CB evaluating offers to establish Central Counterparty system
The Central Bank (CB) is now examining some15 Expression of Interest (EOI) from eligible organizations/persons in the capacity of a Consultant cum Project Manager to set up a Central Counterparty (CCP) and implement a Clearing & Settlement System for faclitating the transactions in the domestic financial markets, CB officials said.
CB together with the Securities and Exchange Commission (SEC), CSE and LankaClear (Pvt) Ltd have jointly invited EOIs late last year for a central counterparty (CCP), which inserts itself 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 demutualization and dematerialization of the CSE.
“By this month’s end we hope to finalise a party,” a CB official told the Business Times. The Consultant cum Project Manager is anticipated to design the business stipulation for the proposed CCP following an appraisal of the Sri Lankan financial markets and the expected development in the market infrastructure and risks.
“We want him (or institution) 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 also said that a CCP has the capability to lessen risks to market participants by imposing more tough risk controls on all participants and to add to the liquidity of the markets it serves, because it tends to reduce risks to participants and, in many cases, because it assists anonymous trading.
With this, Demutualization, the process through which a member-owned company becomes shareholder-owned, will be finally true for the CSE.