Listing Debt

The Central Bank has allowed the Employee Provident Fund to list its Rs. 240 bn government treasury portfolio on the CSEs new debt trading system, the DEX.
The giant pension fund with over Rs. 330 bn in its kitty, is currently negotiating a fee structure with the Colombo Stock Exchange. rn

rnLive transactions are expected to start off in three-months.rn

rnThe historic move is part of Central Banks process of automating its settlement systems, including issuing gilt-edge securities in scripless form.rn

rnThe bank, became the first in South Asia to go live with an electronic payment and securities settlement system.rn

rnUnder the new changes, the EPF and CSE were given special status to access the Central Banks depository and scripless securities settlement system.rn

rnA special seat for DEX allows secondary market trading of government treasuries to take place through stockbrokers, debt brokers, as well the 12 primary dealers who have automatic access to the system. rn

rnldblquote We hope this would deepen the government securities market and increase liquidity. When liquidity goes up, the margins for dealers come down and the government can borrow at a cheaper rate,
dblquote explains Central Bank Governor, A S Jayawardene.rn

rnListing EPFs bond and bill portfolio on DEX, is another big step towards developing the countrys nascent bond market, he explained.rn

rnldblquote When government securities are traded through the DEX, it will also help improve access and price transparency, giving a more accurate yield curve to benchmark corporate bond issues,
dblquote Jayawardene said. rn

rnBut the CSEs DEX will not get direct access to the primary bill and bond auctions, but compete with other secondary market dealers.rn

rnldblquote In the future we may consider giving them a designated non-dealer status to bid at the auction,
dblquote explains Superintendent of Public Debt, Dharma Dheerasinghe.rn

rnBut CSEs entry, is subject to certain conditions.rn

rnThe exchanges fully-owned depository, has to beef its capital up to Rs. 100 mn.rn

rnThe DEX also needs a lquote SWIFT connection to send payment instructions to the Central Bank. rn

rnThere are over Rs. 900 bn worth of government securities in circulation at the moment. Trading is slightly volatile, ranging from Rs. 10 bn to Rs. 25 bn on a weekly basis.rn

rnBond rates have gone up by over one percent since the President took over three key ministries last November. rn

rnAfter a two-days of abstinence, the bond dealers got activated on Wednesday, nudging rates up a few basis points, though on slim volumes.rn

rnDealers opted for a self-imposed hiatus after President Chandrika Kumaratungas weekend call for a snap poll, sent panic waves throughout the financial markets on Monday.rn

rnThe foreign exchange markets have been rather edgy, with the rupee jumping over 98 to the dollar.rn

rnBut Jayawardene says Sri Lankas macro economic fundamentals have not changed to warrant such a panic.rn

rnThe bank left its key short-term discount rates unchanged following its February monetary policy meeting, as it was comfortable with the macro economic situation.rn

rnAfter holding a tight grip on the public purse, the Treasury has been slipping a bit lately, dishing out over Rs. 450 mn in handouts each month.rn

rnldblquote There is nothing to be overly worried about, we have to wait and see what the outcome would be in April,
dblquote Jayawardene said in response to questions on if the Central Bank was revising its targets on inflation and interest rates.rn

rnldblquote In fact, we are in constant touch with the market, and the dealers have assured me that they will act with restrain. This is a good sign of a maturing market,
dblquote he added.rn


-Mel Gunasekera: melg@vanguardlanka.comrn

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