Financial Times

Sri Lanka’s new electronic bond trading platform, the Lanka Primary Dealer Bloomberg BondTrader (LPBT), could force brokers to reduce their brokerage, according to stock market analysts.

“This is because voice brokers charge per transaction whereas the e-bond trading system charges a flat fee for a terminal per month and any number of transactions,” said Ajith Fernando, Secretary, Association of Primary Dealers and the Managing Director, Capital Alliance Holdings Ltd.

LPBT, which has generated Rs.7.1 billion worth of trades since its launch in May has reduced transaction costs for primary dealers.

He said that because of this more profit was generated for dealers and that investors were willing to trade more. “Brokers have felt the impact but nowhere in the world has an e-bond system put voice brokers completely out of work,” he added.

“A voice broker will be able to spot a lot of collective and competitive rates in a moving market,” Nichula Dias, Treasurer, Money Brokers Association said.

Stressing that any stock exchange could be stagnant or flow according to the situation of the country and the world. Dias added that although people use Bloomberg in a stagnant market, voice brokers are more effective at a moving market because their negotiating powers are greater. “They also have the advantage of being able to see all the rates at the same time,” he said.

“Primary dealers are our customers and Bloomberg is concentrating only on primary dealers,” Dias said. However, Deva Ellepola, CEO of HNB Stockbrokers (Pvt) Limited, said if primary dealers cut down transactions at the Colombo Stock Exchange(CSE), the stock brokers would compete to match or better the e-bond system. Even so, CSE generally trades in retail bond market whereas e-bond is expected to cover large corporate trading.

Sri Lanka is the second country to receive the Bloomberg BondTrader, the first being Singapore. Fernando, speaking about the advantages of the new method of trading said that the Sri Lankan market was completely illiquid but with the new system it would grow at least by ten fold in a matter of months. He said that, “if this is introduced to more countries, Sri Lanka would be able to transact on a common platform and any improvements made in the other countries would be filtered down to us,” he said, adding that the ever evolving market would give the brokers more opportunities if they adapted to changing their current business model.

However, Dias said despite all the pro’s of the system, the reduction of the brokerage was inevitable. “Although brokers have not been affected by the e-bond system as yet, it is likely to create a huge impact in the near future, in terms of brokerage reduction,” he added.