CSE on the way to being shareholder-owned
View(s):Demutualisation, the process through which a member-owned company becomes shareholder-owned will be finally true for the Colombo Stock Exchange (CSE), with authorities banding together to establish Central Counterparty, according to stock market sources.
A central counterparty (CCP) works between counterparties to financial contracts traded in one or more markets, becoming the buyer to every seller and the seller to every buyer. The CCP is essential for demutualisation and dematerialization of the CSE.
The Central Bank (CB), the Securities and Exchange Commission (SEC), CSE and LankaClear (Pvt) Ltd have jointly invited Expression of Interest (EOI) from eligible organisations/persons in the capacity of a Consultant cum Project Manager to set up a Centra Counterparty (CCP) and implement a Clearing & Settlement System for facilitating the transactions in the domestic financial markets.
“A CCP has the potential to reduce significantly risks to market participants by imposing more robust risk controls on all participants and to enhance the liquidity of the markets it serves, because it tends to reduce risks to participants and, in many cases, because it facilitates anonymous trading,” a CB official said.
CCPs have long been used by derivatives exchanges and a few securities exchanges and trading systems and in they have been introduced by many more securities exchanges and have begun to provide their services to over-the-counter (OTC) markets, including markets for securities repurchase agreements and derivatives, according to him.
The Consultant cum Project Manager is expected design the business specifications for proposed CCP following an assessment of the Sri Lankan financial markets and the expected development in the market infrastructure and risks.
“We want him to recommend a structure for the CCP taking into account the requirements of all stakeholders, i.e. ownership, financial capital structure and governance; within one month of the commencement of the assignment, submit an inception report stating the project plan and any issues anticipated. The report will be discussed at an inception meeting comprising of all stakeholder representatives; drafting of rules regulations and bylaws that are necessary for the functioning of proposed CCP,” the official said.
He added that the party expressing interest in this assignment should have the capacity to enter into a five-party contract with CB, SEC, CSE and Lanka Clear on all agreed terms and conditions.
Now CB owns and operates the Real-time Gross Settlement System (RTGS) to facilitate the settlement of the funds leg of financial market transactions in local currency (Rupee). Licensed Commercial Bank , Primary Dealers , The Central Depository Systems Pvt. Ltd, a fully owned subsidiary of CSE and the Employee’s Provident Fund (EPF) maintain rupee settlement accounts with CB for this purpose.
CB also owns and operates the Scripless Securities Settlement System (SSSS) and the Central Depository System (CDS) for government securities, to facilitate settlement of transactions in government securities. SSSS operates on a delivery versus payment mechanism in collaboration with RTGS, according to the EOI.
CSE operates the Automated Trading System (ATS) where listed equity, corporate debt, beneficial interest of government securities and units of Closed-end-Funds are traded. The Central Depository Systems (Pvt) Ltd functions as the depository for the transactions executed on the ATS. The fund settlement takes place through the nominated settlement banks.