The Colombo Stock Exchange is preparing itself for a quantum jump into the future with the new automated trading system, due to go on-line in the coming weeks.
The Rs. 100mn system would electrically match orders and carry out transactions instantaneously raplacing human interventions.
It can make 20,000 trades in a three hour trading day.
At peak trading in 1993 when we were carrying out 4000 trades a day only about 40% of the orders were executed on average," says Isuru Tilekawardena, CSE's Assistant General Manager.
The automated system is to be set up in two stages. At first traders will be required to work at stations provided for, at the CSE while their trades would be displayed on the new electronic display.
The date for this to be implemented is yet tentative as brokers during off trading hours are still familiarising themselves with the system.
The second stage of automation would involve connecting all the broker firms for that the brokers could trade from terminals at their offices and the floor trading would be illuminated. The existing floor trading facilities would however be maintained as a alternative trading site to be used in case of a communications failure between the CSE and brokering firms.
With technology advancing at a phenomenal rate CSE officials have pretensions about the future of the trading system, faced with the prospect at technological obselescence even as in the system is being commissioned. "Within the next five years we will have to replace the system," says CSE Director General Dylan Moldrich.
The system consists of three major components, namely the front end which is a sophisticated order entry and market watch broker work station, the serveillance work stations for market monitoring and the back end which consists of a "server farm" (collection of servers each running a single process).
The Oracle based trading data base will reside in a Sun 1000E server and is integrated with the CDS data base.
The server farm consists of 8 Sun 20 servers and two Sun 1000 data base servers. The system works on a client server and distributed processing principle. In case of a server failure another server will automatically take over the failed process.
The system is also equipped with a back-up system which has to be located on another site to retain data in case the primary system is destroyed.
Transaction results are duplicated and the back-up site and it's data base updated every few seconds, so that it will mimic the activities at the actual site.
The broker work station consists of several windows displaying the indices, a market watch which can be configured by the broker according to his requirements, a window for entering buy and sell orders, a window showing the unexecuted orders and a window for executed orders.
The CSE has also been careful so set up the automated cleaning and settlement system (the CDS) before going in for automated trading. The CDS has also been revamped twice so far.
"If you think carefully this was the most sensible thing to have done," Mr. Moldrich pointed out.
The system being open and distributed makes it easier to add on new modules even from other vendors, not only to keep pace with technological change but also to undertake new tasks, such as trading in futures or T-Bills.
Even now the system can accommodate short selling but the market is yet unprepared to go for short selling.
Orders could be placed by investors with limits on price or time.
The system will give priority to price first. As new market orders could be given to be executed at whatever price.
Others could be kept open for several days till concelled.
Orders would be set with specific prices and time limits, which unless matched quickly will be cancelled altogether.
Buyers could also specify the quality to be bought.
The system's greatest advantage perhaps is the vast amount of up-to-date market information it provides.
The key to the process is the Teknekron Information Bus, a piece of software that handles information dissemination.
"TIB broadcasts information throughout the network," says Lalin Paranawithana who heads the information technology department of CSE.
"This eliminates traffic, enabling vast amounts of information to be accessed without causing congestion.
Brokers or market monitors could custom design information requirement be it about a particular stock or a sector.
"There is greater visibility," says Mr. Tillekewardena.
Brokers could know instantly the order book for a particular stock, how much is demanded or available and at what price.
"You can access the market with greater certainty," he says. "Earlier it was a hide and seek game".
By placing orders in small quantities to be released over time it was still possible to disguise large orders if necessary.
Executed orders will be instantaneously exported to the originating work stations and a confirmation ticket printed.
With she new system the job of floor trader will also disappear forever from the annals of stock trading in Sri Lanka.
But Mr. Moldrich is confident that there will not be real job losses, even though a designation will disappear.
These people will find new jobs as investment advisors," he says.
Floor traders are also mostly young, making them adaptable to change.
Though the CSE does not intend to have a direct connection to the internet, a home page has been created and all the broker home pager will be made accessible through this page. The Exchange will also be working towards providing a suitable order form in the internet so that clients will be able to send their orders directly to the broker.
At the moment investors and brokers will have their hands full trying out the systems existing capabilities.
"These are a lot of new features," says Mr. Moldrich. "We have to learn to make the best use of them."
