‘Colombo Stock Exchange booms again’

by Dr. Darin Gunesekera

International news report the CSE as a top performing stock exchange in 2021. It is heart warming to Sri Lankans.

The headlines cover much. This exchange in its modern form is now 35 years old. Its related Acts and Regulations, 34 years. In these years there have been fairly minor changes as names, etc only. The substantial structure and Regulatory Act have been the same.

The reason is that these were formulated on the basis of economics after some long hands on study. I decided to do it based on economics only. I added the usual cover gloss of current law. The President at the time gave complete freedom. Actually when shortly afterwards I did the Kenyan system, President Moi gave freedom also. Even when I replaced totally what consultants had then just finalized; after all Harvard Consultancy could not complain that they were left behind by Kenya’s own Yale. And after over 30 years except for allowing trade electronically, there is no substantial change.

And, as in Colombo, great success.

This subject, regulating stock exchanges, was begun by William O’Douglas, a Yale Professor. As he himself said later, and his students carried on as tradition, he had no interest in the economics. He thought the US economy well based. He brought in what he later excelled in as a Supreme Court Justice, rights or human rights. That is the old style in Securities Law.

The modern era was actually pioneered by Dr Tan Cheng Theng, about ten years my senior. He was the best student at Harvard Law School and the editor of the Review. When Lee Kwan Yew went on his sabbatical tour of universities, he recruited Tan to do the “SEC” of Singapore. He did so with some brilliant leaps in where there had been darkness before.

I asked him what he considered important, now for him ten years later, as I wished to incorporate the best. He just expressed disgust of the stockbroking and investment banking business. He told me firmly that he was now a “born again” Christian. I understood the sentiment.

But my great uncle had impressed on me that mathematics was at the heart of the courts of law, which is where the People got their law. And mathematics I knew. I had been tasked to take Professor Smale’s ideas on Economics Maths in Law as a teacher briefly at the Yale Law School. So I knew this did not work easily. So I looked for help. My grandfather had been the leading police officer in the British era and anyway the police are the agents of the law. Tyrrel Gunatilleke was then the leading person in the police. I questioned him and he refused to answer but finally relented and told me how he caught criminals. I had the maths, the real maths. That tight construction was possible. And for all securities, including government, which is now the mainstay of the Kenya exchange.

When in Kenya, I was able to reposition the stock exchange so that it had a much greater social force through these constructions and I am very happy that the exchange has climbed to high regard with simultaneous issues in London and that the lead company on the exchange has over 15BUSD in market value.

Colombo, with no change in laws and regulations has the same capacity. But it must address India. Not long after I left CSE, I visited India where I had as an economist some relations with the civil servant in charge. I noticed that his still old fashioned markets had only one third more than Colombo in capital raising as of then. For all India.

This age is actually now coming to an end. It is often said in America that “Finance and Economics is not Rocket Science”. That is true. Elon Musk has discovered it too. Rocket science is still true to WW2 roots. Real Science and tech are far ahead. Any economics student today has to study Maths and stats beyond a rocket scientist.

Three years or so ago I gave a lecture and spent discussion time in NASA talking of my wealth and poverty field. Our field is there in the Beyond Rocket Science.

Not actually because of high speed trading. The youngster who did the largest trading platform, since sold to Chicago, said to me, “Doctor you don’t understand the economics”. But I learnt and now know. The electronics chases the agio, something Dr Tan as a Christian would have found apalling.

The subject is becoming different.

The moment we move to a transactions base rather than stocks, like the competitive agricultural market from Adam Smith demand and supply to rice or wheat in silos, a conceptual change occurs. It is no longer the market for apples. Actually demand and supply, which never existed except as a construct, now de-constructs. Ask yourself, have you ever seen demand or supply prices. No these change all the time. Where is the economist’s price ?Where is there more market volatility in Colombo today ? At the CSE broker’s office or at Keells Veggie counter ? Clearly at Keells. No CSE stockbroker sells tomatoes at 23 today, at 9 in two days time and then 17 in another two days !

Similarly a share which I used to have in my hand and may be photoed and sent to my mother is now some computer entry or slash hashtag, /***/***/*. Actually like a Dialog bill. You just have to go along. But do you want to?

By newspaper accounts, there were some proposals called MCC. The problem unattended to inside that is one long overdue in hitting developing country markets. The problem is that IT, or conversion to IT identification, will hit with anti-commons or gridlock through our systems from the top. Every computer program redefines the finance. And do we need or want it ?

I just cannot believe it. We want only what is good economics. Not consultant fit talk that hides loss of rights, loss of economic status and dumbing down of owners.

A simple example. The new sets of MIT graduates mainly who have the over all skills and others in Russia and UK and EU who are using SMART skill sets are doing work on the ground and becoming Associate Profs and quietening as the next wave comes.

One in East Africa work spoke with me., and also a young man yet of the old consultancy type. The latter was deeply concerned with water and sanitation. He had got aid agencies to build the sanitary seats but was having difficulty with usage. I suggested he look to the specialists in seat usage. He blinked. I just fumbled with my airline ticket. He got the message. He soon had frequent flyer…

The other was an anti-commons gridlock studies student who did a SMART project in the Congo. I had also talked with the Governor of the Congo Ituri Province virtually, this was in Covid time. And he went on at some length on Covid difficulties. I told him that at least he has no one saying his capital is the Ebola Capital anymore. He smacked his head. “I had clean forgotten”. That is the Congo for you. Well this student approached the municipal council of Kivu which bordered Ituri. Kivu is a typical Congo town. Kivu is in the Congo river basin. This council had problems of tables and chairs, no trash vehicles, etc. The tech kid ignored these trivialities, maths variables of the global set after all are what count. He just set up a SMART system. Suddenly Kivu found itself thick in development. The kid got them to be, without saying so, SMART security issuers and so moving at whatever level of money was around. No multi million dollar system.

Trucks in that area still hard link, that is rod link not chain link, to each other so that they can go through the potholes in those muddy roads. Different to Sri Lanka dirt roads but called the same. They fully immerse to over roof top level in the pot hole mud and just roar their engines and roll on.

Now their finance at least is up to the mark in mathematical construction.

It is a diverse world. So far, the old rod-linked economics has seen our stock exchange weather it all. I hope the Colombo Stock Exchange and its regulator all the best in the future.