Sri Lanka’s CSE eyes more global investors through new CCP

Dec 07, 2015 (LBO) – Sri Lanka’s Colombo Stock Exchange (CSE) is aiming for more international investors by introducing a new risk management system through establishing a Central Counter Party (CCP) system, a senior official said.

“We need to manage the risk of the CSE – this is an area that we are lacking in,” Vajira Kulathilake, chairman Colombo Stock Exchange said.

“We are in the process of implementing a CCP which will reduce risk drastically and once we get this more global investors will be coming here.”

Effective risk management practices render stability to the financial markets and its participants by ensuring proper and timely settlement of trades.

The Colombo Stock Exchange (CSE) signed an agreement with BTA Consulting (BTA) of the United Kingdom to provide Consultancy and Project Management services to set up a Clearing House which will act as a Central Counterparty (CCP) for settlement of securities, including shares, corporate debt and other financial market instruments transacted in Sri Lanka.

This is a joint initiative between the Central Bank of Sri Lanka (CBSL), the Securities and Exchange Commission of Sri Lanka (SEC) and the Colombo Stock Exchange (CSE). The project was launched in January 2015. The Clearing House is expected to be set up within a two year period.

Kulathilake says that the proposed Securities and Exchange Commission act will be the legal back bone for the CSE while the proposed demutualization process would help with the governance side.

“The SEC act will be the legal back bone of the all the things that we are proposing to do, not only criminal but also civil proceedings,” he said.

“We will start the demutualization process soon and this will help the governance side.”

Analysts say that the present SEC Act was introduced in 1987 and though there were three amendments thereafter, an overall review of the provisions to align it to the global market trends has not been done.