The Central Bank deserves congratu lations on its Annual Report for 1996. The Bank has improved on the format it introduced last year to produce quite an attractive and reader-friendly document. The report now complements the abundance of statistics with some useful analyses of important issues that influence economic growth. A well-researched and forward-looking section that has been added to this year's report is the one on environment.
A phrase in the opening sentence of the report " considerable resilience under difficult circumstances" captures the performance and character of Sri Lanka's economy effectively. Despite a terrible drought, crippling power shortages, a raging war against terrorism, and the occurrence of what the U.S.State Department called the worst act of terrorism worldwide in 1996, the economy managed to record a growth rate of 3.8 percent and contain its overall budget deficit to 7.8 percent.
No doubt, many of the major indicators look good. However, it is too early to proclaim that the economy is booming or to take credit for the smallest movements toward the positive. The government's stated policy is to promote "private sector led non-inflationary growth" but the impediments to this are evident. The two major indicators of inflation show disturbingly high figures for 1996. The Colombo Consumers' Price Index (CCPI) is recorded at 15,9 percent and the GNP deflator is recorded at 12.3 percent. The cost of capital remained a constraint to private sector investment. The Prime Lending Rate was recorded at 18.4 percent.
Apart from statistical indicators, there are many other signs that tell an equally compelling story about the health of an economy. One of the most important of these is business confidence. This has been visibly low in the past couple of years for several reasons. First, business people have not seen consistency in government policies and pronouncements. Second, problems with trade unions have continued or worsened even for privatized enterprises. Shell Gas Lanka Ltd is currently faced with another trade union strike that will have negative repercussions in many other industries as well. Third, business people see funds that could be spent on infrastructure development and other vital investments being spent on defence. The private sector has always been supportive of national security but many are getting weary as fighter planes drop out of the sky with alarming regularity and dubious procurement of ridiculous amounts of ammunition is reported.
Against this " same old " backdrop, it is good to see some positive new movements. The Colombo Stock Exchange (CSE) has recently shown signs of revitalization. The CSE recorded the heaviest trading in nearly three years last Monday and both the All Share Price Index and the Sensitive Price Index have been on the rise for the past few weeks. The Board of Investment (BOI) announced last week that the chairman of Daewoo has expressed serious interest is setting up a plant in Sri Lanka. The proposal for a plant that will produce 80,000 -100,000 automobiles will be submitted to the BOI annually. If this project does materialise, it will be a strategic industry capable of catalysing growth in many other industrial sectors.
It is important that the Central Bank report is taken not as a nod of approval for the government's present polices but rather as a body of information that can help identify, in a very objective manner, areas that need serious attention in the near future. The agriculture sector is hard hit and consequently rural people, the majority of Sri Lanka's population, are suffering. The country's infrastructure is insufficient to cope with rapid urbanisation and service a growing manufacturing sector. The unemployment rate is high ( 11.6 percent), inflation is a major problem, and labour productivity is declining. All these factors combined suggest that there is no time to waste and no shortage of problems to resolve.
Yet another international agreement is expected to be forged in the World Trade Organisation (WTO) by the end of this year. Negotiations are currently underway in Geneva. The agreement would give a boost to international competition in financial services dismantling the protective barriers with which many countries have long ringed their banking, insurance and capital markets. This is stated in an article in the London Financial Times by Guy de Jonquieres.
Such an agreement, if concluded, says the writer, would commit WTO members to accelerate the liberalisation of the financial sector and permit foreign institutions to compete more freely for business within their borders, and would also bring financial services within the WTO's "binding rules and disciplines". Andrew Buxton, Chairman of Britain's Barclays Bank is quoted as saying "What is at stake in these talks is our ability to get into fast growing markets and provide services there".
De Jonquieres says that the Western industry's focus is on gaining better access to high-flying economies in Asia and Latin America. He says that although countries have cut barriers to imports and foreign investment in manufacturing and infrastructure, most have been reluctant to liberalise financial services. Barriers include, says the writer, limits on foreign ownership, rights of establishment and the granting of operating licences as well as opaque regulatory regimes.
It is pointed out that efforts to overcome these obstacles through bilateral discussions have been time consuming and slow. "At the moment" Bruce Culp of Ford Financial Services is quoted as saying "we progress from foxhole to foxhole, negotiating with one country after another. Having a WTO agreement which opened financial services markets would be enormously more efficient". De Jonquieres recalls that an earlier attempt to reach a financial services agreement less than two years ago nearly collapsed when the United States withdrew at the last minute. The talks were resumed only when the European Union persuaded other WTO members to back a stop gap accord which expires at the end of this year.
