SECURITIES AND EXCHANGE COMMISSION OF
SRI LANKA ACT
Arrangement of Sections
1. Short title.
PART I
CHAPTER 1
Preliminary
2. Application of the Act.
3. Object and purpose of this Act.
CHAPTER 2
Securities and Exchange Commission of Sri Lanka
4. Establishment of the Securities and Exchange Commission of Sri Lanka.
5. Constitution of the Commission.
6. Conflict of interest.
7. Term of office of appointed or nominated members.
8. Resignation of members of the Commission.
9. Disqualifications and grounds for removal.
10. Meetings of the Commission.
11. Remuneration of members.
12. Chairman of the Commission.
13. Members to disclose any interest.
14. Proceedings, acts or decisions not invalidated by reason of a vacancy.
15. Seal of the Commission.
CHAPTER 3
Powers, Duties and Functions of the Commission
16. Principal functions, powers and duties of the Commission.
17. Additional powers of the Commission.
18. Representation of the Commission in legal proceedings.
CHAPTER 4
Director-General and the Staff of the Commission
19. Director-General.
20. Staff of the Commission.
21. Appointment of officers of public corporations to the staff of the Commission.
22. Members, officers and servants of the Commission deemed to be public servants.
23. Commission deemed to be a Scheduled Institution within the meaning of the Bribery Act.
PART II
Markets and Market Institutions
24. Object and purpose of this Part.
CHAPTER 1
Exchanges
25. Prohibition against establishing an unlicensed exchange.
26. Application to operate an exchange.
27. Duties of an exchange.
28. Cancellation of licence of an exchange.
29. Effect of cancellation of the licence of an exchange.
30. Closure of the exchange in an emergency.
31. Listing requirements of a licensed exchange.
CHAPTER 2
Clearing House
32. Interpretation.
33. Establishment of a clearing house in an exchange.
34. Prohibition against establishing an unlicensed clearing facility.
35. Power to grant a licence.
36. Application for a licence to establish or operate clearing house.
37. Duties of a clearing house.
38. Commission’s power to regulate and supervise a licensed clearing house.
39. Cancellation of licence of a clearing house.
40. Aggrieved clearing house may appeal.
41. Effect of cancellation of a licence to a clearing house.
42. Default rules.
43. Default proceedings etc. of a clearing house to take precedence.
44. Supplementary provisions relating to default proceedings.
45. Duty to report on completion of default proceedings.
46. Net sum payable on completion of default proceedings.
47. Right of relevant office holder to recover certain amounts arising from certain transactions.
48. Clearing member to be party to certain transactions as principal.
49. Market collateral delivered to a clearing house.
50. Application of collateral subject to a market charge.
51. Transfer of securities in settlement.
52. Purchase and sale of securities.
53. Defences in criminal or civil liability.
CHAPTER 3
Central Depository
54. Prohibition against operating an unlicensed central depository.
55. Application to operate a central depository.
56. Duties of a central depository.
57. Cancellation of a licence of a central depository.
58. Effect of cancellation of licence of a central depository.
59. Securities account.
60. Book entry securities lodged with the central depository.
61. Record of entry in depositor’s account.
62. Effect of securities held in trust by the central depository.
63. Validation.
CHAPTER 4
General Provisions
64. Rules of a market institution.
65. Power of Court to order observance or enforcement of rules of market institutions.
66. Control of substantial shareholders of a market institution.
67. Power of the Commission to make a preliminary order to impose prohibition.
68. Appointment of directors to a market institution.
69. Alteration of material particulars of a market institution.
70. Rights of an exchange or a clearing house.
71. Defence in criminal or civil liability.
72. Provision of assistance to the Commission.
73. Annual reports.
74. Duties of an auditor of a market institution.
75. Obligation to submit periodic reports.
76. Payment of annual fee.
77. Prohibition against holding out.
78. Power of the Commission to review its own decision.
PART III
Issue of Securities
79. Object and purpose of this Part.
CHAPTER 1
Public Offer of Securities
80. Public offer of securities.
81. Approval of the Commission for issue of securities.
82. Prospectus or similar document.
83. Commission to issue stop orders.
84. Purchase, sale or transfer of securities.
85. Power of the Commission to require the production of documents.
86. Power of the Commission to issue directives to listed public companies.
87. Duty not to furnish false information to the Commission.
88. Duty not to make false statements to market institutions.
89. Appointing directors or chief executive officer.
90. Duties of an auditor of a listed public company.
91. Prohibition against undue influence.
CHAPTER 2
Market Intermediaries
92. Prohibition against holding out as a market intermediary.
93. Requirement to be licensed with the Commission.
94. Application for a licence or renewal of a licence as a market intermediary.
95. Refusal to grant or renew a licence.
