Anda di halaman 1dari 8

We could separate the leaders from the herd:

Malik Cader
The stock exchange mafias first victim, former securities regulator Malik Cader
discusses the events that led to his resignation

July 20, 2015


Stock markets baffle ordinary savers. As a result,
the alleged insider trading, pump-and-dump, and stock front running crisis in the years up to
2012 didnt figure importantly in their minds. Its banality however doesnt limit the impact on
an investing elite. The stock market is a barometer for economic health and the topfunding source for the countrys largest private businesses.
When the credibility of capital market infrastructure is compromised as it was in the couple of
years to 2012 it imposes higher cost on private companies and the economy over the
long term. So, for ordinary citizens, what seems a parochial affair of manipulating the prices of
listed securities, assumes national significance.
This scandal also corroded trust in the capital market regulatory setup despite the best efforts of
those who ran the SEC. The stock market mafia types first victim was Malik Cader who says
the regulator had clearly identified some insider traders and price manipulators. He says there
was an organised and concerted effort by several people and that the SEC had evidence to
separate the leaders from the herd. Cader resigned as SEC director general in November
2011 when the SEC was under pressure over introducing price corridors for share price
movements and restrictions on stock broker extended credit. Weeks later, Indrani
Sugathadasa, the first of two SEC Chairpersons the scandal claimed, resigned. In an
interview Malik Cader discussed the events that led to his resignation as SECs Director
General. Excerpts

What are you up to now?


Im a legal consultant with a practice focusing on capital markets and insurance. I advise listed
companies and market intermediaries on any regulatory issues. I also advise local and foreign
investors, both individual and institutional, about prospects here.

What happened after you left the SEC?


I was summoned to the ministry by PB Jayasundera (then Treasury Secretary) in November
2011. Before he could start, I told him lets not beat about the bush, I will resign by the 31st of
December 2011, give me one month to finalise matters. He said, no we cant and we dont
want you to resign. We want to keep you. He wanted me to join the ministry and said a special
Cabinet memorandum was being prepared to make me a senior advisor to the Ministry of
Finance enjoying all the perks and facilities I had at the SEC. True to his word he did that.

What was your role at the Finance ministry?


I wasnt happy with the work at the ministry as it did not satisfy my taste and appetite.
I was given a couple of files here and there on investments. I was not making good use of my
time, so I moved out. I didnt want anyone to know at the time. I took some time out before
starting my legal consultancy practice.

At that time it was speculated that you were asked to leave immediately?
No. There were forces at work to see me ousted from the SEC. But I think Dr Jayasundera did
not like that. In fact, he told me that he did not like to see professionals treated this way.
Dr Jayasundera, SEC Chairperson Indrani Sugathadasa, and the members of the commission
were all on my side. But their support was not enough.

Who was behind your ouster?


It was the people accused of market irregularities and those who wanted to control the market.
One stockbroker at a forum had stated that we not only move markets we can also
move officials. It wasnt just my removal, but also
the way the SEC was treated by the authorities that
led to a collapse in market credibility. In fact, two
weeks after I left, SEC Chairperson
Indrani Sugathadasa resigned on a matter of
principle.

So it was President Mahinda Rajapaksa , who


was also the finance minister, who removed
you?

I think the then presidents mind was poisoned and several politicians also got on board the
anti-regulator bandwagon. Half the people who made those decisions against the SEC
arent well versed on capital markets or its regulation.

Was it not the finance minister who appointed you Director General of the SEC?
I was Deputy DG and Officer in Charge and for one year functioned as the acting Director
General. Six months after Ms Sugathadasa took over as Chairperson, the commission called for
applications to fill the DGs post. Since I was already performing this role, and since I had the
credentials and qualifications, I applied. I went through the whole selection process despite my
15 years at the SEC. The then Minister of Finance and President, appointed me on
the recommendation of the commission towards end 2010

When did you realise that all was not right at the Colombo Stock Exchange?
There was a surge with the All Share Price Index moving from 1,500 points to 7,800 points. Up
to a certain level, maybe 5,000 or 6,000 points, I saw the rise as a realisation of
underlying listed company valuations following a 30-year war. But when
fundamentally unsound companies were driving the market rise-some were trading at
1000 times their earning levels we felt the market was showing an artificial boom. We were
then also of the strong belief that stock prices were being manipulated. This was an unhealthy
situation.

