The Securities and Exchange Commission of Sri Lanka (SEC) is intensifying its campaign against market manipulation, pump-and-dump schemes and digital investment fraud, signalling a significantly tougher regulatory environment for those attempting to exploit retail investors and distort the Colombo Stock Exchange (CSE).
The crackdown comes as the market itself shows signs of renewed stability. The All Share Price Index (ASPI) closed at 21,322.86 points, gaining around 0.20%, while the S&P Sri Lanka 20 Index advanced 0.34% to 6,015.18. Daily equity turnover reached approximately Rs.2.2 billion.
However beneath these apparently reassuring numbers lies a regulatory challenge: ensuring that rising liquidity is not converted into an opportunity for manipulation.
The SEC is now relying heavily on the expanded powers provided under the Securities and Exchange Commission Act No.19 of 2021. Its enforcement strategy includes criminal prosecutions and substantially larger financial penalties.
A landmark warning came through a Rs.188.1 million settlement imposed on an investor for market misconduct the largest financial settlement recorded by the SEC. Such penalties could fundamentally alter the risk calculation for individuals who previously believed manipulation could produce substantial profits with limited consequences.
The Commission has also reopened investigations into pump-and-dump schemes dating back to 2010–2015. These investigations reportedly include allegations involving prominent corporate figures and politicians and the use of state resources, including the Employees Provident Fund, to purchase inflated and loss-making shares.
The renewed investigations are particularly significant because they potentially extend accountability beyond individual traders to networks allegedly benefiting from coordinated market activity.
Meanwhile, the Softlogic Holdings PLC saga demonstrates another dimension of market vulnerability. The company remains on the CSE Watchlist amid auditor disclaimers and going-concern concerns. Its restructuring involves an intended Rs.10 billion equity infusion, with Rs.2.03 billion already raised and another Rs.1.2 billion injection expected.
Although Softlogic reported a trailing 12-month group net loss of Rs.8.79 billion, revenue increased 24% to Rs.128.4 billion and EBITDA rose 55% to Rs.16 billion. Its shares closed at Rs.8.70, leaving investors waiting for tangible evidence that restructuring can resolve its financial pressures.
The SEC and CSE have reportedly imposed a 15-month deadline from the transfer date to address outstanding audit concerns.
Foreign investors are also returning cautiously, purchasing a net Rs.8.3 billion of rupee government bonds in one week. The firmer currency, improving tourism activity and stronger customs revenues have provided additional support to market sentiment.
However, regulators face a crucial test: preventing renewed liquidity from becoming fertile ground for manipulation.
The message emerging from the SEC is increasingly clear. The CSE may welcome stronger turnover and foreign participation, but market growth cannot come at the expense of market integrity.