Ray at CSE helm gears for ‘All or nothing’
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CSE Chairman Ray Abeywardena.
The new chief of the Colombo Stock Exchange (CSE), Ray Abeywardena is eagerly awaiting some state-owned enterprises (SOEs) to go public. In this respect, he’s upbeat that the CSE is reviving the ‘All or Nothing Board’, a mechanism that is used when buying or selling a (large) parcel in its entirety at an open auction. This board instructs a broker to execute the order or sell/buy the parcel wholly or to do nothing. Mr. Abeywardena told the Business Times that listed company results that are now coming out are good and that foreign participation is high, but to sustain this, SOEs need to be listed ‘asap’. “Why we are now restarting the ‘All or Nothing Board’ is to be able to facilitate SOEs going public.” He said with the SOEs coming to the market, the CSE will ‘fly’.
“We need more firms like John Keells and Commercial Bank,” he reiterated noting that listing SOEs is the first way to achieve this. Mr. Abeywardena will be discussing with the Treasury on SOEs going public. He said that he’s seeking support from all industry stakeholders in his current capacity to bring CSE turnover to Rs. 2 billion a day from the current daily Rs. 10 million. “As an industry we need to start making money. Then we can start doing other things,” he added. Mr. Abeywardena who took office last month said that he will set up a common meeting with all stockbrokers, fund managers and unit trusts and also set up a capital market development team that’ll comprise participants from all these sectors. “We need to grow the unit trust industry as it’s a conduit between the CSE and the investor.”
In terms of risk management, the CSE is in the process of introducing a Central Counterparty (CCP), which Mr. Abeywardena was excited about. A central counterparty interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts. Mr. Abeywardena said that this will leapfrog Sri Lanka to one of the top exchanges in the region as most of the stock exchanges in the region do not have a CCP. A CCP is imperative for short selling as this makes it possible to sell what one does not own. The short seller achieves this by borrowing the stock from a broker, and immediately selling the stock at its current market price, with the sale proceeds credited to the short seller’s margin account.
A CCP will see implementation of a Clearing and Settlement System along with demutualisation and dematerialisation (the process through which a member-owned company becomes shareholder-owned) of the CSE, he said. Clearing house is the counterparty for all trades and provides end to end anonymity. The clearing house, which will be owned by the CSE, will guarantee cash and securities delivery and allow the CSE to achieve true delivery versus payment (DVP), Mr. Abeywardena said. “The DVP settlement system ensures that delivery will occur only if a payment occurs. The system acts as a link between a funds transfer system and a securities transfer system.”
In addition to bringing the market upto international levels, the CCP will allow short selling and listing of derivative products. Sri Lanka is one of the few in the region that doesn’t allow for short-selling, and the lack of that option is seen as an impediment to efficiency and impediment by foreign institutional investors, as markets with liquidity and hedging options are usually preferred.
Mr. Abeywardena said that the CSE shows significant untapped potential and stands today, poised for optimal growth. “During the past 2-months foreign inflows are Rs. 18 billion and that’s encouraging.”
He welcomed the proposed new Securities and Exchange Commission Act saying that improved market regulation will bring international best practices into the capital market.