The Colombo Stock Exchange (CSE) is urging the Finance Ministry to waive some transaction costs in share trades in a bid to popularise ‘same-day’ trades (buying and selling the same stock in one day) as a measure to improve the liquidity in the market.
"We made proposals about two months ago in this regard to the Ministry to be considered for the next budget. The idea is to reduce the total transaction cost,” Nihal Fonseka, Chairman CSE told the Sunday Times FT. He said that day trading is very popular in India and while Sri Lanka may not reach those levels, the current percentage of less than 5 % day trades can be increased significantly if the transaction cost is brought down.
He said there is a high transaction cost involved in such trades at the moment which requires a share price to move more than this high cost for trading to be active. There is 1.6% charge for the entire transaction for buying and selling, of which the brokerage charge is 1% which is charged only on the purchase side.
"The Securities and Exchange Commission, Central Depository System and the CSE also charges on one side of the trade only but the government's share transaction levy of 0.2% is charged on both buy and sell sides. We have submitted proposals to reove it on one side –that is to reduce the total to 0.2 %” Mr. Fonseka noted.
He said the proposal also suggests reducing CSE charges and brokerage as well. “The idea is to get the total cost to about 0.6% as opposed to 1.6%,” he said, adding that the brokerage fee has been suggested to be deregulated which at the moment is at a fixed rate.
"Day trading revenue forgone by the government if these proposals are implemented is Rs. 7 million for a year on last year volumes. This is quite negligible,” he said. The benefit of increasing day trading is that it feeds into the liquidity of the market as well and the government will be easily able to recover more revenue from the higher overall level of trading from one day trades on which the 0.2 % will continue to be charged on both sides,” he noted. |
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