Colombo bourse on a firmer wicket
The new Chairman of the Colombo Stock Exchange (CSE) is pushing for a more liquid, multiproduct and more ‘accepted’ stock market in these challenging times.
Mr. Dumith Fernando
In an interview with the Business Times on Thursday, Dumith Fernando, Chairman of the Board of Directors of the CSE who settled into his new role on July 1, reiterated his first priority as rightly positioning the stock market. “The value proposition of the CSE in the context of the national growth agenda is very important. We want to revitalise the long-term capital formation and risk mitigation in the stock market,” he said.
For this, the exchange is looking at creating exchange trading and risk management products such as mortgage backed securities (shares of a home loan sold to investors) in a ‘thoughtful’ way. “We can look at allowing banks to lend on housing loans and lay off the risk which is a way to help this industry to mitigate the exposure.”
Secondly, he highlighted broad-basing or bringing the benefits of the capital market to the citizens, adding: “Thirdly we have a trusting trading and depository venue which is the Central Depository System (CDS) through which we can create awareness and easy access and you can introduce better products.”
During the last five years, customer complaints to the CSE has dropped by a whopping 70 per cent, he said pointing out that this as an area the exchange has managed well. The surveillance related referrals to the Securities and Exchange Commission (SEC) has dropped also by 70 per cent.
Mr. Fernando added that now more than ever, the exchange has a better wicket to articulate and implement their strategies with a very proactive SEC team. The CSE has identified five strategic push areas in this regard. As a start, Mr. Fernando said they are trying to analyse how to rerate the CSE valuations. CSE’s price to earnings (PE which reflects the earnings potential) stands at 11.4 reflecting a better position than Pakistan (at 15), Vietnam (at 14), the Philippines (at 16) etc. CSE’s five-year PE average is 11.3.
The price to book value of the CSE is 0.8 while Pakistan is 1.9, Philippines 1.5 and Thailand 1.5.
Secondly the CSE will attract new listings focused on liquidity. “We are in discussions with the Board of Investment,
Export Development Board and ICTA (state IT agency) to identify why companies under their remit are not listing and then jointly give incentives to them to do so,” Mr. Fernando said.
He added that a continuous discussion on listing state-owned enterprises and looking at public private partnerships will be carried out. The CSE also aims to promote listing more debt. “This is a really good time to look at better rates through debentures which corporates can benefit from,” Mr. Fernando pointed out.
Thirdly the CSE plans to level up the unit trust and insurance industries where more equity-based products can be sold.
The CSE’s fourth initiative is to give a big push on financial literacy, Mr. Fernando said. “We see many people not being aware and not knowing how to access the market, all the while seeing it as too risky. We want to promote more financial literacy so that more retailers can actively participate in the market.” He added CSE’s digitisation will be a big game changer in this regard. The CSE also has plans to open new branches in the suburbs. Mr. Fernando added that digitising will be a big game changer in this regard.
The final key push area will be to develop trust with the main stakeholders – issuers, investors and the public. “We are trying to find ways to resolve client disputes quicker,” Mr. Fernando added noting that the impending delivery versus payment (DVP) system is a big part of building trust with foreign clients as well.
He has plans to get the CSE into an operating profitability within three years.
Mr. Fernando added that the exchange is looking at new products. “We are looking at gold-based products.” He also mentioned that CDS is a great product that the exchange has, which has a centralised structure. “We are working with state agencies to include this in their roadmap and to implement centralised registries.”
In terms of products, the CSE is also looking at over-the-counter debentures including the debenture repos.
Mr. Fernando highlighted that in his tenure, he wants to focus on the role the CSE ‘can’ play. “We are ready to make a very honest effort to collaborate with the regulatory and policymakers to see what CSE can be and not what it was or has been. We are a facilitator and we have a trusted depository which we can utilise to generate more wealth.”