Feb 23, 2017 (LBO) – Sri Lanka’s cabinet nod has been received to sign a MOU with Euroclear Bank making all existing and future government security issuances Euroclearable via ‘International Link’ (i-Link).
In order to facilitate the Euroclearbility of government securities, the cabinet has also approved several other prerequisites.
After establishing the local legal framework, the new facility will make the Sri Lankan Rupee a full settlement currency in the books of Euroclear Bank.
It will exempt government securities related secondary market transactions involving foreign investors from all taxes.
The cabinet nod has also been received to ensure all necessary exchange control clearances for the relevant inward and outward movement of funds and government securities.
The Euroclear Bank will eventually authorize to act as foreign nominee for all investors both domestic and foreign and government securities will be held and registered in the name of this nominee.
It is expected to cost around GBP 500,000 to make necessary changes to existing Central Bank systems to connect with i-Link of Euroclear via SWIFT messaging system.
Currently, 10 percent of Treasury Bills and Bonds outstanding are available for foreign investments mainly done through a few foreign bank branches operating locally.
“This mechanism limits the outreach of government securities market to foreign investors,” Finance Minister said in a note to the cabinet.
“It creates many inefficiencies and non-standard market practices in the conduct of transactions involving such foreign investments.”
Lack of real-time pricing information, disparity in exchange conversion rates quoted by different foreign banks to foreign investors and foreign investors haring to open and maintain special accounts are highlighted as drawbacks of the current system.
Proposed system is expected to popularize government securities among foreign investors while streamlining the settlement mechanism.
It will attract more, diversified and stable foreign investments in securities, for an annual safekeeping fee and transaction fees payable to Euroclcer.
It is expected to bring the securities market on par with 45 other largest developed and developing markets of the world that are currently Euroclearable.
As an open and resilient infrastructure, Euroclear helps bond issuers and investors cut through complexity, lower the costs and mitigate risks.
2017 budget proposed the need of a new mechanism to streamline the current system.