Was there evidence to suggest the market was being manipulated?


Everyone was talking about it. A 10-rupee stock would rise to 150 rupees in two weeks without
any fundamental reason. There were many such instances.
The companies when we asked them were clueless. How can the price rise when
fundamentals were weak, unless someone was deliberately taking the price up?

But was there enough evidence to suggest this was the case when you examined
trading records?
We were getting ready for that. On the face of it there was enough evidence. We were getting
ready to move to the next level; unfortunately others felt that this was not the time.

Some thought the SEC was spooking the market by trying to investigate
irregularities then. Could you not have been discreet?
The market would eventually find out when we summon people for an inquiry.

How widespread was market manipulation, pump-and-dump and insider trading?


It was like a cancer. Everyone was in the bandwagon but there were leaders of the herd. At first

small investors were making money without effort, not realising the risks. In fact Ms
Sugathadsa told a public forum of market intermediaries dont kill the goose that lays the
Golden Egg by grabbing all the eggs. Lets be patient and nurture the goose so that we will
have the produce every day .

Was the SEC ill-equipped to deal with widespread market manipulation?


We were prepared to take on anyone. We had an honourable commission and a secretariat that
wanted to do the right thing irrespective of who was manipulating the market and their political
affiliations.

But could the SEC have prevented this from happening in the first place?
We introduced a price band and placed restrictions on credit, which worked. Those on the other
side of the fence were against these restrictions, naturally, because these were impeding their
ability to manipulate share prices and other investors.

They were claiming the SEC was overregulating the market?


Of course they would claim this because their easy moneymaking was blocked. The basic
function of a capital market is to foster value creation and this is why the SEC Act mandates
the regulator to create and maintain a capital market that is transparent, fair and efficient.

Who came up with the price band idea?


It was a collective decision of the CSE and SEC because companies could not explain why a
10-rupee share had gone up to 150 rupees, or a 20-rupee share had ballooned to 270 rupees.
How can a company valued at 3 billion be then worth 15 billion two weeks later when nothing
has changed in-between. Was this an efficient market? It was not. Everyone agreed on the price
band. Under the circumstances it was the
best possible thing we could have done.

Critics claimed the price bands and other measures were ad hoc and that the SEC
under your watch was inconsistent, changing rules from time to time?
There was consistency. First came the price band and then the credit rules. Brokers must go to
margin providers and creditors must prove their credit worthiness. These measures worked.

When did
the pressures start and where did it come from?

When we started summoning the accused for questioning. We got signals asking us to go slow,
postpone the investigation or questioning of so-and-so. It came from the top, from outside the
commission. It was mostly phone calls. Also, there were newspaper articles and forums aimed
at destabilizing the SEC.

When did the SEC break?


When I was removed and when the SEC Chairperson resigned. The commission never
interfered with the secretariat, all they wanted was justice.
There was a meeting at Temple Trees?Yes, organised by the so-called market intermediaries,
violating basic protocol, not inviting anyone at the SEC. This is why I said the top was misled.

This meeting took place during your tenure?


Yes, this was the first meeting. The second was after I left where another meeting took place at
Temple Trees against the next SEC head, Dr.Tilak Karunaratne.

What was discussed at these meetings?


They made various presentations and pulled out charts and graphs to suggest the SEC was
causing the market slump. It started the gradual process to destabilising the SEC.

Werent the stock trading records analysed by the SEC? Wasnt there hard
evidence to prove them wrong?
These are criminal matters that have to be proved beyond any reasonable doubt and we were in
the process of gathering evidence. Unfortunately, we couldnt proceed.

