While statistics show that the Colombo Stock Exchange (CSE) in some ways performed better than some of the other markets, the fact remains that the CSE continues to be dogged by structural and macro issues that inhibit its development, its chairman said.
“Chief among them is the high level of broker risk, the lack of traded products, high transaction cost and poor liquidity. With regard to eliminating broker risk, a decision has been made to introduce a central counter party for settlements and the CSE is working on this,” said Nihal Fonseka, Chairman CSE in his latest annual statement. He noted that CSE is undoubtedly one of, if not, the most expensive exchange in the world to trade on and that a proposal to reduce the threshold for negotiated brokerage from the current high level of Rs 100 million per transaction did not find favour with the member brokers.
“There is a move to reintroduce a minimum brokerage for even high value transactions which is a retrograde step. (But) the reluctance to try some new initiatives that would also force the brokers to improve their own productivity was somewhat disappointing. I believe that these constraints will continue until such time as the ownership of the exchange is divorced from those who use its platform for trading.” He further said, “It is also to the credit of our broker members that there have been no settlement failures but the current infrastructure for risk management is woefully inadequate to move to a higher level of activity.”
He said that with regard to investor protection, the CSE also commissioned a new automated surveillance system aimed at identifying irregular transactions and that the draft rules were published for public comment and some changes were introduced taking into account the responses.
“As usual those who remained silent during the consultative phase have taken exception to some of the provisions relating to changes to disclosure requirements; specifically the removal of the requirement to send quarterly accounts to every shareholder or publish these in the newspaper and the ability, if they so wish, for companies to send their annual reports on magnetic medium instead of printed form with an option available for shareholders to obtain a full annual report upon request.
The significant cost saving to companies brought about by these changes will eventually accrue to the benefit of shareholders.”
He also noted that while there are some negative factors still to be dealt with in the short term, the opening up of the East and the North and resumption of economic activity connected with reconstruction and resettlement and the international support that these activities are likely to attract should help Sri Lanka to recover ahead of the curve.
“The sharp decline in policy interest rates will no doubt feed into the banking system in the months to come and all of these factors should help to improve corporate profitability and investor sentiment,” he said in the report. |
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