The Colombo Stock Exchange unveiled a range of management strategies to reduce transaction risks on its debt exchange (DEX) including liquidity deposits by brokers to determine maximum exposure limits.
Debt brokers will be required to maintain liquidity deposits of cash and securities which will determine maximum exposure limits, CSE, Central Depository System Manager, Renuke Wijayawardhane said.
rnLocked accounts containing liquidity deposits would be used in the event of a default to compensate the innocent party. rn
rnDebt brokers exposure will be computed when orders are entered into the system and a margin established against each trade to safeguard against default. rn
rnSecurities will be marked to market and exposures will vary accordinglyrn
rnRisks would also be managed by maintaining a Delivery Versus Payment system for clearing and settlement where ownership would only be conferred upon settlement, a sharp contrast from procedures maintained for equity trades. rn
rnThe system will also allow either the buying broker or selling broker to take up a trade which has failed.rn
rnHowever, compensation through the Central Depository System using funds from locked accounts would be a last resort Wijayawardhane said.rn
rnThe DEX system which supports web based trading will provide a transparent market for investors allowing them to view the five best quotes on a deal. rn
rnSmaller investors are expected to be attracted by the minimum transaction size of Rs.10,000 for one security.rn
rnTrading mechanisms on DEX will vary from that of equity stocks, with seven settlement boards supporting different settlement cycles.rn
rnThe launch of DEX signals the entry of a new category of members to the CSE who will only be trading members. However the existing fifteen member firms with an equity stake in the CSE who have traditionally dealt in equity stocks will also be able to participate in DEX offering synergies in investing through one intermediary.