96. Minimum financial requirements.
97. Requirement to register with the Commission.
98. Application for registration or renewal of registration.
99. Grounds for refusal to register or renew registration.
100. Power to vary conditions or restrictions.
101. Duration of licence or registration.
102. False and misleading statements to the Commission.
103. Duty to notify the Commission.
104. Prohibition against holding out as an agent.
105. Cancellation or suspension of a licence or a registration.
106. Trading in securities by market intermediaries.
107. Lending and borrowing of securities without the consent of the client.
108. Duty of an auditor of a market intermediary.
CHAPTER 3
Protection of Clients’ Assets
109. Interpretation.
110. Protection of client’s assets.
111. Rules on business conduct.
112. Duty in making recommendations.
113. Disclose certain interests in securities.
114. Internal procedures and processes.
115. Register of market intermediaries and registered persons.
PART IV
Trade In Unlisted Securities
116. Object and purpose of this Part.
CHAPTER 1
Establishment of a Recognised Market Operator
117. Establishment of a market operator.
118. Requirement to register a market operator.
119. Application for registration.
CHAPTER 2
Role of a Recognised Market Operator
120. Functions and duties of a recognised market operator.
121. Trading on a platform.
122. Rules to be made by the Commission or the market operator.
123. Cancellation of registration.
124. Review of the performance of a recognised market operator.
125. Application of the provisions of the Act to unlisted securities.
PART V
Market Misconduct
126. Object and purpose of this Part.
127. Application of this Part.
CHAPTER 1
Prohibited Conduct
128. False trading and market rigging transactions.
129. Stock market manipulations.
130. False or misleading statements.
131. Fraudulently inducing persons to deal in securities.
132. Use of manipulative and deceptive devices.
CHAPTER 2
Insider Trading
133. Information.
134. Information becoming generally available.
135. Material effect on price or value of securities.
136. Reference to “procure”.
137. Prohibited conduct of persons in possession of information not generally available.
138. Information in possession of an officer of a company.
139. Information in possession of a partner or an employee of partnership.
140. Exceptions in relation to underwriting and sub underwriting.
141. Exceptions in relation to schemes of arrangement, reconstruction and takeover of companies.
142. Exception for a company with knowledge.
143. Exception in relation to an individual.
144. Unsolicited transaction by market intermediaries.
145. Exception in relation to collective investment schemes.
146. Parity of information defence.
147. Offences under this Part and punishment.
148. Jurisdiction of the Courts.
149. Prosecution of offences under this Part.
150. Prosecution need not disprove the defences.
151. Right of the aggrieved party to claim damages.
152. Right of the Commission to recover damages and seek civil penalties.
153. Prescription.
PART VI
Finance
154. Object and purpose of this Part.
CHAPTER 1
Funds of the Commission
155. Levy of a cess.
156. Cess Fund.
157. Fund of the Commission.
CHAPTER 2
Fund to provide Compensation to Investors
158. Compensation Fund.
159. Appointment of a Compensation Committee.
160. Application for compensation.
161. Payment of compensation.
CHAPTER 3
Financial Year and Audit of Accounts
162. Financial year.
163. Audit of accounts.
PART VII
General
164. Object and purpose of this Part.
CHAPTER 1
Provisions Relating to Implementation
165. Production of documents and disclosure of information.
166. Inquiries and investigations.
167. Issue of freezing orders.
168. Inquiry by Complaints Resolution Committee.
169. Supplementary service providers.
170. Implementation of agreements or memoranda of understanding.
171. Sharing of information and cooperation.
172. Whistleblower protection.
173. Furnishing of information to the Minister.
174. Protection for action taken under the Act.
CHAPTER 2
Provisions Relating to Punishments and Enforcement Mechanisms
175. Offences.
176. Acts applicable to the criminal process.
177. Compounding of offences.
178. Power of the Commission to impose administrative sanctions.
179. Power of the Commission to protect investors’ assets.
180. Power of the Commission to apply to court for certain orders.
181. Power of the Commission to publish information.
182. Regulations.
183. Rules.
184. Derivatives not gaming or wagering contracts.
185. Market maker.
186. Recourse against decisions of the Commission.
187. Repeals, savings and transitional provisions.
188. Interpretation.
189. Sinhala text to prevail in case of inconsistency.
19 of 2021.
AN ACT to establish the Securities and Exchange Commission of Sri Lanka; to regulate market institutions, certain public offers of securities, market intermediaries; to protect investors and to provide for enforcement measures; to deal with market misconduct; and to overcome the challenges encountered by securities market regulators and to repeal the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987 and for matters connected therewith or incidental thereto.
