SEC to introduce derivatives:
Boosting Lanka’s capital market
The Securities and Exchange Commission (SEC) will be introducing
derivatives to the capital market next year.
Derivative is a popular instrument used in the Indian capital market
enabling investors to make huge returns.
“The delay for the launch of derivatives into the Sri Lankan capital
market was the absence of an independent Clearing House which is a
prerequisite for the market”, SEC sources said.
Director General, SEC, Channa de Silva said derivative is a viable
market tool for hedging risks. Derivatives will replace the current use
of portfolios and will benefit all investors.
The Indian derivative market developed within a short time breaking
ground into vast investments. Returns on derivatives are high.
A derivative is a financial instrument derived from another asset,
index, event value or condition known as the underlying asset.
Derivative traders enter into an agreement to exchange cash or assets
over time based on the underlying asset.
Derivatives are often highly leveraged. A small movement in the
underlying value could cause a major difference in the value of the
derivative. Derivatives are used as mortgages, stocks, bonds and foreign
currencies or market indices.
Director-Financial Services Academy, SEC, Dr. Dissa Bandara said the
introduction of derivatives will be a boost to Sri Lanka’s capital
“Many countries have made great progress in their capital markets
with the use of derivatives which are forward contracts”, he said.
The SEC has now been empowered to issue directives to listed
companies following the amendment made to the SEC Act this year.
Earlier, SEC powers regarding listed companies were limited. Meanwhile,
the Colombo Stock Exchange (CSE) performance has been spectacular
following the war victory mid this year.
The CSE surpassed highest turn over recorded for a given year last
week by reaching Rs. 115.2 billion.
The previous record was Rs. 114.6 billion in 2005. The average daily
turn over is Rs. 538.5 million exceeding the previous high of Rs. 481.5
million in 2005.
CSE sources said that all branches have shown marked progress this
year. The CSE set up branches in Kandy, Negombo, Galle and Matale.