The Colombo Stock Exchange (CSE) has intensified its thrust towards the establishment of a Central Counter Party and guarantee settlement (CCP) of cash and delivery of securities for all secondary market transactions on the CSE.
CSE Chairman Vajira Kulatilleke said that this CPP would be managed as a separate institution but would be a 100% owned company of the CSE. He said that already the first two initiatives on this has been completed and the CCP should be fully operational be the end of next year.
“We will invest around Rs. 600 million for the project and have already consulted a British company to assist us.”
The proposed Clearing Company will act as a Central Counterparty to guarantee settlement of equity and corporate debt securities traded on the CSE to address a key risk prevalent in the Colombo Stock Market.
He said that one of the biggest advantages of the system will be that it will align the CSE in par with all other top stock markets in the world.
Presently for equity securities the delivery of shares from the seller to the buyer occurs immediately upon execution of the share transaction while the fund settlement to the seller takes place only after 3 market days from the transaction date (T+3), thus exposing the seller to a 3 day settlement risk.
“CCP was discussed for a long time it never took off the ground. “I want to get this up and running before the end of my tenure which will bring CSE closer to its goal of achieving a world class status.’
“This is a ground breaking initiative launched with the approval of the Securities and Exchange Commission of Sri Lanka (SEC)
A CCP system has been identified and recommended by International Organization of Securities Commissions (IOSCO) as the best practice to adhere for clearing and settlement.
CSE CEO Rajeeva Bandaranaike said the consultants selected for the project are BTA Consulting (BTA) of the United Kingdom who are providing Consultancy and Project Management services to set up the Clearing House. BTA Consulting is a UK based consultancy firm specializing in capital market related assignments globally having specialists with exposure to most global capital markets.
He said that one of the other advantages would be that the CSC would be able to launch several other derivative products to attract more foreign buyers. “The CCP system will bring the CSE closer to its goal of achieving a world class status. In addition with the CCP in place even regional listed companies could invest in Sri Lanka helping Sri Lanka to claim itself as a regional financial hub.” The current Settlement Guarantee Fund set up in 1998 with a capital of Rs. 250 has now grown to Rs. 750 million will be used as guarantee for the proposed CCP.
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