CSE establishes Central Counterparty to enhance market stability

By Nishel Fernando

The Colombo Stock Exchange (CSE) has unveiled an initiative to bolster market efficiency and reduce systemic risk with the establishment of a Central Counterparty (CCP) through its newly formed entity, CSE Clear (Private) Limited.

Approved by the Securities and Exchange Commission of Sri Lanka (SEC), the CCP will oversee the clearing and settlement of equity transactions on the CSE, marking a significant upgrade to the country’s financial market infrastructure. 

In a circular issued to the trading participants yesterday, the CSE outlined sweeping amendments to its Trading Participant Rules, Trading Rules and Dispute Resolution Rules, to align with the introduction of CSE Clear.

The changes aim to transition the clearing responsibilities from the Central Depository Systems (CDS) to the CCP, streamlining the processes and enhancing risk management. Key updates include redefining terms such as Clearing Member and mandating that the applicants for the Trading Participant status must also apply directly to CSE Clear for clearing membership. 

Key reforms and implications include regulatory alignment with the references to the CDS in the existing rules being replaced with CSE Clear, to reflect the CCP’s role. New definitions, including CSE Clear and Clearing Member, have been formalised. 

Further, enforcement actions against the non-compliant Trading Participants will now require simultaneous notifications to the SEC, CDS and CSE Clear, ensuring coordinated oversight. 

In terms of risk management, contributions to a Contributory Guarantee Fund, under CSE Clear’s rules, will be classified as non-liquid assets, while margin requirements furnished to the CCP will offset counterparty risk calculations. 

Further, CSE Clear has been integrated into the CSE Group’s Dispute Resolution Rules, expanding the scope to address conflicts arising from CCP-related activities. 

The establishment of CSE Clear as a licensed CCP underscores the CSE’s commitment to aligning with the global best practices. This initiative is expected to mitigate counterparty risk, improve settlement efficiency and foster greater investor confidence in Sri Lanka’s capital markets.

While the effective date for the amended rules remains pending, the CSE confirmed it would notify market participants ahead of the CCP’s operational launch. The transition is expected to reduce settlement failures and enhance liquidity by centralising the clearing functions. 

Analysts anticipate that the CCP framework will position the CSE as a more competitive player among the frontier markets.

The introduction of CSE Clear follows similar reforms in emerging markets, reflecting a broader trend toward strengthening post-trade infrastructure, to attract foreign investment.

CSE introduces GSS+ Bonds to SL capital market

In line with a broader, more inclusive approach and in alignment with the evolving global standards, the Colombo Stock Exchange (CSE) has launched the GSS+ Bonds Regulatory Framework, effective March 2025.
This marks the first comprehensive regulatory framework in Sri Lanka dedicated to thematic bonds.

Under this initiative, the term Sustainability Bonds in the CSE Listing Rules has been replaced with GSS+ Bonds, which now encompasses Green, Blue, Social, Sustainability and other related bond types, including Sustainability-Linked Bonds.

Social Bonds are fixed-income instruments where the proceeds are exclusively allocated to finance or refinance projects aimed at addressing social challenges and generating positive social outcomes—such as improved access to essential services, affordable housing, education, healthcare and employment opportunities. The global Social Bond market has seen a significant growth in recent years, driven by the rising investor interest in fostering inclusive and sustainable development.

In a significant development, the requirements for issuing GSS+ Bonds are now fully aligned with the guidelines of the International Capital Market Association. This alignment ensures consistency with the globally accepted practices and enhances the credibility and transparency of the sustainable finance instruments listed on the CSE.

The verification framework has also been enhanced. In addition to the previously accepted forms of assurance and impact reporting, the issuers may now utilise enhanced methods such as Second Party Opinion and Certification, providing additional layers of investor confidence and credibility.

These rule enhancements were made possible through the collaborative efforts of the Asian Development Bank and Securities and Exchange Commission of Sri Lanka, underscoring the commitment of all stakeholders to elevate Sri Lanka’s sustainable finance landscape to meet the international best practices.

The primary objective of this initiative is to enable capital raising for projects with measurable environmental and social impact, while also offering investors the opportunity to align their investment strategies with the environmental, social and governance principles. 

The introduction of GSS+ offers wide-ranging benefits. For the issuers, it opens access to a new pool of capital dedicated to funding projects with positive social outcomes. The investors gain an opportunity to diversify their portfolios with instruments that deliver both financial and social returns. At a broader level, the initiative supports responsible capital allocation and contributes to key national development priorities such as poverty alleviation, gender equality, access to healthcare and inclusive education.

Commenting on the launch, CSE Chief Executive Officer Rajeeva Bandaranaike stated, “The introduction of GSS+ to the Sri Lankan capital market represents a significant step in our journey towards promoting sustainable finance. This initiative not only expands the suite of sustainable investment products available in the market but also empowers the issuers to raise funds for socially impactful projects that can make a lasting difference in our communities.”