Sunday, May 13, 2012

Gearing the Colombo bourse for growth

By Duruthu Edirimuni Chandrasekera

The Colombo Stock Exchange (CSE) on the back of a 4-month consultancy with McKinsey and Company, the international consultancy firm and all other stakeholders is ready to implement some key strategic initiatives, gearing it for growth, according to Krishan Balendra, Chairman CSE.

"Recently, on a recommendation by the World Bank and others, the CSE engaged McKinsey and Co.

 to develop a road map for the capital markets. A joint steering committee of the Securities and Exchange Commission (SEC) and the CSE has been entrusted with the implementation of the initiatives identified. In early March the first Steering Committee meeting was held and we agreed upon priorities for the year for transforming the local capital market," Mr. Balendra told the Business Times. He said that they had six initiatives earmarked of which two related to developing unit trust and stockbroker segments are to be executed by the SEC.

"On the CSE's end, the four priorities for the year will be to introduce a new stock index, develop the human resource talent pool, strengthen risk management infrastructure and to focus on a comprehensive business media strategy," he added. He noted that CSE's strategic plan for the medium term draws on the significance of strengthening and growing the capital market. "It will initially set the stage to deliver value even in a non-commercial setting as a mutual exchange. It is a transformation roadmap that sets the stage for an enduring stock exchange." Mr. Balendra noted that the consultancy report titled 'Growth roadmap for Sri Lanka's Capital Markets' is based on four main execution themes and that the main theme focuses on fund raising through increased listing opportunities in the market. Initiatives under this umbrella look towards achieving broad macro- economic growth through the facilitation of corporate debt markets, private listing and 'people participation' together with linking critical infrastructure funding activities to the capital market.

The second theme aims at channeling greater capital flows into our market. It is essential that both domestic and foreign investments are attracted to the market in order to gain an optimal investor mix.

The third theme builds on a framework to elevate the quality and performance of market intermediaries. This will involve nurturing and developing the broker and unit trust industries and cementing relationships with global and regional alliances as well as the business media."

Building of world class infrastructure and service capabilities features as the fourth execution theme and under this, several initiatives such as enhancing the risk infrastructure of the CSE, augmenting the product slate and introducing a new stock index is to be considered. "We are also focused on developing our human resource pool and building an organization structure to execute this growth strategy."

Mr. Balendra noted that the CSE has to address some fundamental concerns. "Large and capital intensive industries are not sufficiently present on our market. There are insufficient volumes to pick up on the market which deters specialized funds and foreign investors. We would need to work with various stakeholders in the state and private sectors in order to address these fundamental concerns.

Ultimately we expect the traction to culminate in fresh listings that will substantially increase market liquidity and improved capital flows into the market," he explained.

In this regard, he said that some fundamental changes need to be effected, especially on the risk infrastructure side, being mindful also to meet IOSCO guidelines. "We have already reached an understanding with Standard and Poor (S&P) to establish a new index on the CSE," he said, adding that as the CSE is looking to entice international investors, a key requirement is to provide the expected level of comfort in both trading and post trade systems. He said that in the risk infrastructure initiatives CSE is now actively working on launching a margin based risk management system. In addition, work is to begin on the delivery vs. payment mechanism aiming at mitigating asset commitment risk arising in the settlement process.

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