New Capital Market Developments, fundamental change in 2020 | Daily News
‘Square Your Position at Day End,’ CSE CEO

New Capital Market Developments, fundamental change in 2020

Rajeeva Bandaranaike
Rajeeva Bandaranaike

“The Colombo Stock Exchange (CSE) has already upgraded the back end systems of the brokers and is in the process of upgrading the stock exchange system which is expected to be operational by 2020,” CEO, CSE, Rajeeva Bandaranaike said.

He was speaking at the Capital Markets Conference organized by UTO EduConsult on Wednesday. “Delivery vs. Payment (DVP) is a fundamental change to the market. Though it is simple to explain there is a lot of work that has to been done,” he said during his presentation. The talk was broken into three segments; The SME Board, the Multi-Currency Board, and the Delivery vs Payment reform.

SME Board

Bandaranaike outlined the Empower Board as a means to get smaller companies listed on the capital markets. Bandaranaike envisioned a system whereby “companies can enter on the empower board, graduate to the Diri Savi Board, and finally end up on the main board”. He said “many companies are interested in listing on the empower board. There are a lot of requests to increase the maximum stated capital above Rs 100 million.”

Bandaraike revealed, “5 or 6 companies are interested in listing”. Bandaranaike conceded “it is still difficult to convince some companies to list with the Price to Earnings ratio.”

Multi-Currency Board

Commenting on the multi-currency board Bandaranaike explained “this was targeted at the Maldivian Exchange and its eight listed companies. We have signed an MoU with the Maldivian exchange. There is potential there as exchange requires better technology and liquidity.”

Commenting on the factors that will make the board successful he said, “currently 50% of our (CSE) volumes are foreign. We have large foreign institutional investors in our markets. Our professional services like banking can be accessed to get a better capital structure. Our markets are better and our governance structures are good.”

“Maldivian professional services tend to be already holding Sri Lankan qualifications.”

Delivery vs. Payment

Bandaranaike prefaced his statements by saying “this is a fundamental change in our system. The way we operate our market is currently an anomaly.” He explained that with the t+3 payment system “sellers lose custody and only get money three days later. No one guarantees payment. Though we have set in safeguards this is fundamentally flawed.”

Commenting on the need for change Bandaranaike said, “Foreign investors are very uncomfortable with this. All of the other markets use delivery vs payment. Exchange of shares and cash should take place at the same time,” he said.

Fundamental Changes

Illustrating the technical changes to the system Bandaranaike said, “We will delink the depository and the trading system. You have freedom with the trading system. This technically allows you to go short.” He said, traders will have to “square their positions at day end.” He went on to state based on international experience on the implementation of DVP that “this will create better liquidity and more opportunity.” Bandaranaike concluded his statements focusing on DVP. “This is a fundamental change to our market. Though it is simple to explain there is a lot of work that has been done. We have already upgraded the back end systems of the brokers and are in the process of upgrading the stock exchange system. We expect to be operational by 2020.”


 

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