How many people were under the microscope?


There were many. We were gathering information and the net could have been cast wider.
There were the silent operators, and fronts too.

How clear was this to the SEC?


We had clearly identified some of them. There was an organised concerted effort by several
people. We had good evidence to separate the leaders from the herd.

Would you have taken a different approach or adopted a different strategy?


I dont think there was anything we could have done very differently. Maybe we should have

adopted price bands and credit restrictions earlier. In fact, had we resorted to taking people to
courts nothing would have happened for several years and share price manipulation would have
continued.

But the damage was already done?


The damage was extensive. There is a subjective analysis done that Sri Lanka lost
approximately two trillion rupees in value as a result of irregularities during this period. In
2011 if the market was at 6,000 points and the CSE realised a 20% growth each year, today the
market indices should have been at 10,000 points and not 7,000 points, with a market
capitalization of more than five trillion rupees. This value is equivalent to the cost of building
65 Katunayake Expressways or 65 Mattala airports.

What should the SEC now do?


The market has stabilized, and investor confidence has returned. To take it to the next level I
feel we need more foreign investors here. A 50% foreign holding will be good. I dont
know how this could be done, but it must be looked at seriously.

Should the SEC open the old cases?


I think the SEC should and they have no option but to move forward, it is the right thing to do.
Do you think the SEC can ensure this does not happen again? If not, what should the SEC do?
There is enough in the SEC Act to keep the agency independent, but unfortunately executive
powers were used to undermine the credibility of the SEC. Ultimately, this was detrimental
to capital market and also to the executive presidency. Politicians should leave regulatory
bodies alone. They must realize this.

Were all the SECs then commissioners on board. Were there commissioners who
were pulling in a different direction?
People had differences of opinion. We had debates and arguments but on general consensus
commissioners were behind us.
Was there anyone among your colleagues who tried to pull the carpet from under your feet?
No. Even if they wanted to they could not because the commission was with me.
After you left,
some SEC
officials were
suggesting there
were no grounds
to continue
investigating any
one?

Not in my time. We worked together although we had our differences. Some argued that we
must be merit-based, but we suggested that the market should be disclosure-based. We
debated on whether certain people should be investigated or not, but ultimately there was
consensus.

So no one tried to stifle the investigations?


When I was there, it did not happen.

Your critics accused you of favouritism. Why?


Being in the SEC for 15 years you get to know people. So when I am seen in their company
they assume they are my favourites. Some of these guys were investigated by the SEC. There is
also a process. First there is a surveillance report, that goes to a surveillance committee before
ending up with commission. There is nothing I could do on my own, there is a system and a
process.

Should the regulator be aloof?


We had to attend formal events. Some market intermediaries attend overseas events with
market participants. Thats formal.

Must this culture change?


Maybe.It is difficult to avoid interactions with the market. This is after all a small country, so
maybe this needs to be looked at.

Did you do anything to make it easy for those attacking you?


I live in a good house, drive a good car, so all this must have been looked at with
suspicion. They were out to get me. But I had these things even before I joined the SEC.

There were accusations that you were close to the Browns group and
separately, involved in a hotel project in Passikudah?
I had nothing to do with either of these. My father-in-law is an architect and undertakes work of
which I have no control. That is his Job. He is a respected senior architect who designed several
high rises in Colombo. He designed and built a property in Passikudah. After I left
government I accompanied him on his visits. It was just an excuse used to attack me. All this
appeared in websites.

What was it like working with Ms Sugathadsa?


Well it was a first time I worked with a chairperson who was a senior bureaucrat. Ours was a

cordial and professional relationship. She always wanted nothing short of the right thing done.
Her integrity, commitment, dedication and patriotism is unsurpassed. If we have a couple
of people like this in strategic positions in the bureaucracy this country would be a better place
than it is now.

Anda mungkin juga menyukai