The Colombo Stock Exchange (CSE) is striving to introduce the real- time margining and Delivery Versus Payment (DVP) mechanism for settlement of equities, despite certain setbacks in the implementation process, a top official said.
“The ongoing debate with market participants regarding customizing the DVP model to the local market is expected to conclude in early 2013,” CSE Chairman Krishan Balendra said in his statement to the CSE annual report 2012.
He added that CSE advanced in developing the margining system together with the National Stock Exchange of India and has carried out comprehensive consultations with stockbrokers regarding operational changes and the business model.
“We will continue to promote the dialogue necessary to steadily effect appropriate risk controls in keeping with participant requirements,” he noted.
DVP is a common form of settlement for securities. The process involves the simultaneous delivery of all documents necessary to give effect to a transfer of securities in exchange for the receipt of the stipulated payment amount.
Alternatively, it may involve transfers of two securities in such a way to ensure that delivery of one security occurs if and only the corresponding delivery of the other security occurs.
DVP mechanism was first considered by CSE in 2011 and was to be implemented by mid-2012.
Commenting on the matter, CSE Chief Executive Officer (CEO), Surekha Sellahewa stated that this is a long overdue market reform which will allow CSE to significantly enhance risk management capabilities through a transition from historic to real-time margining.
“However in the implementation process, we were compelled to devote an extended time period in closely aligning with stockbroker firms than was previously intended,” she said.
This was due in part to the nature of the initiative under consideration which necessitates corresponding changes to broker systems and operations in tandem with changes at the exchange end.
The CEO added that global benchmarks anticipated in the reform process also place relatively more stringent risk controls than before on market participants.