Business Times

Time for derivatives in the Colombo bourse

The biggest handicap in the Sri Lankan financial market is the absence of a dedicated derivatives market, which helps investors leverage their financial portfolio risk and the market is now ripe for such products, analysts say.

Derivatives get their name from the fact that they derive their value from the value/price of an underlying financial asset or parameter such as a stock, currency, commodity, index or an interest rate. Among the most common derivatives are options, futures and swaps.

“People who love derivative markets are those who love financial leverage. They also by necessity are risk seekers since high leverage is always associated with high risks and of course high expected returns,” Sarath Rajapakse, Director Capitals Trust said, explaining that in every population there is a certain proportion of risk seeking individuals just as there are groups risk averse and risk neutral people.

Malik Cader, Deputy Director General, Securities and Exchange Commission (SEC) said the SEC Act has to undergo some changes in order to make it possible for firms to introduce such products. “This is a process and we’re on it. There will be some changes to the SEC Act and by next year we will see the introduction of derivatives,” he added.

But capital market experts note that Sri Lanka has low literacy levels in terms of capital markets and many investors cannot comprehend between basic equity and debt instruments, which are a deterrent to having creative and advanced products such as derivatives. According to Hareendra Dissa Bandara, Director Financial Services Academy (FSA), there’re only about 200,000 share market investors which correspond to about 1% of the total population.

“It’s difficult to raise this number up as there’s little awareness,” he noted, adding that before one passes risk, the first step is to take it. He said that FSA is striving to do this to some extent. “Without some understanding on these products, it will be difficult to popularize them,” he added.

Top to the page  |  E-mail  |  views[1]
SocialTwist Tell-a-Friend
Other Business Times Articles
Singapore firms to invest in SriLankan Airlines units
Government to tighten belt to pay public sector salary hike
Rules easing for foreigners to invest in Sri Lanka
Host of state entities to take IPO leap
Linde Group acquires 95% stake in Ceylon Oxygen
CPC’s controversial gas oil deal with UAE firm cancelled
Leisure industry opposes removal of visa-on-arrival
Microfinance experts meet in Colombo
Concerns over target of 2.5 million tourists
Five-lane highways, congested roads
Protecting directors from personal legal liability
Investing your EPF contributions in the Colombo stockmarket
EPF amendments without proper consultations with stakeholders : Union
Simplify land acquisition for pvt sector in 2011 budget : CCC
Waking up to wedding dreams
India’s low-fare carrier enters Sri Lankan airspace
SriLankan Catering to list 20%
Largest gap between sexes in Lankan labour force participation
Call to standardize pertinent company info in annual reports
Time for derivatives in the Colombo bourse
Continuing saga of oil exploration in the Mannar basin
Overseas Realty to moot tax drop
Dialog’s Reality show for armed forces personnel
Govt. intervention in economic renaissance highlighted at the CPM conference
Seminar to mark 'World Day for Decent Work'
FCCISL gears up for 2010 Sri Lankan Entrepreneur of the year
Tata in housing sector in Sri Lanka
EU focuses assistance on displaced in North and East
Most Sri Lankan families can’t buy even a basic house : WB
Sleep-in-comfort soon on SriLankan Airlines
Employee surveys not conducted due to time, cost restraints
Dankotuwa organizes quality week focusing on employee participation
IMF says Sri Lankan economy shows improvement
Economy to be highlighted at Oct. 28 ICASL conference
FCCISL welcomes decision to ban metal scrap exports
BOC rating up on potential government profile
CBL commemorates National Quality Week
Neither Govt. nor private sector sought EU help to reverse GSP: Savage
Way forward towards improving agriculture
Proposed CEPA to be widely discussed by all stakeholders: Indian High Commissioner
Stop use of post-dated cheques in Sri Lanka
15 trade unions in historic move to unite Lankan workforce
Regulatory framework to standardise Sri Lanka’s higher education institutions
Trade union leader defends US GSP for Sri Lanka
Gulf Air resumes flights to Colombo
Canada keen to pursue business interests with Sri Lanka
Free Lanka plans to follow subsidiary Hydro Power Ltd’s IPO in 2011
‘Adrenalin’ Human Capital Alignment software now in Sri Lanka


Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 2010 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved.| Site best viewed in IE ver 6.0 @ 1024 x 768 resolution