Final draft version of demutualisation of CSE to be submitted to Cabinet shortly

• Consensus has been arrived with stockbrokers about ownership of demutualised CSE
• A demutualised CSE will facilitate setting up of a central counterparty clearing house
• Involvement of a strategic investor expected to bring about greater efficiency through its technical know-how and infrastructure

The final draft bill for the demutualisation of the Colombo Stock Exchange (CSE) is expected to be submitted to the Cabinet of Ministers for approval shortly, the Securities Exchange Commission (SEC) announced in its 2020 annual report, which was released last week. 

“The SEC participated in a series of meetings with the CSE and stockbroker firms to discuss the apportionment of shares of the proposed demutualised CSE and consensus with the stockbrokers was arrived at to distribute the apportionment of shares with the Capital Market Development Fund, at a ratio of 70:30. The proposed changes are due to be placed before the Cabinet of Ministers,” it stated. 

SEC Chairman Viraj Dayaratne in his address to market stakeholders highlighted that the proposed bill, which enables the demutualisation of the CSE, would allow the CSE and SEC to achieve their ultimate target of setting up a central counterparty clearing house.

Meanwhile, SEC Director General Chinthaka Mendis expects the anticipated demutualised stock exchange to bring in more fairness and efficiency to the market, in particular with the 
involvement of a strategic investor.

“Another milestone that is on the verge of realisation is the establishment of a demutualised stock exchange in keeping with the global trends. The demutualisation of the CSE envisages fairness in the market, while the involvement of a strategic investor is expected to bring about greater efficiency through its technical know-how and infrastructure,” he elaborated. 

As the CSE is shortly expected to roll out the implementation of the delivery vs payment (DvP) system, he noted that it would lay the foundation for the market to have a full-blown central counter party system in the future, once the legislation process is completed. 

The DvP system, which aims to reduce the risks and to facilitate new products/platforms to the market, is expected to reduce post-trade risks that are inherent in the market while allowing the CSE to introduce a range of new products to the investors.

In addition, Mendis noted that the switch to the DvP system would also act as a partial fulfilment of the requirements needed to elevate itself to the status of an 
emerging market.

Meanwhile, the Cabinet of Ministers recently approved the new SEC law, which is expected to empower the SEC to regulate a demutualised stock exchange.

“Owing to the new law, the setting up of a Central Counterparty is expected to enhance the services of clearing and settlement with prudent risk management,” Mendis stated.

Further, he announced that the SEC plans to introduce a series of new/amended rules and regulations, once the new SEC law is approved by Parliament.

Among these proposed rules and regulations, a new and timelier Takeovers and Mergers Code is also on the cards.