The Colombo Stock Exchange is talking to Central Bank to get access to 5 percent of the primary government securities market.
If approved, the move would amount to CSE accessing the primary government securities market without being appointed a primary dealer.rn
rnldblquote Its a model similar to what is happening in India, dblquote explains Hiran Mendis, CSEs Director General.rn
rnIn India, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are allowed to bid for 5 percent of the gilt-edge market. NSE and BSEs bids are on behalf of their members.rn
rnThe CSEs route is similar to that of a service provider. Debt brokers can make their bids through the CSE, who will in turn bid at the weekly primary auctions. rn
rnUnlike primary dealers, the CSE will not be required to buy and hold treasury bills and bonds. But if the CSE does get a primary dealer licence, the exchange will have to carry its own inventory of government securities.rn
rnThe CSE earlier sent in its application to the Central Bank for a primary dealer license, which will allow the exchange to deal in government securities. rn
rnBut the process has got bogged down in bureaucracy, and the Central Bank has not given a timeframe to approve the licence. rn
rnThe bone of contention lies in CSEs ownership. The Central Bank says CSE should not fully own the primary dealer subsidiary, but get stockbrokers to contribute to its capital. rn
rnHowever, monetary authorities have approved 100 percent owned subsidiaries of other companies and banks to operate as primary dealers. rn
rnThe CSE needs a primary dealer licence to ease the supply of government securities to its impending debt trading system from the primary market. rn
rnHowever, the CSEs debt trading system (DEX) to transact both corporate and government debt will start off mid-next month, says Chairman Eraj Wijesinghe. rn
rnldblquote We are still hopeful we can work things out with the Central Bank, but our DEX system will start because we want to encourage secondary market trading of government debt, dblquote Wijesinghe said.rn
rnSo far three parties, have sought entry as trading members to the DEX. The three prospective members will join the 15 stockbrokers who automatically have access to the DEX.rn
rnMendis declined to name the three, instead said the announcement will be made after the CSEs board meets at the end of next month.rn
rnldblquote But the launch of DEX will go through, with our existing 15 members, dblquote he said.rn
rnTrading members are second tier brokers, with access limited to dealing in corporate debt and government securities. They have to pay up a Rs. 1 mn-joining fee, within six months of their application being accepted. rn
rnTrading members also have to put up the necessary hardware, which costs around Rs. 1 mn, at their own expense. rn
rnProspective members need a minimum Rs. 25 mn capital and the capacity to develop clientele for debt securities. rn
rnFor a Rs. 1 mn licence fee, the DEX offers scripless trading, Delivery versus Payment (DVP) settlement, exposure based risk management, multiple settlement cycles, facilities for REPO & Reverse REPO transactions, online market information and post trade transaction information. rn
rnThe Rs. 50 mn system also supports the use of Internet based trading technology. rn
rnMarket players have the option of participating as a debt dealer or a debt broker to service both retail and institutional investors. rn
rnMeanwhile, the CSEs Kandy branch will open next week. The fully-fledged branch will be similar to the CSEs Matara operation, and will be serviced by six stockbrokers.rn
rnInitial studies show that Kandy is capable of generating over Rs. 3 mn to Rs. 4 mn worth of turnover each day. The Matara branch currently generates the similar figure.rn
rnldblquote Kandy is the second biggest market outside Colombo, dblquote says Deva Ellepola, Head of the Colombo Stockbrokers Association.rnrn