"The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings" – Julius Caesar, Act I Scene III Cassius of course has a much darker agenda hidden in the loaded sentence, and most of us know how and where the play ends; however, this article, in continuation of part 1 – “For whom the bell tolls” – is not in reference to such dark arts of politics, in the past, present, or future. Neither is this a clarion call to lure any Cassius out of the woodwork or closet, nor any Brutus – be it the bayonet wielding or hopper eating – to save us from any past, present, or future “Caesars”. This is not that kind of a column. This not even about the “stars” Cassius refers and refuses to blame – the celestial bodies roaming the universe. I am simply talking about stars as the cast members, the players, as in the institutions involved in our capital market. Because, just as there are bells, there are stars; some shine, some don’t. Let’s take a look, on the stage of the “capital market” the main roles are played by the Securities and Exchange Commission (SEC), the Colombo Stock Exchange (CSE), the brokerages, brokers, and of course investors, speculators, etc. We the minions have no influence over how they act out on centre stage neither does – according to the Securities and Exchange Act – anybody else. Technically, the CSE and the SEC stand alone in an independent land of their own. The only influencing factor being who is appointed where by whom. Once that is done, ideally they should be left alone to do their job. The SEC is funded not by the Treasury or the Ministry of Finance, but by a cess it charges on each transaction; it has its own funds and loads of it, so does the CSE. We all know how the brokers make their money. Creating a level playing field The SEC has a fiduciary responsibility to maintain an “orderly market” – it’s pretty much singular in its mandate. Each of its actions, stems from or leads towards enforcing this simple mantra. Unlike its big brother – the Central Bank – the SEC is neither responsible for the state of the socio-political economy nor are they obligated or called upon to consider anything else for that matter in conducting its affairs. In fact, the SEC has to work with blinders on, and just like the US Postal Services, deliver in spite of snow, sleet, or storm. The SEC Act is pretty tight and limits its jurisdiction to just the capital market. Even within that, it’s limited to regulate only its players and how they play. They are also in charge of the pitch in cricketing parlance. The facilitation and enforcement of “a level playing field” is their one and only job and one cannot blame the SEC of any country for the state of the market or anything as drastic as killing the market. That is unless, and if and only if, the SEC has by its actions or inaction allowed for a market which is not orderly and chaos rules where order is supposed to. For example in 2008, with global markets on meltdown, we saw the US SEC being hauled up in Congress and made to explain what happened. Unless markets are crashing down, as they say at meltdown or bubbling up, we hardly see or hear of the SEC. Nor are we supposed to. So I firmly stand by what I say: The SEC cannot be blamed for the present state of the market just because they are enforcing the law according to the Act. Enforcing the Act to maintain a level playing field didn’t kill the market. There are many ways to kill the market, but enforcing the Act is not one of them. Fair implementation Of course it goes without saying that it cannot pick and choose market offenders; the Act must be thrown –figuratively speaking, of course – at all offenders, not at just the friends of the enemies of their political masters. The Act should not be made a political weapon to hound and harass only those on the other side of the political divide. Having said that, I would like to add that neither the SEC as an institution, nor its officials, nor Chairmen and Commissioners, no matter who, where, or when, collectively nor individually, can disrupt an efficient market just by enforcing the Act. It is not enforcing the Act that can kill the market as far as the SEC is concerned. The real market killers are a wholly different ball game, and it’s all got to do with the market micro structure or simply the availability of modern day market infrastructure (i.e. the level of sophistication of the market and its players). I am not saying this because I am formally of the SEC, nor out of fear or favour, but because of my understanding of the workings and markets over a couple of decades here and in more sophisticated markets. The big killer From being a stock broker to a derivative specialist to an analyst, fund manager, regulator, and promoter of an exchange and clearing corporation, I have traversed the whole spectrum and I know market killers when I see them – an SEC working within its Act, enforcing a level playing field is not one. So stop blaming the SEC for all your woes in the market. The SEC is of course not without its faults, there may be much that it can do, and no, chaperoning stock brokers on their way to get more clients locally or globally, or ringing other people’s bells, won’t cut it, nor is it their job. It’s the job of the Exchange if at all, but mostly it’s the job of the investment bankers and the stock brokers who are making a living out of it. Brokers and bankers are big boys, and they don’t need hand-holding. MOREOVER,  ASSET MANAGERS already know where their money is going. No matter how many times we may knock on their doors, unless and until such a time that their dollar can get some bang here, we won’t see any of it. Period. Until then, it’s a “don’t call us, we’ll call you” relationship. So don’t waste your time folks. It’s all about bang for the dollar; money never sleeps, neither does it know any borders. It will flow like electricity on the easiest path with the least resistance to where the most bang is. Though we here in Sri Lanka are stuck with just one girl on the beach, the rest of the free word have free visas to many beautiful beaches – and there are many. The market infrastructure is what facilitates the level of free flow of exchange traded funds at all stages of an economic cycle and it goes without saying that the lack of any significant market development over the last couple of decades in the CSE is one of the big killers; it’s less obvious – such that your average cop on the beat cannot see it. We could not bring in more than a couple of million dollars back in 1994, and we still can’t. The market is still where it is, the speedometer maybe moving up and down, yet, the gears box and engine, however, have remained the same. For example, what percentage of a fund’s Assets Under Management you can commit to a stock or emerging market is a fundamental part of an investment decision. With an average size of a decent  fund in this day and age being in 10s of billions of dollars, we are looking at an investment of $ 10 million to $ 100 million position to make an impact on that fund’s returns. When the average turnover is less than $ 3 million a day in total for the whole market, is it even possible to place this much in one stock? Or even in the market? How many listed companies have a free float that one can place even a couple of million dollars into without moving the price up significantly? Without buying practically a controlling stake or significant portion of the company? The answer is an emphatic “no”. So let’s look under the hood shall we? To be continued…