Develop CSE infrastructure to increase confidence among investors - NSE Vice President

Hiran H. Senewiratne in Mumbai

The Colombo Stock Exchange’s (CSE) infrastructure should be developed to increase the confidence level among local and foreign investors like in India.

This can be done by introducing various financial instruments to the market, said Vice President, National Stock Exchange of India (NSE) Nanda Kumar.

He said that India introduced derivatives to the market less than a decade ago and is now dominating 70 per cent of the market. Therefore, Sri Lanka will initially introduce stock futures and index futures to the market shortly.

This was revealed when a high-powered Sri Lankan delegation from the Securities and Exchange Commission and Colombo Stock Exchange (CSE) visited the NSE on a study tour for collaborative efforts to implement derivatives in Sri Lanka.

“That was mainly due to innovative instruments such as Index Futures, Index Options and Stock Futures offered to the public while offering risk management systems to the market in India.”

“Currently NSE is the second largest liquid index futures in the world and the fourth largest exchange in volumes due to the far-sighted steps taken by the regulators,” he said.

Kumar told the Daily News Business that the Sri Lankan stock market should be made more vibrant as it has to come out with new products like derivatives to the market. Once the new instruments are introduced to the market, it has to put trading systems, risk management systems and clearing and settling systems in place.

In addition it has to increase the awareness level through education for stock brokers and investors on new instruments, he said.

He said that the NSE provides a platform for trading to its trading members. Therefore, the National Securities Clearing Corporation determines the funds/securities obligations of the trading members and ensures that trading members meet their obligations.

The core process involved in clearing and settlement are trade recording, trade confirmation, determination of obligations, pay in of funds and securities and pay out of funds and securities. Therefore, with the introduction of new instruments Sri Lanka should also create a clearing house, he said.

The growth of the stock market in India was due to the integration of the industrial and service sector with a strong domestic base. This will withstand the global recession, he said.

“For Sri Lanka to grow it has to invest in the development of the infrastructure and people will start business and mobilise capital. This would automatically boost the stock market in the country.

Kumar also said that the NSE will constantly help the SEC and the CSE to improve and introduce new instruments like derivatives which will improve performance from the medium to long term perspective,” he said.