CB to revisit integrated CCP
The Central Bank (CB) is looking at reviving an earlier proposal to integrate the country’s stock exchange with its Central Counter Party (CCP) system.
This was discussed when Viraj Dayaratne, Chairman SEC Securities and Exchange Commission (SEC) paid a courtesy call on CB Governor Prof. W.D. Lakshman recently. Mr. Dayaratne told the Business Times that a SEC team met with some CB top brass last week as a follow up and the discussions, though at initial stages are progressive.
An integrated CCP between the CB, the SEC and the Colombo Stock Exchange (CSE) will guarantee settlement of cash on delivery of securities for all secondary market transactions, 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 EOI (Expression of Interest) from eligible organisations/persons to be a Consultant cum Project Manager to set the CCP and implement a clearing and settlement system for facilitating the transactions in the domestic financial markets. This was an initiative under the Financial Sector Modernisation Project (FSMP) funded by the World Bank. But come 2015, the then CB governor, Arjun Mahendran withdrew from the tripartite agreement saying there are ‘too many’ parties involved.
The SEC and the CSE was left to go for the CCP on their own. In September 2018, CSE signed an agreement with BTA Consulting (BTA) which gave a module to set up a clearing house for capital market transactions. Thereafter, the progress was slow.
The CCP is essential for demutualisation and dematerialisation (the process through which a member-owned company becomes shareholder-owned) of the CSE.