Buying and selling shares on the CSE

Only a licensed stockbroker can execute purchase and sale transactions on behalf of investors in return for a service fee (brokerage). Other services provided by stock broker firms may include conducting research on the market or individual companies to provide investors with information needed to make informed investment decisions.

Shares become available for purchase by investors as detailed below:

Trading in the primary market from a new issue of shares - Initial Public Offering (IPO)

You can buy new shares that are issued by companies which are raising equity capital through a new issue of shares (an Initial Public Offering, commonly referred to simply as an IPO). In an IPO, the company first submits details of its business and the proposed share issue or what is called an initial listing application to the CSE.

Subsequently a prospectus which has been approved by the CSE is lodged with the Registrar of Companies in Sri Lanka by the issuing company. When the prospectus is lodged and registered it can then be provided to potential investors for their consideration.

Companies typically use a combination of brokering firms, licensed commercial banks and investment banks which advise the company on the IPO, to promote the sale of new shares and distribute the prospectus to potential investors. The CSE website also makes available details on upcoming IPOs and provides links to respective prospectus and application forms.

To buy shares: If you wish to buy shares in an IPO, you should first review the prospectus carefully. It gives you many details on the company and its operations, the industry trends, the manner in which the IPO is structured and salient details of the shares, risks attached, financial statements of the company and other disclosures which are required by law.

You will need to open a CDS account through a stockbroker or custodian bank prior to applying for the IPO. A CDS account is required because the CSE's trading system is fully automated and the paper securities (Share Certificates and Debenture Certificates) should be lodged in the CDS account and translated into an electronic form to be traded at the CSE. When investors buy securities, the account is automatically credited with the securities purchased and the corresponding seller's account is automatically debited with the same amount.

After you are comfortable about investing, fill out the application form specifying all requisite details including the number of shares you wish to buy and send it to the collection points specified in the Prospectus (usually stockbrokers, the company's main office or branches and or branches of specified banks), before the application deadline.

To sell shares: When new shares are issued and listed on the CSE, they may trade at a market price substantially different from the issue price (either higher or lower). This is due to supply and demand for the shares of the company. You will need to instruct your Stockbroker to sell your shares in the secondary market.

Trading in the secondary market through a stockbroker

Shares can be bought on the secondary market on any trading day by placing a purchase order with a Stockbroker. A secondary market is one in which an investor could either buy or sell shares or other securities from or to another investor, subsequent to the original issuance in the primary market.

As we discussed before, an advantage of investing in existing shares are their liquidity. On any trading day, prices at which investors are willing to buy and sell shares (bids and offers) are available for the majority of listed companies.

Shares have different liquidity levels. Some companies may have very few buyers and/or sellers on any given trading day. Liquidity is an important consideration as it affects the price you might have to pay and the ease in which you can sell your investment.

To trade on the secondary market you must first contact a stockbroker/custodian bank and open a CDS account through them. After a CDS account number has been obtained, to buy or sell shares traded on the CSE, your order must be placed with a Stockbroker, typically over the telephone, fax, by visiting or online.

Internet trading

Internet trading facilities are available through select Stockbrokers. Online trading provides individual investors with around-the-clock access to the trading system along with market data, company information and educational material. It simplifies the trading process by empowering investors to secure the decision-making power and trade independently.