properly.

Issuing regulations, providing directions to parties who are conducting their activities
in the financial market is a must as it leads to make smooth functioning of the money
and capital market. Those parties are;

Stock Exchanges

Stock Brokers/Stock Dealers

Unit Trusts

Licenced market intermediaries

The SEC sometimes act as an advisor to the government on areas pertaining to the
countrys financial market. SEC educates the government about the current situation
and makes suggestions to improve the market.

SEC implements the policies and programmes of the Government with respect to the
market in securities.

SEC provides compensation to investors who suffers pecuniary loss arising as a result
of any licensed stock broker or licensed stock dealer being found incapable of meeting
his contractual obligations.

Since the SEC regulates the stock market, it has powers to direct stock exchange to
reject any application made to it for listing, or cancel or suspend the listing of any
listed securities or to suspend the trading of all listed securities for not more than
three days at a time. This acts are taken to ensure investor protection and establish
the trust among investors.

Conducting inquiries and investigations about any activity of a licensed stock

exchange, a licensed stock broker or licensed stock dealer, a licensed managing
company or a trustee of a unit trust, a registered market intermediary or any listed
public company is another vital role played by the SEC.

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410
-------------------------------------------------------------------------------------------------------------------------Eg; In the year 2012, there was a controversial situation in the market when a
premier state owned Bank (NSB) bought a large amount of shares of a financial
company (The Finance Company) at a higher price than the actual market price.
At that time, the SEC has suspended that transaction immediately and
conducted investigation about the matter and took actions against the stock
broker who involved in that transaction. Those actions of SEC helped to brought
back the confidence among the investors and other parties in the financial

SEC conducts investigations into any alleged violation or contravention of the

provisions of this SEC Act or any rule or regulation made there under by any person
and to do all such other acts as may be incidental or conducive to, the attainment of
the objects of the Commission or the exercise of its powers under this Act. SEC take
these actions in order to determine whether the licensed stock exchanges, licensed
stock brokers, licensed stock dealers, licensed managing company or trustee of a unit
trusts or registered market intermediaries are operating in conformity with the
provisions of Act or any regulations or rules made thereunder.

The SEC has a right to request the Registrar of Companies, in the exercise of the
powers conferred on it by section 227 of the Companies Act, No. 17 of 1982, to call
upon a private limited liability company to become a public limited company. SEC has
also powers to regulate take-overs or mergers happens in the financial market where
such take-over or merger is between one or more listed companies or where at least
one of the parties involved in such take-over or merger is a listed public company.

The SEC has powers to ask licensed stock exchanges, stock brokers/stock dealers,
licensed managing companies of unit trusts and registered market intermediaries to
submit their annual financial reports such as annual balance sheet and income
statements, certified by a qualified auditor in the form and manner specified by the

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410

Benefits of an organized Security Exchange
A securities exchange makes the foundation to establish a robust and efficient capital
market so that it is creating an effective securities regulatory regime. An effective
securities regime will ensure that the market is operated efficiently and fairly, and in turn,
it will enhance investor confidence.
A well regulated market has the potential to encourage additional investors to partake
and contribute to further development of the economy. An organized security exchange
will help increase investors confidence towards the financial market.

For an example, the SEC has implemented several initiatives during past few years to
accomplish an effective regulatory regime. Some of those initiatives include issuing
licences to new market intermediaries, directing the CSE and the Central Depository
Systems (Pvt) Ltd (CDS) to implement a system of full dematerialization of all listed
securities, completing the regulatory framework for exchange traded funds, updating the
Code for Unit Trusts and finalizing the rules pertaining to Employee Share Option Plans.

Since a security exchange monitors and supervises the stock market, the possibility of
occurring frauds and other fraudulent activities is lower. It will help to maintain a fair
financial market in the country. This will enhance not only the domestic investors also
investors from foreign nations.

Enhancing knowledge among the investors and other relevant parties about capital
market and its activities is an important advantage of a security and exchange
commission. This is being done through several ways.

Eg; conducting awareness programs, issuing publications regarding the investment

related activities.

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410
------------------------------------------------------------------------------------------------------------------------- Conducting these programs will enhance investor confidence drawing more people to be
part of the investor community. This will help to companies to raise new capital and
expand their businesses.

In the past 2-3 years, there were rumours among the general public that there was a
mafia in the share market. In these situations a security exchange will do the
investigations about that matter and will take suitable actions. Those actions will
eliminate any unfavourable rumours about the stock market it will build investor

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410

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BMS (Level 04) 2014/15

Reg. No. 513292189
MCU 2208
Assignment No. 410
Annual Report 2011 - Securities and Exchange Commission of Sri Lanka
SEC official website www.sec.gov.lk
Annual Report 2012 Central Bank of Sri Lanka
Introduction to Stock Market by Dr. W M Jayanetti

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