As regards the current negotiations, many trade diplomats are reported as saying that the US needs to table a good negotiating offer early to show that it is serious about an agreement because otherwise other countries will be unwilling to move. At present the US only guarantees access to its markets for foreign institutions' existing operations; the EU wants that commitment extended to cover all foreign competitors. It also wants the US to commit itself to the reform of the Glass-Steagall Act which separates commercial and investment banking. The report says that the mood in the US has changed and the US says it wants a deal and is prepared to work for it. But the US is signalling that it still intends to drive a hard bargain. Yet it seems readier to woo other countries, particularly developing countries by arguing that open and efficient financial services markets will enhance their economic growth and attract inward investment says the report.
There are two other factors, according to the report, which are inspiring cautious optimism in Geneva. One is the psychological boost from the WTO's agreements this year to free trade in telecommunication services and information technology products, both of which attracted participation by an unexpectedly large number of developing countries. The other is the continuing worldwide trend towards financial market liberalisation. Countries such as India, Brazil, Thailand and the Philippines have been relaxing restrictions on competition from abroad.
But the question arises, says the writer, whether enough countries are willing to accelerate such moves and turn them into formal WTO commitments. Mr. Buxton points out, says the report, that modernising backward and overstaffed banking systems involves painful upheavals and heavy short term social costs. It is suggested that 'to soften the blow staged, time tables could be built into a WTO agreement which would allow developing countries several years to carry out commitments to open their financial services markets.
The US and EU are willing to consider that option. But, the writer says, it is uncertain how many developing countries would be ready to accept the proposal. Although some developing countries accept the economic case for liberalisation they are unwilling to be seen to yield to international pressure. Also some developing countries ask why they should go along with a deal that offers them with no advantages of interest to their exporters, says the writer who points out that similar objections were raised during WTO negotiations on telecommunications and information technology.
The article concludes that if the talks succeed, it will be because governments have been as skilled at reconciling the conflicting pressures each faces at home, as at bridging their differences at the Geneva bargaining table.
The Hingurana Sugar Company which was taken over by the government in January this year under the Public Enterprise Rehabilitation Act, began its seasonal grinding operations last week.
Competent Authority N. V. T. A. Weragoda said, the machinery under the previous owners had been badly neglected as the annual servicing at the end of every grinding season had not been done during the past 18 months. This matter paved a grave problem as the machinery was not in an operational condition, told the media last week. However, we managed to get it on to running condition in time for the harvesting, he said.
The company which had been valued at Rs. 100 million was sold for a mere Rs. 2.5 million by the last regime. Most of this money was obtained as loans from the two state banks.
It is reported that the former operators of the company still due large amounts to the state banks and the president in January vowed to take action against these defaulters.
At the time of taking over in January, the company's bank account had a balance of Rs. 150,000/- while the company owes over Rs 600 millions as unpaid taxes, unpaid salaries, overdues on sugar cane purchases and on fuel purchases.
Hingurana Sugar has, amongst its assets, a grinding and sugar manufacturing plant, a distillery in Hingurana in addition to its administrative and bottling complex in Colombo.
At the time of government acquisition the bottling plant had been shut down as a result of non-payment of taxes, while the employees were up in arms due to non-payment of salaries and the farmers for non-payment for the sugar cane bought from them.
According to Mr. Weragoda the PERC will shortly be calling for offers from interested parties for the reprivatisation of Hingurana Sugar after the current crisis has been settled. It has also been revealed that certain parties have unofficially approached PERC expecting once again to acquire Hingurana Sugar without adhering to proper procedures.
The 5078 hectares of sugar cane plantations that existed a few years ago, have drastically come down to around 1870 hectares, Mr. Weragoda who is also the President of the Sugar Cane Research Institute said.
More than 10,000 acres of sugar cane plantations were destroyed by fire recently as they had not been harvested as a result of the factory employees being on strike, he added. Sri Lanka only produces 18% of its sugar demand.
Responding to the questions on when he hoped the company to become profitable, he said the company had to first sort out its problems. The company which employs 1,300 workers is heavily overstaffed. Around 600-700 employees are enough to run the company.
The treasury has thus far granted Rs. 27 million to finance the allowances being paid to the employees as the company is not able to pay the employees their full monthly salaries.
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