CSE to introduce derivatives to enhance performance

Hiran H. Senewiratne in Mumbai

The Colombo Stock Exchange (CSE) will build the capacity and infrastructure to introduce derivatives to the capital market to enhance performance among local and foreign investors, its President Nihal Fonseka said.

Nihal Fonseka

“Before introducing derivatives to the market, we want to have all requirements in place such as legal framework, training and education to successfully implement it,’ Fonseka told the Daily News Business. Fonseka is currently in India on a study tour with his Indian counterparts to explore the possibility of introducing derivatives to the Sri Lankan market shortly.

He said that India is reckoned as one of the most established markets in the world for the exchange of trade derivative products.

Fonseka said that once they introduce derivatives to the market it will take a little time for people to familiarise themselves on this mechanism as in India it took several years to popularise this financial instrument among investors.

Under this concept it has mini derivative contracts that would enable small investors with a small exposure in the cash market to hedge their positions like Sri Lanka’s hedging of petroleum will also help investors to understand the near term computation of volatility in the stock market indices.

He also said that India is doing well with the introduction of this system. Therefore, we also could expect a positive impact on stock market trading from the medium to the long term perspective with the uncertain market conditions.

The introduction of exchange traded derivatives on a Clearing Corporation like India will help build the confidence among local and foreign investors.

This is also part and parcel of this system, he said. A group from the CSE will be sent to Mumbai for a training session to study the operational aspects, he said.