Trading in the CSE - What is the Central Depository System (CDS)?

The Central Depository System (CDS) acts as a safekeeper for all securities traded on the Colombo Stock Exchange (CSE).

The CDS holds securities in trust on behalf of shareholders of securities of listed companies. The CDS is a fully owned subsidiary of the CSE.

When you buy shares or any other listed security such as debt securities, the securities purchased will be transferred into your CDS account.

Similarly before you sell shares, those shares must be deposited in your CDS account. When you sell these shares it will be taken out of your account and transferred into the buyers’ account instantly.

Listed securities could be either held in paper format (as share certificates) or in electronic form in your CDS account. However, to buy or sell listed securities it is mandated by the CSE rules to use the CDS account.

The CDS provides your details to the company that you are the shareholder or debenture holder and such companies would be able to despatch corporate action such as dividends etc and also send you notices and annual reports etc.

How do I open a CDS Account?

It is mandatory that you open an account through a stockbroker. All instructions to the CDS have to be given through the stockbroker you are registered with.

To open a CDS account, you must first complete an account opening form. All stock brokers have this form readily available.

The completed form will be forwarded to the CDS by the stock broker and an account will be opened in your name. Joint accounts can also be operated.

There is no payment involved to open a CDS account.

To open the account you will have to give the broker a photocopy of your - National Identity Card (NIC) - A bill to prove your billing address - Make available your NIC and original bill for inspection.

In the absence of an NIC, a valid passport is also an acceptable identification document. When buying shares in the Primary Market the investor has the option of asking for the shares in paper format (Share Certificates) or requesting the shares to be directly deposited in the CDS account (in electronic form).

If an individual wants to withdraw his/her shares from the CDS account and keep them in paper format, the CDS will provide this service, free.

It is always advisable to deposit your securities in the CDS as it will be easy to sell the securities at a later date instead of attending to share certificate deposit formalities. Apart from that, when shares are registered in a CDS account, it is safe and secure, while share certificates could get lost.

CDS Services: The CDS offers the following services:

1. Opening of Client Accounts: If you wish to buy or sell securities at the CSE you must open an account in the CDS. The following categories of accounts can be opened: Local Individuals, Local Institutions, Foreign Individuals and Foreign Institutions.

Moreover, you can open an account through any Stockbroker. You can also maintain CDS accounts with more than one broker. The CDS will open an account the same day the forms are submitted.

The CDS offers the facility of changing client account information. All such requests have to be submitted to the CDS through the relevant stock broker.

The CDS also provides regular account statements to active account holders which are sent directly from the CDS to account holders. If you are an inactive investor, (with no trades during a calendar year) CDS will send you your CDS statements annually.

2. De-materialisation of securities (Deposit): De-materialisation is the process by which a shareholder of a listed company can get physical certificates converted to electronic balances.

That is, if you have Share certificates at home, and you would like to put them in your CDS account, you can give the Share Certificates to your stock broker to deposit the shares in the CDS. This may take up to three market days and it is advisable to deposit your physical certificates in the CDS early. Then the shares will be ready for trading in the Secondary market.

3. Re-materialisation of securities (withdrawal): Re-materialisation of securities is the process by which an account holder can get his electronic holding converted into physical certificates. Here, the CDS will obtain a share certificate from the company and give it to you.

4. Transfer of shares: A CDS account holder is provided the option of transferring securities between CDS accounts opened through different Stock Broker Firms.

5. Settlement: The settlement for equity transactions is on the third day after the day of the transaction (T + 3). That is, if you sell shares through the secondary market, the seller should receive his/her settlement three days after the day that transaction was executed.

5. 1 Intra day Trading: Intra day trading is where an investor buys and sells or sells and buys the same security on the same day through the same broker.

In such transactions, the transaction fee due to the broker, CSE, CDS and SEC will not be charged on one side of the transaction.

a. In the event the total number of shares purchased does not equal the total number of shares sold, the transaction fees as detailed above will not be levied on the lower quantity of shares either purchased or sold. b. In the event the total quantity purchased is equal to the total quantity sold the transaction fees will not be levied from the sales transaction. Please note that the total purchases and sales of a client in the same security will be considered for purpose of determining the exemption of the Brokerage, CSE, CDS and SEC fees (transaction fee).

6. Handling of Corporate Actions - (Dividends, Share Splits, Right Issues): “Corporate actions” are benefits given to shareholders of listed companies either in the form of a monetary benefit such as dividends or a non monetary benefit like rights, stock splits.

The CDS facilitates the distribution of corporate actions by providing entitlement schedules of shareholders who are entitled to the corporate action as at a particular pre announced date to the relevant Company Secretary or Registrar.

Distribution of dividends will be done by the Company Secretary or Registrar.

In the case of Stock Splits or Rights issues, the new shares will be directly uploaded to the shareholders securities accounts in the CDS unless the account holder has requested for a share certificate.

7. Transmission of Shares: In the event of a death of a CDS account holder, the CDS has a procedure in place to transfer the shares to the heirs of the deceased shareholder.

A Stamp Duty of 0.5 per cent is payable to the Department of Inland Revenue for such transmission of shares.

The administrator of the estate/heirs have to submit the required documents such as the probate/letter of administration to the CDS with the CDS 19 Form after registering the documents with the relevant Company Secretary.

On receipt of these documents, the CDS will transfer the shares to the named heirs.

8. Nomination of Shares: The facility for a shareholder to nominate a nominee to receive the shares on the death of the shareholder without going through testamentary proceedings (court proceedings) is available.

Courtesy CSE