Plan to re-invent CSE into profit - making entity

Demutualisation strategy in place:

Hiran H.Senewiratne

LISTING: The Securities and Exchange Commission of Sri Lanka (SEC) is looking at possibilities to ‘demutualise’ the Colombo Stock Exchange (CSE) and later on of listing the Exchange to make it a profit oriented entity, sources said.

Under the demutualisation the CSE will be converting into a profit making company listed by shares with shareholders, from a non-profit mutual entity, SEC Director, External Relations and Market Development Malik Cader said.

He said that once this system is in place, it would remove inherent conflicts and provide catalysts for the Exchange to reinvent itself for a new performance game and enable listing. With the new structure, the Stock Market would deviate from a mutual conservative structure to a more corporate structure.

It would become more market development centric from being more regulatory centric. Further, trading access would be exclusively from shareholding while under the previous system trading access was separate by provided to members.

Currently all profits of the Market are in reserves not divided among the stakeholders. Up to now nearly Rs 700 million accrued profits and reserves were with the Stock Market. Once the demutualisation system is in place it would decide on the profit allotment mechanism as well.

Many countries in the region like Malaysia, Singapore and Australia, are practising this concept and it has shown an increase in competitiveness in the national economy becoming a more efficient and higher profile capital market there by and increasing the foreign direct investment.

Further, it also provides better customer service and a wider range of investment products and enables bigger trading volumes and cost savings. This system also increases volumes and revenue from enhanced development and promotion with more competitive and business efficiency, he said.

According to the Malaysian model shareholding and capital structure upon demutualisation are allotted 30 per cent for the capital market development fund, 30 per cent Ministry of Finance, 30 per cent licensed stock broking companies and 10 per cent eligible remises.

Under this system in the process of share allocation it was emphasised that due recognition should be given to all stakeholders who contributed towards the development of the Kuala Lumpur Stock Market, Cader said.

The CSE is limited and managed and controlled by 15 stockbroking companies and five directors are elected annually from the 15 and another four are appointed by the Government for a three year period. The Chairman of the CSE is elected from the five directors of 15 stock broking companies.

President of the Stock Brokers Association, R. Muralitharan said that in principle all stockbrokers have agreed upon this move, and it is up to the SEC to implement this concept.

He said the Stock Exchange is a limited liability guaranteed body. To implement the demutualisation programme it has to convert into a Limited Liability Company and the modality has to be unique to the Sri Lankan model. It should not be copied from other countries.