Upbeat CSE prepares for potential SOE listings, to offer new products

• Says CSE ready to provide platform for SOEs if govt. decides to do so
• To introduce regulated short selling stock borrowing and lending
• Revamps all rules and regulations in conformity with new SEC Act
• New standardised template to be introduced for reporting financial results
• Plans afoot to further reduce post trade settlement and clearing risks
• New investor grievance handing procedure will also be introduced

Banking on renewed foreign investor sentiment and expected recovery in the economy in the second half of the year, the Colombo Stock Exchange (CSE) is set to introduce a suite of new products to the market this year, while making its platform available for potential sale of shares of selected state-owned enterprises (SOEs) if the government decided to do so.

Though gains the CSE made in 2021 were somewhat reversed in 2022, in terms of performance of the indices, trading volumes, market capitalisation and average daily turnover, the year 2022 saw an all-time high net foreign inflow to the market worth Rs.51 billion.

CSE had net foreign outflows over the last four years.
The CSE expects the foreign investor interest to continue this year too, particularly with the expected recovery of the economy in the second half of the year and the attractive valuation offered by the market. 

Also, CSE Chairman Dilshan Wirasekara believes that a possible restructuring of Sri Lanka’s local debt could have a positive impact on the CSE with some investors shifting to equities as opposed to an asset class that undergoes a haircut.

Meanwhile, CSE CEO Rajiva Bandaranaike said a suite of new products will be introduced by CSE this year. For a long period of time, the CSE has offered just two products—equity and debt.

“We have launched a process to introduce regulated short selling and stock borrowing and lending. We feel that this will be a new equity product that will see a lot of traction in the market.
Already as we speak, the technologies are being developed. The regulated framework relating these new products have already been approved by the regulator. We should be going live within the first half of this year,” Bandaranaike said.

He also said during 2022, the CSE revamped all rules and regulations, including listing rules, broker rules, CDS rules and automated trading rules, in conformity with the new SEC Act that came into being in 2021. All those rules have now been forwarded to the SEC.

When asked whether the five-day window rule to disclose director dealings, which is being largely abused, would be rectified by the revamped rules, Bandaranaike said the new rules would make such dealings to be disclosed “immediately”—the very next market day.

He also said a new standardised template will be introduced for all listed corporates when releasing their interim or year-end financial accounts to the CSE, which will be particularly useful to analysts and foreign and institutional investors.

Meanwhile, the CSE expects to further reduce the post trade settlement and clearing risks this year while going live with the Central Counterparty (CCP) system, through the subsidiary ‘CSE Clear,’ which has already been incorporated and has regulatory received regulatory approvals.

“We are hoping to go live with it this year and it will be very significant as far as market risk management is concerned,” Bandaranaike stressed.
Under the revamped rules, a new investor grievance handing procedure will also be introduced.

“Unlike now, going forward we will have an independent panel of the CSE to hear these complaints and investor grievances. We feel that this will strengthen the confidence investors will have in the market,” he said.

Meanwhile, CSE Chairman Wirasekara said the CSE is readying itself to facilitate the anticipated SOE restructuring. 

“CSE is a platform to list companies and raise capital. We are ready to do that for SOEs as well. We are looking at the broader listing framework that can enable the SOEs to list, because listing rules are fairly strict on governance and compliance factors, that may not ideally suit the SOE structure that exists today. So, we are now with the regulator drawing up the framework that would allow SOE listings to happen. Whether the government uses that platform to ultimately list these SOEs is a decision for them to make. But, we would lobby for them to use the CSE as in the past in the case of SLT or DCSL etc. We think this is the best platform currently available for that reform process,” Wirasekara said.