CSE ready to launch transformation map

During a vibrant phase of market activity in 2010, Colombo Stock Exchange (CSE) emphasised how they had gained growth momentum. CSE also addressed the need to reassess strategy in congruence with growth expectations of the Sri Lankan economy as it embraced post-war development.

As a result, the CSE entered year 2011, intent on reassessing its strategic logic and reprioritising the roadmap for transformation into an enduring and sustainable marketplace, said CSE Chairman Krishan Balendra.

The year was a turbulent one for international financial markets, that resulted in widespread volatility and lacklustre performance in cash equity markets. Reflecting this situation, only a few equity markets recorded positive gains.

In Sri Lanka, the benchmark All Share Price Index (ASPI) closed the year down 8.5 percent while the Milanka Price Index (MPI) fell 25.9 percent YoY. Market Capitalisation was preserved at just above Rs. 2.2 tn reflecting minimal change from the previous year.

Our debt platform needs pressing reform and where the engagement of the State and private sector is paramount. At Rs. 2.7 bn, the corporate debt market reported an improvement in total turnover supported by growth in corporate debt from a low base of Rs. 72.3 mn in the previous year.

The Urban Development Authority (UDA) debenture (UDA.DO148) accounted for 99 percent of corporate debt market turnover and was the only instrument available for foreign trading during 2011.

In 2011, Equity Turnover remained over the Rs. 500 bn mark first reached in 2010, sustained by domestic trading, Contribution to Turnover through domestic trading increased to 90 percent of the total from 81 percent recorded in the previous year.

We have prioritised the implementation of certain structural changes to attract portfolio investment flows as this skewed investor mix is not optimal for the long-term development of the Exchange.

In the new post-war environment of growth, the CSE is working towards improvements with a focus on a development agenda which benefits all its stakeholders.

Our priority is to sustain and improve our core business. Consequently, the CSE began the formulation of a new medium-term strategic plan in 4Q 2011, with the aim of strengthening core capabilities and infrastructure.

Laying a cohesive risk infrastructure, implementing state of the art technologies, enhancing the products, optimising attractiveness to meet domestic demand for investment and capital raising, enhancing Sri Lanka's position as an attractive destination for foreign investment, restructuring our organisation and processes and improving governance are considered in our transformational plans.

The implementation of the Risk Management System (RMS) commenced in November 2011.

Having completed system development and back-testing activities with the assistance of the National Stock Exchange of India, this margin based RMS has been deployed at the Exchange as at date for training and familiarisation by internal users prior to participant engagement.

In the backdrop of this new RMS, we will also review the manner in which the Delivery Versus Payment (DVP) mechanism can best be introduced to the market. The ultimate goal is to introduce Central Counter Party (CCP) based post trade services.

We are also enthusiastic about the negotiations initiated by the Exchange and Standard & Poor's Financial Services LLC in launching a co-branded index.

A credible and transparent index would impact the market by providing visibility and better pricing and serve well in attracting foreign investors. A credible index also forms the foundation for exploring unchartered territory of index linked products as well as cross exchange alliances.

These elements in the future would help CSE to establish revenue-raising avenues in the context of the Exchange's business model, relevant for a profit-oriented setting.

During these difficult economic and market climates worldwide, reinforcing investor confidence is of great importance. We will work closely with the Securities and Exchange Commission of Sri Lanka (SEC) to ensure that our market is fair and transparent with balanced regulation being the pragmatic standard, rather than the imposition of a regulatory burden.

We are on track to launch our transformational map in early 2012. The pursuit of these initiatives will enhance the functions of our Exchange and position the CSE as an attractive and user-oriented market.