Stock market

Depository and clearing house of the Colombo Stock Exchange

The Colombo Stock Exchange (CSE) has recently seen a period of rapid growth. The attractive returns that the stock market has offered investor has been the primary reason for this surge in activity.

The stock market offers opportunity to diversify risk with the option of investing in equity and/or debt instruments. Different sectors of the economy are represented in the stock market thus providing opportunities for investors to profit by being part of the growth of sectors such as the Banking and Financial sector, land and property, manufacturing, leisure, telecommunication, power and energy etc.

CSE provides an insight to the markets through the series of articles that will be published in Daily News Business every Wednesday.

How do you purchase shares?

There are two ways to purchase shares.

From a new issue of shares (Primary Market)

The primary market is the market for new shares or debenture issues. In the primary market, the security is purchased directly from the issuer (company). In a primary issue, the company offering the share/debenture issue publishes a document known as the prospectus. It is an invitation to the general public to buy shares or debentures of that company.

On the Secondary Market through a stock broker

A market in which an investor could either buy or sell shares, debentures and Government Securities from or to another investor, subsequent to the original issuance in the primary market.

Types of securities traded at the CSE

* Shares

* Corporate Debentures

* Government Securities

What is Central Depository Systems (Pvt) Ltd?

The Central Depositors System (Pvt) Ltd is a wholly owned Subsidiary of the CSE.

The CDS functions as the Depository and the Clearing House for the Colombo Stock Exchange (CSE).

How do I open a CDS account?

To open a Securities Account in the CDS you should complete an Account Opening Form, which can be obtained from your participant organisation of the CDS.

Participant organizations are your stockbrokers and custodian banks.

There are no fees charged for opening a CDS account. Your participant organisation will call for documents to establish your identity, proof of residency and other personal details as required by law. It is possible to open and operate an account on the same day provided you furnish all the required documentation.

Every account will be identified through a unique account number and all correspondence relating to the account including trading and depository activities, will refer to this account number. For local individuals the number assigned will be the National identity card number whereas for Institutional investors the CDS will assign a unique number.

Your CDS accounts should be operated through your Participant organisation, and any requests for changes to your account will have to be forwarded through the Participant.

What is the purpose of my CDS account?

Your CDS account enables you to participate in scripless trading on the Colombo Stock Exchange. Your account will be maintained electronically and will be updated as and when you effect a transaction through your participant.

What is the reason for holding my securities in scrip-less form?

The trading system at the Colombo Stock Exchange is automated and the share certificate you lodge in your CDS account is converted into an electronic format. When you buy securities, your account will reflect the quantity of shares purchased and that the quantity of shares will be removed from the corresponding seller's account. Thus the process is automated and does not involve an exchange of certificates.

Who is a Participant?

A participant is an organization which has been authorized and registered by the CDS, to act on behalf of investors. There are two categories of participants. Presently there are 20 Member Firms (Stock Brokers) and 16 Commercial banks registered as participants of the CDS

What can I deposit in a CDS account?

Shares, corporate debentures and Government Treasury Bills

Must I open a CDS account?

Yes, if you intend to trade in a security listed on the CSE ,

Can I use a different broker from the one I have been using?

You may maintain multiple accounts through several or all Participant organisations.

You can also transfer securities between accounts held with different Participants with the consent of the relevant Participant.

Will it cost me more to use CDS?

No. There is no added cost for the CDS accountholder.

What is the process of depositing securities?

* Visit a participant with the certificates you want to deposit..

* Be sure you have already opened an account or are ready to do so.

* You will be issued with and assisted to complete a Deposit Form.

* Sign the form with your usual signature.

* Return the form to the participant together with the certificates you have included on the form to be deposited.

* You will be given a receipt as evidence of your deposit.

* The participant will forward the form and the certificate to CDS

* CDS will forward the certificates and forms to the company's shares registrar for verification.

* When the registrar confirms the authenticity of the certificates the shares will be deposited in your account.

* Once the shares are in your account you can trade in them.

If you have any queries, suggestions or questions you want answered through this column, please forward them to Daily News Stock Market Column, Colombo Stock Exchange, 4th Floor, West Block, World Trade Centre, Echelon Square, Colombo 01.

To be continued next week