Thilak Karunaratne | Vajira Wijegunawardane

The Chairman of the Securities and Exchange Commission of Sri Lanka (SEC), Thilak Karunaratne says the establishment of the Central Clearing Corporation, amending the SEC Act and facilitating the Demutualisation of the CSE will only be possible before the end of the year 2016.

“I think it is time we gave serious consideration to achieve concrete outcomes on several important fronts by defining realistic timelines. I am of the belief that before the end of the year 2016 we will be able to establish the Central Clearing Corporation, amend the SEC Act and facilitate the Demutualisation of the CSE,” the Chairman said in his review of the SEC’s 2014 Annual Report released last week.  Also commenting in the report, SEC Director General Vajira Wijegunawardane said that the implementation of the Central Counter Party (CCP) will enable the capital market of Sri Lanka to be compliant with international requirements from the G20 which is to migrate all capital markets to a centrally cleared environment. He also noted that CCP would provide a prerequisite for enabling products such as derivatives.

“The importance of implementing a CCP mechanism has been in the pipeline for many years to address the counterparty risk, asset commitment risk and minimising the risk of settlement failure in the present equity market. The SEC, CSE and the Central Bank of Sri Lanka (CBSL) commenced a joint initiative to set up a CCP for settlement of securities, including shares, corporate debt and Government securities thereby implementing a blueprint for a national securities central counterparty to support Sri Lanka’s growing capital market,” he said.

Meanwhile, the SEC DG said that as fund raising and investment activity is currently dominated by the banking sector, Sri Lanka’s capital market should be positioned to complement the banking sector and support the growth targets of the country. The capital market size is around 30% of Gross Domestic Product (GDP) and this presents a unique opportunity for all stakeholders.

“The deepening of capital markets has been critical for sustaining rapid economic expansion in many countries and to achieve this end, investor and public confidence as well as the integrity of markets and their participants is essential,” Wijegunawardane said.