(Corrects value of hotel deal in paragraph 9 to $500 million
* Resignation follows deputy's transfer
* Brokers, big investors pin bourse woes on SEC
* Sugathadasa's exit may hit confidence
By C. Bryson Hull
COLOMBO, Dec 1 The head of Sri Lanka's
Securities and Exchange Commission (SEC)resigned on Thursday "to
uphold her principles," barely a month after her deputy was
moved amid broker complaints that tougher regulation was hurting
stock market prices.
Indrani Sugathadasa's resignation comes three days after the
island nation's brokers met President Mahinda Rajapaksa to urge
him to intervene in his capacity as finance minister to revive
the slumping Colombo Stock Exchange.
Her decision to leave could further damage Sri Lanka's
campaign to attract foreign investors after the end of a
three-decade civil war in 2009, a campaign that has taken a
series of hits since October including a warning from ratings
"I have decided to resign, upholding my principles,"
Sugathadasa told Reuters. She said she had written her reasons
in her letter of resignation, which "would come to be known."
It was not immediately clear what prompted her exit, but
brokers and influential investors have blamed increased SEC
regulation for slumping prices and trading on the $20.2 billion
bourse, which was Asia's best performer in 2009 and 2010.
The SEC this year has investigated several cases of share
price manipulation, including "pump and dump" schemes involving
illiquid shares, and tightened up the amount of credit brokers
can extend to clients to avoid a crash.
The bourse through Thursday's close was down 8.3 percent on
the year, the ninth best return in Asia year-to-date. That
follows two years as Asia's best performer with a total return
of 342 percent, surging with the end of Sri Lanka's 25-year
civil war in May 2009.
Sugathadasa's deputy, Malik Cader, in November was
transferred to the finance ministry after brokers and
politically connected investors complained to the president his
regulation of the industry was too aggressive and that he had
urged them to only invest in blue-chip shares.
That move, along with the government's cancellation of a
$500 million hotel deal and swift passage of a law that allowed
it to take over state assets leased to private individuals, has
dented investor perceptions of Sri Lanka.
Ratings agencies in November warned that the takeover law
could hurt confidence and hit Sri Lanka's sovereign rating.
Last week's shock 3 percent currency devaluation may also
have hurt, since the central bank -- the responsible authority
-- was not made aware of it until Rajapaksa uttered it during
his budget speech.
Sugathadasa, whose husband is the president's top aide, has
been leading a campaign to bring Sri Lanka's capital markets
into compliance with global standards, including hiring
white-shoe consultants McKinsey and Co. to advise.
That has often put her at odds with big market players who
benefit from lax standards, and brokers who have enjoyed huge
commissions amid a post-war influx of small investors, who often
act on rumours to their own detriment.
Among the loudest critics are a number of high net-worth
investors who either hold government positions or who sit on
corporate boards with top government officials.
The government has increasingly moved into the private
sector by re-nationalising privatised state assets, or by buying
large stakes of private companies through the central
bank-controlled Employees' Provident Fund and, in some cases,
appointing board members.
(Additional reporting by Shihar Aneez; Editing by Matt