Debt Sales

The Stock Exchange will tap into internal funds to raise the issued share capital of its depositary system to Rs.100mn endash a final clause to allow secondary trading in debt securities.
The CSE was issued a license by the Central Bank for its new electronic debt trading system or DEX that was launched Wed., but with strings attached.rn

rnAmong these was raising its issued share capital to Rs.100 mn so that it could link up with the Central Banks Central Depositary System.rn

rnThe DEX is an electronic trading system that allows retail investors to trade in the secondary market for corporate debt and government paper.rn

rnWith DEX, investors can buy or sell the beneficial interest in Treasury Bills and Bonds and corporate debt with facilities for Repo and Reverse Repo transactions as well.rn

rnAll trading is electronic and scripless, with settlement risk minimized by delivering securities only after the settlement bank Sampath Bank, confirms that the funds are available.rn

rnThe CSE will not take over primary dealer functions but will facilitate the process, serving as a common platform for retailers to trade in both equity and debt.rn

rnThe Central Bank has been trying to broadbase the market for government paper, which is already a huge Rs. 725 bn in outstanding stock, with a daily turnover of Rs. 20 bn.rn

rnldblquote It will promote it by allowing price discovery and allowing higher margins. A low interest regime has also made the need greater
dblquote , Central Bank Governor, A S Jayawardena said during the opening ceremony. rn

rnldblquote With active trading in the secondary market, primary dealers will find this facility useful to expand this market and hopefully interest rates will also come down over time
dblquote , he said.rn

rnSecondary trades however are marginal, with the Stock Exchange planning to roll out the low risk debt securities trading to the provinces as well.rn

rnldblquote The successful operation of this will pave the way for expansion in other provinces starting with our existing branches at Kandy and Matara
dblquote , Chairman, Colombo Stock Exchange, Eraj Wijesinghe said.rn

rnA new branch in Jaffna is on the cards for May, with equity and debt traders already buying up space. A branch in Kurunegela is also in the pipeline. rn

rnDEX allows for trading in small lots of Rs.10, 000, beneficial for individual, small time investors, with the Exchange already rolling out a public awareness programme.rn

rnldblquote It also provides an ideal means of diversification of stockbroker firms to expand their activities and aim for a reduction in brokerage rates
dblquote , Wijesinghe said.rn

rnldblquote It improves accessibility of the debt market. There are 280,000 CDS accounts maintained by local investors doing equity transactions that can move into debt,
dblquote Wijesinghe said.rn

rnThe Central Bank has granted the CSE lquote non-dealer bidder status, which gives them direct access to the primary government securities market. rn

rnThis will ensure that DEX has a smooth supply of government securities from the primary market at competitive rates.rn

rnSeylan Merchant Bank, National Wealth Corporation and Capital Alliance have been appointed trading members of the CSE, as well as its 15 member firms.rn

rnAny investor wanting to use DEX will have to go through a trading member, open a trading account with the CDS, place an order to buy or sell using one of the multiple settlement options.rn

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-LBO Newsdesk: LBOEmail@vanguardlanka.comrn