The Central Bank has agreed to let the Colombo Stock Exchange link up with its depository system to allow gilt-edge securities to be settled realtime.
The historic move comes following a Monetary Board meeting late Friday to allow two additional members endash the Employees Provident Fund and the CSE endash to be given a special access to the Central Banks depository system.rn
rnUnder the current status, all 12 primary dealers automatically get access to open accounts with the Central Banks central depository system (CDS) and its scripless securities settlement system (SSSS).rn
rnBut to improve bond market infrastructure and broaden government security ownership, the bank has allowed EPF and CSE special access to the gilt-edge market.rn
rnThe state pension giant EPF, with over Rs. 300 bn in its kitty, will only be allowed to buy securities in the primary market, explains Dr. Ranee Jayamaha, Assistant to the Governor, Central Bank.rn
rnThe CSE too has been given a similar approval, but subject to the Colombo bourse meeting certain criteria.rn
rnThe CSE is keen to get a slice of the government securities market to ensure there is a supply to its debt trading system, the DEX.rn
rnThe DEX will never replace the primary dealer system, but provide another avenue for retail players to access the debt market.rn
rnldblquote The CSEs clearing and settlement system will be directly linked with the Central Banks RTGS and SSSS, later this year, dblquote she says in a recent interview with Lanka Business Online.rn
rnBut CSEs entry comes with a few strings attached.rn
rnFor starters, the CSE has to raise its issued share capital of its central depository system to Rs. 100 mn.rn
rnldblquote When they [CSE] has an account, they can buy government securities from primary dealers. The DEX will then trade those securities as beneficial interest. The securities will be retained with the Central Banks CDS and the amount can be traded on DEX as beneficial interest, dblquote she explained.rn
rnThe stock exchange has to also inform the public that they dont trade instruments, but simply act as a facilitator. For this, the necessary rules have to be drafted by the Securities & Exchange Commission.rn
rnTo be operative, the CSE also needs a SWIFT connection and all transactions have to be settled on delivery or DVP. rn
rnBut the issue of a settlement bank for the CSE is still being discussed. rn
rnEither the Central Bank has to be appointed as the settlement bank or Sampath Bank needs to have a dedicated settlement account with Central Bank, on behalf of the stock exchange CDS, explains Dr. Jayamaha.rn
rnAs the next step, the CSE has also asked lquote non-dealer bidder status, which gives them direct access to the primary government securities market. rn
rnSri Lankas corporate bond market is still in an embryonic stage, with just over Rs. 25 bn worth of paper issued last year. However, there are hardly any secondary market trades. rn
rnThe government bond market, though is rather active with over Rs. 650 bn worth of paper in circulation. Trading is slightly volatile ranging from Rs. 10 bn to Rs. 25 bn on a weekly basis.rn
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-Mel Gunasekera: melg@vanguardlanka.comrn
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