CSE’s Central Counterparty for Equity Transactions next month
View(s):The Colombo Stock Exchange (CSE) is set to launch a Central Counterparty (CCP) framework next month, marking a significant advancement in the evolution of Sri Lanka’s capital market infrastructure. This move is aimed at enhancing the safety, efficiency, and transparency of the market, ensuring the smooth settlement of trades, according to a CSE media release.
Since August 2021, the CSE has been operating under a Delivery versus Payment (DvP) settlement mechanism, ensuring that securities are delivered to the buyer only when the payment is made. This mechanism minimises settlement risk and asset commitment risk by synchronising the exchange of securities and funds. A comprehensive margin framework was also introduced with the DvP implementation. However, as the trading volumes grow, the bilateral nature of DvP could pose issues such as higher operational complexity and increased credit and settlement risk.
To address these inefficiencies, CSE has progressively worked towards CCP implementation by establishing a separate entity, obtaining the necessary regulatory approvals, making system modifications, and creating stakeholder awareness. These progressive steps mark the journey from a simple DvP model to a sophisticated, CCP-led settlement ecosystem.
The new company incorporated, CSE Clear (Pvt) Ltd, is a fully owned subsidiary of the CSE that will act as the CCP for all equity transactions executed at the CSE. CSE Clear is a licensed clearing house, regulated by the Securities and Exchange Commission of Sri Lanka.
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