Primary dealers climb on board the specialised debt exchange

Ending years of haggling, Sri Lanka’s Central Bank has given its blessings to allow secondary market trading of government securities on the specialised debt exchange system, DEX. Ending years of haggling, Sri Lanka’s Central Bank has given its blessings to allow secondary market trading of government securities on the specialised debt exchange system, DEX. Owned by the Colombo Stock Exchange, debt exchange or DEX, is an electronic trading system that allows retail investors to trade in the secondary market for corporate debt and government paper.

Developed by Millennium
Information Technologies, the top-of-the-range trading platform, DEX, cost
the CSE around Rs. 90 million when it was completed in 2004.

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

It allows real time online
liquidity management and the opportunity to tailor make a settlement cycle.
DEX also facilitates repurchase and reverse-repurchase transactions and
allows online and post-trade market information.

Investors can view bid and
asking prices. DEX will also collect maturity proceeds and coupon interest
of investments on behalf of investors.

The DEX will also enable
investors to buy and sell in lots of Rs. 10,000 – largely beneficial to
smalltime investors.

The prices quoted are displayed on the trading screen of the CSE located at Colombo, Kurunegala, Kandy and Matara.

The Central Bank has asked the primary dealers – an exclusive club that has sole rights to bid for government securities at the primary auction – to actively participate and ensure a more transparent pricing system on treasury bills and bonds.

“We want to improve transactions at the grassroots level, with the aim of increasing the volumes being currently traded,” said Central Bank’s Additional Superintendent Public Debt, W M Hemachandra on Wednesday.

To get the show on the road, primary dealers have promised to supply government securities to maintain liquidity in the DEX system.

“Through this proposal, it is intended that liquidity is maintained at a desirable level in the DEX system at all times,” CSE’s Director General Hiran Mendis said in a circular to stockbrokers and trading members.

Despite the government bond market carrying a daily turnover of around Rs. 20 billion for an outstanding stock of nearly a trillion rupees, gilt trading has been rather slow on DEX.

DEX has failed to attract big ticket gilt-edge deals, as the primary dealer fraternity felt the transaction costs were too high.

The DEX membership is also limited to 15 stockbrokers and to a new class of debt trading members.

Despite the CSE dispensing with joining fees, only three out of the eleven primary dealers opted to get a trading member licence through their subsidiaries.

Those left out, will have to either trade through rival dealers subsidiary firms, pick up a trading member licence or go through a stockbroker.

-LBO Newsdesk: LBOEmail@vanguardlk.com