SEC determined to expedite probes
The Securities and Exchange Commission (SEC) is determined to expedite the probes against capital market offenders that have been on their hands for more than half a decade.
“We have about 50 cases so far and we broad-based the Surveillance Committee from the initial two to four people,” Viraj Dayaratne, Chairman SEC said in an interview with the Business Times last week.
He stressed the main question in these investigations is to find out if there is ‘sufficient evidence’ with regard to a capital market offence.
An integrated Central Counterparty System (CCP) between the Central Bank (CB), the SEC and the Colombo Stock Exchange (CSE) to guarantee settlement of cash on delivery of securities for all secondary market transactions to guarantee settlement of cash on delivery of securities for all secondary market transactions is on the cards.
“It was discussed at the last SEC commission meeting,” Mr. Dayaratne said.
The accepted way for minimising settlement risk is through a CCP which functions under a Delivery verses Payment (DVP) settlement backdrop. To guarantee the settlement of the transaction the CCP will act as a buyer to the seller and the seller to the buyer in all secondary market transactions.
The CB, SEC and CSE in 2014 jointly invited Expression of Interest (EOI) from eligible organisations/persons to be a Consultant cum Project Manager to set up a Central Counterparty (CCP) and implement a Clearing and Settlement System for facilitating the transactions in the domestic financial markets. But come 2015, the then CB Governor, Arjuna Mahendran withdrew from the tripartite agreement saying ‘there are too many parties’ which left the SEC and the CSE to go for the CCP on their own. In September 2018, the CSE signed an agreement with UK-based BTA Consulting (BTA) which gave a module to set up a clearing house for capital market transactions.
“Now we will get the original proposal to have a CCP with the CB,” Mr. Dayaratne said. The CCP is essential for demutualisation and dematerialisation (the process through which a member-owned company becomes shareholder-owned) of the CSE.
Mr. Dayaratne said the DVP is going ahead and the SEC is contributing technical assistance. “It’ll take a few more months for this to be set up.”
Market sources said the software deliveries for DVP have been done and industry-wide testing has started. The legal work around this system is being done. The new software of CSE’s Central Depository System (CDS) and the Automated Trading System (ETS) were delivered as well. The new system will hopefully go live by November, sources added.
Mr. Dayaratne noted that the Demutualisation Act is to come in this year. He will meet more stakeholders and strive for ‘balanced’ regulation, he said.