Mission underway to alter Cabinet approved Demutualization Bill to grant brokers’ wish

An attempt is likely to be made to alter the Cabinet approved Demutualization of the Colombo Stock Exchange Bill, which is scheduled to be presented to Parliament today, Mirror Business learns. A major sour point for the bill was the value allocation—the ownership stake the broking firms will receive in the demutualized Colombo Stock Exchange.

The Securities and Exchange Commission (SEC), backed by advice from Asian Development Bank experts, wants the Capital Market Development Fund to have 40 percent stake in the demutualized bourse and 60 percent for brokers. 

However, brokers have been maintaining that they need a 70 percent stake. Negotiations in this regard ended without consensus between the SEC and the brokers in August 2017 and the final Cabinet approval was granted for the draft bill with the 40:60 value allocation clause on January 30, 2018.

However, a state minister is said to be putting in extra effort to somehow change the value allocation proposal in the cabinet approved draft bill to allow brokers get their 70 percent, Mirror Business learns.  

The Colombo Stock Exchange is now a company limited by guarantee, which is mutually owned by founder stock broking firms, but it cannot distribute profits.

The demutualization will make the CSE a limited company with the stock brokers who were licensed earlier being entitled to shares in the exchange.  The so-called trading members, who are licensed later, are not entitled to shares.

An eventual demutualised stock exchange will be listed on the Colombo bourse itself.