- To settle trades in real time for both buyers and sellers
- To create OTC market for REPOs for corporate debt, trade gold-backed products, allow stock borrowing and lending
By Nishel Fernando
The Colombo Stock Exchange (CSE) plans to implement a Delivery Versus Payment (DVP) mechanism for equity securities clearing and settlement, in May.
The new mechanism was expected to go live in February. However, it faced delays in procuring the required new systems due to the COVID-19 pandemic-related issues.
“To implement the new system, we had to acquire new servers. However, due to the pandemic-related issues, the server didn’t arrive in time. We are now in the process of working out all the rules and the systems are ready. We have already sent the proposed rules to the SEC to review and approve,” CSE Chairman Dumith Fernando said.
The proposed DVP mechanism would allow the CSE to settle trades in real time, where the cash settlement from the buyer and the stock settlement from the sellers basically move at the same time.
Once the CSE moves into the new system, the CSE plans to introduce a range of products, including creation of an OTC market for REPOs for corporate debt, trading of gold-backed products, stock borrowing and lending and facilitating the issue of mortgage-backed securities, enabling investors to diversify their portfolios.
Further, the CSE expects the demutualisation process of the CSE and the new SEC Act,
which would provide the necessary powers to the SEC, to regulate a demutualised exchange, to be concluded within the year.
“On the proposed Demutualisation Act, we just got into an agreement with all member firms on the split of shares to be issued, a 70 percent for member firms and 30 percent for the Capital Market Development Fund (CMDF),” Fernando noted.
In addition, the SEC had earlier proposed to accommodate a strategic investor at the point of sale of 30 percent of the entitlement of the broker members and CMDF.
Meanwhile, Fernando expects the CSE to draw several new equity listings this year, following the success of the WindForce IPO that started trading on the CSE from last week.
So far, the leading real estate developer Prime Lands Residencies announced a Rs.1.95 billion IPO.
In addition, Fernando noted that a leading firm in the construction material sector is also planning to raise funds via an IPO on the CSE. Further, by the end of this year, the CSE plans to establish around 50,000 proactive retail investor bases, supported by its digitalisation drive.
The CSE saw a strong uptick in retail investor participation last year, which rose to 48 percent last year, from 29 percent in 2019.
In 2020, the revenue of the CSE increased twofold to Rs.964 million, the highest figure since 2011, driven by growth in market activity. The CSE and CDS fees rose by 137 percent YoY to Rs.794 million, accounting for 82 percent of its revenue in the year. In addition, the listed company fees also increased by 105 percent YoY to Rs.41 billion in 2020.
The CSE reported a profit after tax of Rs.417 million, compared to losses of Rs.43 million recorded in 2019.