The Colombo Stock Exchange has made an attractive offer to primary dealers, to entice them to make use of the exchanges top of the range debt trading system.
To encourage greater participation, the stock exchange is waiving the Rs. 1 mn entry fee and also allowing the primary dealers to join in as separate members, CSE Director General, Hiran Mendis told Lanka Business Online.rn
rnThe move will create two types of membership within the exchange. The CSEs membership currently includes stockbrokers and trading members (also known as second tier debt brokers). rn
rnUnlike stockbrokers, second tier brokers have access only to trade in corporate debt and government securities.rn
rnThe 12 primary dealers, who are appointed by the Central Bank to exclusively deal in the primary market for government securities, were earlier asked to pay a joining fee to trade on the DEX.rn
rnHowever, the proposal to create a new type of membership, is subject to the Securities & Exchange Commissions approval.rn
rnBut, Mendis says, the transaction costs for second tier brokers have not been finalised yet. ldblquote We are not doing DEX to make money, but as a market making mechanism to develop the local debt market, dblquote he said.rn
rnThe CSEs Rs. 50 mn state of the art system, also known as the DEX, supports the use of Internet based trading.rn
rnIn addition to the 15 stockbrokers who would automatically gain membership on the DEX, five-new members have been appointed solely as trading members.rn
rnThe five endash Capital Alliance Holdings, Central Finance, National Wealth Corp., Sampath Bank and Seylan Merchant Bank endash are in the process of securing their SEC licence and installing the necessary hardware.rn
rnCapital Alliance Holdings and National Wealth Corp. currently have a primary dealer licence.rn
rnTo become a trading member, prospective candidates need a minimum Rs. 25 mn capital and the capacity to develop clientele for debt securities. rn
rnThe 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
rnMarket players have the option of participating as a debt dealer or a debt broker to service both retail and institutional investors rn
rnWith the Central Bank going live with their Scripless Settlement System at the end of October, the next step remains to link the banks depository with the DEX.rn
rnBut with transaction costs for the Real Time Gross Settlement System (RTGS) and SSS starting at around Rs. 300 per deal, market players say it might become unviable for retail clients to trade through primary dealers.rn
rnThis is where the DEX comes in. The DEX will never replace the primary dealer system, but provide another avenue for retail players to access the debt market.rnrn