CSE to reopen on Monday after 7-week closure

By Charindra Chandrasena

The Colombo Stock Exchange (CSE) today (7) said it “intends” to recommence trading on Monday (11), bringing to an end 7 weeks of inactivity which began with the imposition of the curfew on 20 March.

This decision has been taken consequent to the announcement by the Government that public and private sector entities should resume work from Monday onwards, the CSE said in an email to stock market stakeholders, which has been seen by The Morning Business. However, it is understood that this decision is likely to change if there is an eleventh hour postponement by the Government of its 11 May plans to open up the business sector.

In the email, CSE CEO Rajeeva Bandaranaike has requested these stakeholders to ensure that their business operations are conducted in a manner compliant with guidelines issued by the health authorities and said that the trading times and settlement methods would be notified in due course.

The CSE has been closed since 16 March following the escalation of the spread of Covid-19 in Sri Lanka, only opening for a curtailed trading period on 20 March. The curfew was imposed that evening and since then, there has been no trading, making it the stock market that has been closed for the longest period in the region due to Covid-19. In fact, only the Dhaka Stock Exchange in Bangladesh has been closed for a somewhat similar period, having shut its doors on 29 March. Despite many countries around the world being in a state of lockdown, the stock exchanges of these countries have generally been open for trading.

In this period there have been two “false starts” as far as a resumption of trading is concerned. The CSE was scheduled to be opened for trading on Wednesday (22 April) after being closed for more than a month, in line with the Government’s decision to lift the curfew in Colombo on the same day. However, after the Government reversed its decision and extended curfew, the CSE announced that it too would remain closed. 

Thereafter, last week both the CSE and the Securities and Exchange Commission (SEC), which regulates the CSE, told The Morning Business that the market is “highly likely” to be opened for trading on 4 May with Colombo set to move from a strict curfew to a more relaxed lockdown with greater business freedom. However, that shift was subsequently postponed to Monday, 11 May by the Government, and accordingly, the CSE remained shut despite the earlier expectations.

Market analysts point out that this prolonged closure is harmful to investor confidence and may deter foreign investors in the future, as they will have no guarantees that they could pull out their investment when they wish to. Furthermore, The Morning Business learnt that retail stockbroking companies have had no revenue whatsoever for over a month which has severely impacted their cash flows, even putting in doubt its ability to pay salaries.

Many in the investor community and market analysts believe that the CSE has been closed for such a sustained period as the SEC is concerned about a large outflow of dollars from the market if it was to be opened, due to a number of foreign investors awaiting the opening of the market to divest its stocks.

A large dollar outflow would be something the Government could ill afford considering that it is currently desperate for dollars to avert a foreign exchange crisis, and the SEC is believed to be sensitive to these concerns. Therefore, observers opine that any matters regarding settlements, while they may have been legitimate concerns, were not the chief determinants of the market’s sustained closure.

However, when inquired by The Morning Business, SEC officials have repeatedly denied such assumptions saying that the reasons for the extended market closure are simply those with regards to settlement and logistics, and nothing beyond them. It has also denied any political pressure to keep the CSE closed to preserve foreign currency reserves.

In the days leading up to the initial closure on 16 March, the CSE’s circuit breaker was activated multiple times after the Standard and Poor’s Sri Lanka 20 (S&P SL20) index, which includes the 20 largest companies by total market capitalisation listed on the CSE, fell by 5% slabs several times, triggering 30-minute halts in regular trading. However, when trading reopens on Monday, there will be a new system in place under which the market will automatically close for the day if the S&P SL20 index drops by 10% or more, as announced by the SEC last week. The last day the CSE was open, 20 March, the S&P SL20 dropped by 11.72%.