The Colombo Stock Exchange (CSE) will introduce a Delivery versus Payment (DVP) and a risk management system in less than two years time, once their Automated Trading System (ATS) gets a facelift, according to CSE sources.
"The ATS upgrade is to be completed by 2012. Once that is done we want to introduce these two systems which will minimise risk through ensuring both ownership transfer and payment for securities to happen at the same time," a CSE source told the BusinessTimes.
CSE said in a statement on Tuesday that has hired the National Stock Exchange of India (NSE) to act as a consultant to implement the system for the settlement of all secondary market transactions in equity securities traded on the CSE.
“By implementing DVP, both the ownership transfer and payment for securities will occur simultaneously, thus minimizing risk. The implementation of DVP and risk management practices is to be completed in mid-2012 and will be a first step towards transforming the CSE into a modern exchange on par with the most developed global exchanges,” the statement added.
It said that the strategy for implementation of risk plans at the CSE envisions an extensive consultation process with market participants, custodians, investors and regulators. For the successful completion of the process brokers and other participants would have to take steps to convert to the new settlement mechanism and risk management practices.
This would entail meeting necessary technical requirements, streamlining of back office operations, participating in related training and adopting of certain procedures in particular with respect to the maintaining of liquid assets for margining requirements.
The Business Times on September 18 reported that the CSE will bring in stringent risk management systems to the brokering houses in a bid to facilitate these systems. The CSE source added that introducing a risk management system is a precursor to bringing in demutualization and dematerialization of the CSE ck Exchange and establishing the Central Counter Party (CCP) system.
NSE is the largest exchange in India by daily turnover and number of trades, for both equities and derivative trading.
NSE was given recognition as a stock exchange in April 1993 and has since played a leading role in transforming the Indian Capital Market to its present form. NSE is also the third largest stock exchange in the world in terms of the number of trades in equities.