Tuesday, September 27, 2011

Sri Lanka hires India bourse for DVP

Sept 27, 2011 (LBO) - The Colombo Stock Exchange (CSE) plans to introduce a delivery verses payment and risk management system by mid-2012, minimising risk by ensuring both ownership transfer and payment for securities occur simultaneously.

The CSE said it has hired the National Stock Exchange of India (NSE) to act as a consultant to implement the system for the settlement of all secondary market transactions in equity securities traded on the bourse.

"Delivery versus Payment (DVP) (provides for) a link between a securities transfer system and a funds transfer system that ensures that delivery occurs if, and only if, payment occurs," a stock exchange statement said.

"For the successful completion of the process brokers and other participants would have to take steps to convert to the new settlement mechanism and risk management practices," it said.

"This would entail meeting necessary technical requirements, streamlining of back office operations, participating in related training and adopting of certain procedures in particular with respect to the maintaining of liquid assets for margining requirements."

The CSE said its strategy for implementation of risk plans at the bourse envisions an extensive consultation process with market participants, custodians, investors and regulators.

CSE chairman Krishan Balendra said the introduction of a progressive risk management model will help modernise the CSE.

"In addition to size and liquidity, post-trade risk mitigation features prominently on leading market index selection criteria.

"As a frontier market, our transition to the more accepted emerging market level depends on these enhancements."

The statement said DVP is one of the best practices advocated by the International Organization of Securities Commissions and currently has been implemented in all leading bourses.

NSE, India's largest exchange by daily turnover and number of trades for both equities and derivative trading, would be acting as a consultant throughout the implementation process.

The NSE, based in Mumbai, is also the third largest stock exchange in the world in terms of the number of trades in equities.

NSE joint managing director Chitra Ramkrishna said NSE has a long-standing relationship with the Colombo Stock Exchange.

"We will assist CSE in setting up market infrastructure and implementing global best practices that enables CSE to further strengthen market safety and integrity."

source - www.lbo.lk

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