[Date of Commencement: 24th September, 2021]
1. Short title.
This Act may be cited as the Securities and Exchange Commission of Sri Lanka Act.
PART I
CHAPTER 1
Preliminary
2. Application of the Act.
This Act applies to securities, securities markets and related matters except as otherwise provided in this Act.
3. Object and purpose of this Act.
The object and purpose of this Act shall be—
(a) to establish the Securities and Exchange Commission of Sri Lanka;
(b) to create, maintain and regulate a fair, orderly, efficient and transparent securities market;
(c) to protect the interests of local and foreign investors; and
(d) to ensure the maintenance of high professional standards in the provision of services in relation to securities markets.
CHAPTER 2
Securities and Exchange Commission of Sri Lanka
4. Establishment of the Securities and Exchange Commission of Sri Lanka.
(1) There shall be established a Commission which shall be called the Securities and Exchange Commission of Sri Lanka (hereinafter referred to as the “Commission”) to administer the provisions of this Act.
(2) The Commission shall, by the name assigned to it by subsection (1), be a body corporate and shall have perpetual succession and a common seal and may sue and be sued in such name.
5. Constitution of the Commission.
(1) The Commission shall consist of—
(a) six persons possessing professional expertise and standing in respect of matters relating to the securities market, and possessing special knowledge or wide experience and proven competency in the fields of law, finance, accounting, economics, banking or business to be appointed by the Minister as members (hereinafter referred to as “appointed members”) in order to reflect the multi-disciplinary character of the Commission, of whom at least five persons shall be from the private sector;
(b) two nominated members—
(i) a Deputy Secretary to the Treasury nominated by the Secretary to the Treasury; and
(ii) a Deputy Governor of the Central Bank of Sri Lanka nominated by the Monetary Board of Sri Lanka; and
(c) two ex-officio members—
(i) the Registrar-General of Companies, appointed under the Companies Act; and
(ii) the President of the Institute of Chartered Accountants of Sri Lanka established by the Institute of Chartered Accountants Act.
(2) The Minister shall nominate from amongst the appointed members of the Commission, one member to be the Chairman of the Commission.
(3) In appointing persons under subsection (1), the Minister shall have regard to—
(a) that person’s integrity and standing; and
(b) the likelihood of any conflict between the interests of the Commission and any interest which that person has or represents.
6. Conflict of interest.
Every appointed or nominated member of the Commission when being appointed shall be required to make a declaration to the Minister on any conflict of interests he may have at the time of his appointment.
7. Term of office of appointed or nominated members.
Every appointed or nominated member of the Commission, unless he vacates office earlier by death, by operation of law, resignation or removal, shall hold office for a term of three years and shall be eligible for reappointment subject to a maximum period of any two terms of office whether consecutive or otherwise.
8. Resignation of members of the Commission.
(1) Any appointed or nominated member of the Commission may at any time resign his office by letter addressed to the Minister and such resignation shall take effect upon it being accepted by the Minister.
(2) In the event of vacation of office of any member other than an ex-officio member by reason of death, resignation, removal or the operation of provisions of subsection (4) or (5), the Minister may appoint another person having regard to the provisions of subsection (3) of section 5 to hold office for the unexpired period of the term of office of the member whom he succeeds.
(3) If any member of the Commission other than the Chairman is temporarily unable to perform the duties of his office for a period exceeding three months due to ill health or absence from Sri Lanka or for any other cause, the Minister may appoint some other person to act in his place during such period having regard to the provisions of subsection (3) of section 5.
(4) An appointed or nominated member of the Commission who, without leave of the Commission first being obtained, absents himself from three consecutive meetings of the Commission shall be deemed to have vacated his office.
(5) A member of the Commission being the Chairman, is absent for three consecutive meetings of the Commission shall be deemed to have vacated his office.
9. Disqualifications and grounds for removal.
(1) A person shall be disqualified from being appointed or nominated or from continuing as a member of the Commission if he—
(a) is or becomes a member of Parliament, or a member of any Provincial Council or any local authority;
(b) is or becomes a director, partner or employee of an entity licensed or registered by the Commission;
(c) is or becomes of unsound mind or incapable of carrying out his duties;
(d) is or has become an undischarged bankrupt;
(e) is or has been convicted of an offence which involves moral turpitude;
(f) has been previously removed from office.
(2) The Minister may by Order published in the Gazette remove a member of the Commission from continuing as a member if his continuation in the office is detrimental to the interests of the Commission.
