Will the SEC cope with the common trading platform?
Described by many as the person who brought order to the chaotic situation prevailing immediately after the ‘99 boom and bust stock market situation, but accused by others as being the person responsible for killing off the stock market, Marios Clerides talks to the Financial Mirror in an in-depth interview on issues now confronting the SEC, the challenges ahead and why many things ordinary folk take for granted have not yet been realised.
It’s true that the Securities & Exchange Commission and its Chairman, Marios Clerides can easily be described as the “Big Brother” watching every step that we make in the stock market, but Clerides insists that it is for the best interests of investors, so that they may not fall prey to market abuse and price manipulation.
“I agree that the SEC has killed the black market, the shoddy dealings, the improper behaviour, but I believe that our efforts have been for the good of the market,” says Clerides, adding, “my job is to coach the market to do things right, and if they don’t implement it properly, then to impose penalties,” but he insists that the SEC is not harsh as many people in the industry say.
COMMON TRADING PLATFORM
With the SEC having a near lock on what goes on in the local market, in the sense that since every trade carried mostly by Cypriots has an ID or corporate registration number attached, then it’s far easier for the SEC to be able to conduct on-the-spot and on-line investigations to check suspicious trades.
But it will not be so easy when the common trading platform starts work, hopefully from January 2006 and onwards, because in order for SEC investigators to check a Greek or other foreign names, they need to go through their respective counterparts abroad and get access to vital information through joint investigations and efforts, which could be time consuming and late.
“We would have faced this problem anyway if foreign interest in the CSE would rise. Through the common trading platform, the process has accelerated and now we have to deal with many foreign players driving the market.”
The common trading platform however will not change the way takeovers, mergers & acquisitions, new issues and listings occur, since they will fall under the jurisdiction of the SEC but based on EU Directives applicable in all 25 member states.
INSIDER TRADING LAW
The SEC will nevertheless see its powers significantly enhanced following the passage of the EU Insider Trading Law, which for the first time will also cover financial journalists.
“Information is deemed sensitive depending on who the source (CEO, Chairman) is and who is benefiting financially from trading such information,” said Clerides, admitting that while it is extremely difficult to prove the criminal element related to the use of such information, the Law gives adequate powers to the SEC to impose administrative penalties.
Commenting on the fact that the SEC routinely loses administrative penalties that it imposes on EPEY’s and public companies, Clerides says the SEC has never lost a case on substance, but always on technicality issues.
“If a (SEC) director was present during the meeting, but absent from the next one, then that has been deemed a reason why we have lost cases. Or when we have not been lenient in allowing time to companies to respond to our fine, this has also been taken as an excuse to dismiss a case. If I would tell you all the reasons why cases are dismissed, you too would become frustrated.”
Clerides says with the SEC and the Competition Commission formed and abiding to the same rules, it is very disturbing to note that different procedures are required from the SEC, but not from the Competition Commission, in the way they reach the decision to impose administrative fines.
NOT IN THE NEWS
Asked why the SEC was not in the news these days, Clerides smiled and said that is certainly for the better, but added that this did not mean that the SEC was not busy.
He explained that the two main pillars of activity at this stage concern the regulation and follow-up checks on Cyprus based EPEY (financial services firms), of which some 35 are classified as offshore, trading abroad and some 15 are trading in the local market. An equally important role is representing Cyprus at the EU level on matters concerning capital markets and keeping the pace with the on-going changes now going through in the EU.
“The EU is now changing the law on EPEY, transparency, Companies Law, takeovers and so much more that we need to be part of the process at all levels,” said Clerides.
Other areas keeping the SEC busy is the routine audits that it conducts on EPEYs, leading sometime to investigations, checking public companies with respect to their accounts, corporate activities and how these are relayed to the public, the quality of audit, dealings among connected persons and the companies they control and focusing on quality of accounts.
MISSED SUPHIRE
Asked how SEC investigators missed spotting the discrepancy in the records of Suphire with respect to the fund management of the EAC Provident Fund, the SEC Chairman defended his investigators, adding that the SEC had long suspected that the owners were breaking the “Chinese walls” and mixing trades of clients as own trades.
The investigators had also noted the absence of internal audit checks while they were in no position to know that reports that matched with the CSE records were then altered when dispatched to the client.
CONNECTED DEALINGS
Clerides admits that the issue of connected persons’ dealings with public companies in the securing of major contracts is a major problem in inspiring confidence, even at companies that say they implement the corporate governance code.
“The only thing that we can do is to place the correct procedures, mostly at Board level that need to be followed, and then insist on transparency so that investors can take their own decisions,” said Clerides.
In this direction, the SEC has started a round of audits at the three major banks regarding the level of implementation of what they have promised to be implementing under their code of governance.
AUDITORS
One grey area where companies have escaped punishment is the way the auditors have helped them to “cook” the books, but Clerides says things are changing for the better, referring to the Directive on oversight of the quality of the audit work leading to disciplinary measures as well as the fact that auditors are now calling outside auditors, mostly from abroad, to check the quality of their work.
Referring to the investigation on prospectuses and if the forecasts made were correct, Clerides said yet again, it is very difficult to prove that the forecasts were missed intentionally, and if directors intentionally lied when they made the forecasts regarding their prospects.
