CB to select Consultant to establish Central Counterparty by month end
The Central Bank (CB) is to select a Consultant cum Project Manager to set up a Central Counterparty (CCP) and implement a Clearing and Settlement System for facilitating the transactions in the domestic financial markets within the next few weeks, official sources said.
The CB together with the Securities and Exchange Commission (SEC), Colombo Stock Exchange (CSE) and LankaClear (Pvt) Ltd jointly invited EOIs late last year for a CCP which fits in between counterparties to financial contracts traded in one or more markets, becoming the buyer to every seller and the seller to every buyer. The CCP is essential for demutualization and dematerialization of the CSE.
Sources said that proposals from all over including India, China and the US have been received. The Consultant cum Project Manager is anticipated to design the business stipulation for the proposed CCP following an appraisal of the Sri Lankan financial markets and the expected development in the market infrastructure and risks.
“We want him (institution) to recommend a structure for the CCP taking into account the requirements of all stakeholders, i.e. ownership, financial capital structure and governance; within one month of the commencement of the assignment, submit an inception report stating the project plan and any issues anticipated. The report will be discussed at an inception meeting comprising of all stakeholder representatives; drafting of rules regulations and bylaws that are necessary for the functioning of proposed CCP,” one source said.
He also said that a CCP has the capability to lessen risks to market participants by imposing more tough risk controls on all participants and to add to the liquidity of the markets it serves, because it tends to reduce risks to participants and, in many cases, because it assists anonymous trading.
The CCP which inserts itself between counterparties to financial contracts traded in one or more markets (becoming the buyer to every seller and the seller to every buyer) is now being fast tracked in a bid to demutualise (the process through which a member-owned company becomes shareholder-owned) the CSE. “A CCP has the potential to reduce significantly risks to market participants by imposing more robust risk controls on all participants and to enhance the liquidity of the markets it serves, because it tends to reduce risks to participants and, in many cases, because it facilitates anonymous trading,” the source said.
With this, demutualization, the process through which a member-owned company becomes shareholder-owned, will finally come true for the CSE.