10. Meetings of the Commission.
(1) The Chairman of the Commission shall, if present, preside at all meetings of the Commission. In the absence of the Chairman from any such meetings, the members present shall elect one amongst themselves to preside at such meeting.
(2) The quorum for any meeting of the Commission shall be five members.
(3) The Commission may regulate the procedure in regard to the meetings of the Commission and the transaction of business at such meetings.
(4) All questions for decision at any meeting of the Commission shall be decided by the vote of the majority of the members present. In the case of an equality of votes the member presiding shall have a casting vote.
11. Remuneration of members.
The members of the Commission may be paid such remuneration out of the Fund of the Commission as may be determined by the Minister, in consultation with the Minister assigned the subject of finance.
12. Chairman of the Commission.
(1) If the Chairman of the Commission is, by reason of illness or absence from Sri Lanka temporarily unable to perform the duties of his office the Minister shall nominate another member of the Commission to act in his place.
(2) The Chairman may at any time resign from the office of Chairman by a letter addressed to the Minister.
(3) Subject to the provisions of subsection (2), the term of office of the Chairman shall be his period of membership of the Commission.
13. Members to disclose any interest.
A member who is directly or indirectly interested in any decision that is to be taken on any matter by the Commission shall disclose the nature of such interest at the meeting of the Commission where such decision is being taken, and such disclosure shall be recorded in the minutes of the meetings of the Commission and such member shall not take part in any deliberation or decision of the Commission with regard to that matter, and shall withdraw from such meeting while such deliberation is in progress or such decision is being made.
14. Proceedings, acts or decisions not invalidated by reason of a vacancy.
No proceeding, act or decision of the Commission shall be invalidated by reason only of the existence of a vacancy among its members or of any defect in the appointment of a member thereof.
15. Seal of the Commission.
(1) The seal of the Commission shall be in the custody of the Commission.
(2) The seal of the Commission may be altered in such manner as may be determined by the Commission.
(3) The seal of the Commission shall not be affixed to any instrument or document except in the presence of one member of the Commission and the Director-General of the Commission or in the absence of the Director-General, in the presence of any two members of the Commission, who shall sign the instrument or document in token of their presence.
CHAPTER 3
Powers, Duties and Functions
of the Commission
16. Principal functions, powers and duties of the Commission.
The powers, duties and functions of the Commission shall be—
(a) to advise the Government on the development of the securities market and to assist in the effective implementation of the policies and programmes of the Government with respect to the securities market;
(b) to encourage and promote the development of securities markets in Sri Lanka including research and training in connection therewith;
(c) to give general or specific directives or instructions to market institutions, market intermediaries, registered persons, clearing members, trading participants, depository participants, issuers, investors, recognised market operators or such other person or persons as may be necessary to give effect to the provisions of this Act from time to time;
(d) to give general or specific directives or instructions to supplementary service providers of market institutions, market intermediaries, collective investment schemes or listed public companies from time to time;
(e) to grant a licence to a body corporate to operate as a market institution and to ensure its proper conduct;
(f) to grant a licence to any person to operate as a market intermediary and to ensure its proper conduct;
(g) to register a person advising clients on sale or purchase of securities for and on behalf of a market intermediary as a registered person and to regulate their conduct in the discharge of their duties;
(h) to register any person as a market operator;
(i) to issue general or specific directives to listed public companies or listed foreign entities from time to time;
(j) to issue general or specific directives to an acquirer, an offeror or persons acting in concert with an offeror or an offeree or a target company in relation to a takeover or a merger of a listed public company;
(k) to issue specific directives to any person to prevent the imminent infringement of this Act, regulations or rules and to restrain infringement;
(l) to regulate the listing and trading of securities in an exchange;
(m) to regulate the issuance of securities;
(n) to prohibit or suspend the listing of any securities or to delist the listed securities or to prohibit or suspend the trading of any securities or to take such steps as the Commission considers necessary or expedient for the protection of investors or for ensuring fair and orderly securities market or for ensuring the integrity of the securities market;
(o) to employ such officers and servants as the Commission may consider necessary and to fix the salaries and wages or other remuneration and benefits of such officers and servants for the purposes of carrying out the objectives and functions of the Commission;
(p) to acquire in any manner whatsoever and hold, take or give on lease or hire, mortgage, pledge, sell or otherwise dispose of any immovable or movable property;
(q) to regulate a takeover or merger of a listed public company or any matter connected therewith or incidental thereto;
(r) to inquire and conduct investigations into any activity of a market institution, market intermediary, a registered person, a listed public company or a listed foreign entity;
(s) to conduct investigations into any alleged violation or contravention of the provisions of this Act or any regulation or any rule or directive made or any instruction given thereunder or by any person and to take any enforcement measures provided under this Act as considered necessary by the Commission;
(t) to enter into agreements or memoranda of understanding with any organisation or a foreign regulatory authority in relation to any matter which comes within the purview of this Act;
(u) to publish findings of wrongdoing by any market institution, market intermediary or registered person, supplementary service provider, any listed public company or any listed foreign entity;
(v) to carry out surveillance of securities transactions;
(w) to levy fees or charges, for any services rendered by the Commission;
(x) to take such steps as the Commission may deem necessary to mitigate systemic risk to the financial system;
(y) to give specific or general directions to companies that have made an offer to the public to subscribe for securities;
(z) to exempt certain public offers or issues from the provisions of this Act;
(aa) to appoint experts as the Commission deems expedient for the purposes of this Act; and
(ba) to do all such other acts as may be considered necessary, incidental and ancillary to the performance of the Commission’s objects, duties and functions under this Act.
