CSE to set up a Clearing House to act as a Central Counterparty
View(s):The Colombo Stock Exchange (CSE) recently signed an agreement with BTA Consulting (BTA) of the United Kingdom to provide Consultancy and Project Management services to set up a Clearing House which will act as a Central Counterparty (CCP) for settlement of securities, including shares, corporate debt, Government Securities and any other financial market instruments transacted in Sri Lanka.
This is a joint initiative between the Central Bank of Sri Lanka (CB), the Securities and Exchange Commission of Sri Lanka (SEC) and the CSE. The project was launched in January 2015. The Clearing House is expected to be set up within a two year period, according to a CSE media release.
The CCP will also enable the CSE to move to a Delivery Vs. Payment (DVP) settlement system, thus significantly minimizing the risk of settlement failure and counterparty risk in the secondary market for shares.
“For equities, presently the delivery of shares occur immediately upon the execution of the transaction while fund settlement takes place three (3) market days after the transaction date (T+3), thus exposing the seller to a three (3) day settlement risk, while for Government securities the process is bi-laterally agreed. Although some interim measures have been introduced to reduce settlement risk, the globally accepted mechanism for minimizing settlement risk is through a CCP-DVP system where the securities and funds are exchanged simultaneously, finally with full irrevocability on the settlement day,” it said.
BTA consulting is a UK based consultancy firm specializing in capital market related assignments globally having specialists with exposure to most capital markets including Bursa Malaysia, the Stock Exchange of Thailand, Wien Bourse (Vienna Stock Exchange), the Swiss Exchange and many other European, Middle Eastern and Asian markets. The consultants from BTA Consulting will work with a project team of specialists from CB, SEC and CSE.
A Steering Committee consisting of the CB Governor of the CBSL, SEC Chairman, CSE Chairman, SEC DDG and the CSE CEO will have the overall oversight of the project.