Financial Times

CSE to have trading members for both debt and equity trading
By Duruthu Edirimuni
The Colombo Stock Exchange (CSE) recently amended their articles to permit trading members to trade shares as well as debt instruments such as debentures and bonds, despite the knowledge gap to exploit the opportunity. Neomal Gunewardene, Senior Partner at Nithya Partners said there are attractive returns in admitting trading members to trade in both equity and debt, but the necessary expertise to do so is virtually unavailable.

“The stock brokers do not have much advice on trading debt and the stock brokering firms should look into this matter,” he said. He said the debt market, relative to the stock market is sluggish and there may not be many enthusiastic investors who want to tie their money up for a longer time. “Comparatively, the CSE is a short term money making opportunity and it is doubtful whether many CSE investors will be attracted to tying up money for five years or more,” Gunewardene said.

However, a stock analyst said that there is a demand for debt trading by investors who trade in the CSE, but the required expertise is lacking in the field both by primary dealers and stock brokers.

He said that presently debt trading is carried out mostly by primary dealers such as banks, but stock brokers are familiar with only equity trading. “No one deals in both, except for fund managers,” he said, adding that a franchise on both debt and equity on the CSE requires people who are familiar with both ends of the equation.

“It is the responsibility of the trading members to train their staff on the new opportunity,” Hiran Mendis, CEO, CSE said, adding that the CSE has started training some stock brokering firms and others have requested for training on debt trading. A stock analyst said competent stock brokers willing to venture into debt trading will be able to show consistent revenue streams, while bringing in more balance and stability to their portfolios.

S. Jeyavarman, CEO, National Asset Management Ltd., said this move by the CSE will create more players in both capital and stock markets, because the investors will have more information flowing to them. About the lack of experience to harness the opportunity by many members in the capital and equity trading markets, he said that it is a challenge and there should always be training in these aspects. “You have to always train young people taking up positions in both the capital and equity trading sectors,” he added.

Dimuthu Abeyesekera, CEO, Asha Phillip Securities Ltd., said including stock brokers into trading debt will develop the debt market in the country, because the investors can diversify their trading portfolios, while hedging risks. “This will give better opportunities and more products to the clients,” he said.
However some stock brokers said that it is not worth to trade debt on the CSE, because it does not fetch an attractive commission. “The commission earned through debt trading is much below that earned through stock brokering,” a stock broker said.

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