17. Additional powers of the Commission.
The Commission shall in addition to the powers specified in section 16 also have the power to—
(a) carry out supervision or inspections of the activities of market institutions or market intermediaries or registered persons or trustees of collective investment schemes in order to ascertain and determine whether they are operating in conformity with the provisions of this Act, regulations, rules or directives made thereunder and to charge the costs incurred in carrying out such inspections from the market institution or a market intermediary or a registered person or a trustee of a collective investment scheme as the case may be;
(b) require market institutions or market intermediaries to file with the Commission, audited financial statements and the interim financial statements, certified by a qualified auditor in the form and manner specified by the Commission; and
(c) require the licensed managing company of a collective investment scheme to file reports with the Commission, in respect of every year and at least two reports of the activities of that collective investment scheme for that year. Every such report shall contain such particulars as may from time to time be determined by the Commission. The first report shall be filed not later than the 30th of September of that year and the second report shall be filed not later than the 31st of March of the subsequent year.
18. Representation of the Commission in legal proceedings.
The Chairman of the Commission may authorise any officer of the Commission who is an Attorney-at-Law or any officer of the Attorney-General’s Department to appear on behalf of the Commission in any legal proceedings by or against the Commission or in any proceedings in which the Commission has a substantial interest.
CHAPTER 4
Director-General and the Staff OF
the Commission
19. Director-General.
(1) The Minister shall on the recommendation of the Commission, appoint a Director-General of the Commission, who shall be its chief executive officer. The conditions of employment including remuneration of the Director-General shall be determined by the Commission.
(2) The Commission shall not recommend the appointment of any person as the Director-General of the Commission, if such person—
(a) has been previously found guilty of serious misconduct by a court or tribunal or has been subject to a disciplinary action by a regulatory body;
(b) has been previously dismissed from office; or
(c) has committed a breach of the provisions of this Act, regulations, rules or directives made thereunder.
(3) The Director-General shall, subject to the general direction and control of the Commission, be charged with the direction of the affairs and transactions of the Commission, the exercise, discharge and performance of its powers, functions and duties, and the administration and control of the officers and servants of the Commission.
(4) The Director-General may, with the approval of the Commission, whenever he considers it necessary to do so, delegate to any officer and servant any power, function or duty conferred or imposed on or assigned to him by this Act and such officer or servant shall exercise, discharge and perform such power, function or duty subject to the general or special directions of the Director-General.
(5) The Minister may on the recommendation of the Commission remove the Director-General appointed under subsection (1), from office if his continuation in office is detrimental to the interests of the Commission:
Provided, that the Commission shall grant an opportunity to the Director-General of being heard, prior to such removal.
20. Staff of the Commission.
(1) Notwithstanding anything to the contrary in any other written law, the Commission may create cadre positions and employ officers and servants as it considers necessary for the efficient discharge of its functions and may fix their salaries and wages or other remuneration, benefits and pensions of such servants and officers for the purposes of carrying out its functions and duties under the provisions of this Act.
(2) The Commission may establish and regulate pension and provident funds and schemes for the benefit of the Director-General and its officers and servants and their dependents and nominees with the concurrence of the Minister assigned the subject of finance and may make contributions to any such fund or scheme.
(3) The Commission shall promote and sponsor the training of technical personnel on the subjects of securities markets, finance, law, money economics and other subjects and for this purpose, the Commission shall be authorised to defray the costs of study, in Sri Lanka or abroad of the officers and servants of the Commission who are of proven merit as determined by the Commission.
This section of the article is only available for our subscribers. Please click here to subscribe to a subscription plan to view this part of the article.