To minimize risks, guarantee settlement of funds:

CSE mulls setting up Clearing Corp

Hiran H. SENEWIRATNE

The Colombo Stock Exchange (CSE) is exploring the possibility of setting up a Clearing Corporation (CC) to minimise risks and guarantee settlement of funds in all stock market transactions shortly, a spokesman for the CSE said.

The CSE’s objective to initiate the Clearing Corporation is similar to the Indian model, which will minimize risk and increase the number of volumes in the market, said CSE Manager Business Development Thushara Jayaratne.

He said initial discussions were held with all stock brokering firms to enlighten them on the new initiative with Indian assistance. Therefore, they are now exploring the possibility to set up the Clearing Corporation soon.

The CC, a financial intermediary, which interfaces with investors to buy or sell securities on behalf of them, charges a percentage of the settlement amount for doing so.

Brokerage firms can also buy/sell securities for their own firms. This would also be a stepping stone to introduce derivatives and stock futures to the market in the near future, sources said

Head of Sales and Marketing Lanka Securities (Pvt) Limited, Eardley Kern said that a trading member is a firm, which is a member of the CSE authorized to place orders in the capital market system.

The brokerage house gives confidence to a trading member, which safeguards the industry in the event of default clients in the stock market, he said

A clearing member is a firm, which is a member of an exchange Clearing corporation, and is involved in clearing trades. Most of the brokerage houses are clearing members.

If a brokerage firm does not have the authority to clear the trades they have to register their trades with a clearing member to settle them.

At present the CSE has 21 registered brokering firms, he said.

All retail investors should open an account with a brokerage firm to buy/sell securities. It accepts orders from investors who are registered with the firm, validates the orders (with the help of their own software) and routes them to the exchange.

Director/Chief Executive Officer Asha Phillip Securities Limited, Dimuthu Abeyesekera said that this quick method will complete the transaction on the same day and will help introduce various instruments including derivatives and stock futures to the market.