Stock Market

By Lalindra De Silva

What is a stock market…?• A Stock Market is an organised place where stocks, bonds, or other

securities are bought and sold.

WHEN WAS A STOCK MARKET ESTABLISHED IN SRI LANKA?

• Share trading in Sri Lanka dates back for a century, in 1896 when the Colombo Stock Brokers Association(CSBA) commenced the trading of shares in limited liability companies.

• Currently the CSE has 25 member firms (stock broking firms).

• These member firms act as market intermediaries performing a number of services to investors and companies. All member firms are institutions, subject to the regulations of the SEC, and have to obtain a license annually.

Colombo Stock Exchange (CSE)

• It is the organization responsible for the operation of the stockmarket in Sri Lanka.

• A company limited by guarantee, licensed by the Securities andExchange Commission of Sri Lanka (SEC) to operate as a stockexchange in Sri Lanka.

Cont.….

• It is one of the most modern exchanges in South Asia, providing a fully automated trading platform. The vision of the CSE is to be the preferred choice for creation of wealth and value. The headquarters of the CSE have been located at the World Trade Center Towers in Colombo since 1995 and it also has branches across the country in Kandy, Matara, Kurunegala, Jaffna, Negombo and Anuradhapura, Ratnapura, Hambantota . As of 26 June 2013, the Colombo Stock Exchange had 287 listed companies with a combined market capitalization over 18.3 billion US dollars.

Securities and Exchange Commission of Sri Lanka (SEC).

• The SEC is the statutory body entrusted with the task of regulating the Securities Market in Sri Lanka.

• For the purpose of carrying out its objects the SEC grants licences to the Stock Exchange, Stock Brokers, Stock Dealers and Managing Companies of Unit Trusts as well as register all Market Intermediaries

i.e. investment managers, margin providers, underwriters, credit rating agencies and clearing houses.

About CSE• The stock market (or Stock Exchange) is a market where securities such as shares,

debentures etc. issued by companies are traded.

• Some companies issue new shares through an Initial Public Offering (IPO) while others may opt to sell apportion of the existing share capital, known as an Offer For Sale.

• There is another method by which companies enter the stock market without issuing shares to the public, which is known as an introduction.

• Companies may also opt to issue debentures (explained later in this booklet) through a debenture issue and issue debentures to the public through a public offer.

How to invest in the CSE

• What are the services offered by Member Firms (STOCKBROKERS)?

• Shareholders or investors wishing to either buy or sell securities in the stock market must register with one or more stockbroker companies.

• It is therefore mandatory that investors use a market intermediary to buy/sell shares or debentures in companies listed in the stock market.

• Stockbrokers provide a range of services such as the opening of securities accounts in the Central Depository system (CDS), receiving and executing orders to buy or sell securities, offer investment advice on suitable investments, portfolio management, conducting and publishing research on companies, attending to the settlement of transactions and attending to the necessary documentation in respect of any transaction.

Facts about CSE

Current status

Financial

• As of 31 July 2014, 295 companies are listed on the CSE, representing twenty business sectors with a market

capitalization of 2.4 trillion rupees (over US$18.5 billion), which corresponds to approximately 1/3 of the

Gross Domestic Product of the country.

• There are currently two indices in the CSE;

• The All Share Price Index (ASPI)

• The S&P Sri Lanka 20 Index (S&P SL20)

• (Milanka Price Index - MPI was abolished after 30/12/2012)

Trading session

• The exchange has pre-open sessions from 09:00am to 09:30am and normal trading sessions from

09:30am to 02:30pm on all days of the week except Saturdays, Sundays and holidays declared by

the Exchange in advance.

Technology

The CSE operates 3 main systems:

• The Central Depository System (CDS)

• Automated Trading System (ATS)

• (After implementing ATS version-7, The Debt Securities Trading System (DEX) was abolished since ATS-7 provides a platform for both Debt & Equity)

The automation of the Exchange commenced in 1991 with the installation of a central depository and an electronic clearing and settlement system for share transactions. The trading activity was automated with the installation of the Automated Trading System (ATS) in 1997.

The technology introduced by the Exchange has significantly enhanced the competitiveness of the CSE and has provided a more efficient and transparent market. The CSE is currently in the process of introducing a debt securities trading system for trading of fixed income securities.

As a modern exchange, the CSE now offers state-of-the-art technological infrastructure to facilitate an "order-driven trading platform" for securities trading - including shares, corporate debt securities and government debt securities.

Affiliation

• World Federation of Exchanges WFE

• The CSE was elected as a member of the World Federation of Exchanges in October 1998 and also was the first Exchange in the South Asian Region to obtain membership. The CSE is the 52nd Exchange to have been elected to membership of the Federation.

• South Asian Federation of Exchanges SAFE

• The CSE became a founder member of the SAFE in January 2000, and is currently the Chairman of the Association. SAFE consists of 17 Exchanges from India, Pakistan, Bangladesh, Sri Lanka, Nepal and Bhutan. Its primary objectives are to encourage cooperation among its members in order to promote the development of their individual securities markets, to develop an integrated regional stock trading system, and to offer listing and trading opportunities for securities issued in the region.

Foreign investors

• Companies listed on the CSE have seen a large increase in foreign investment following the ceasefire agreement signed by the Sri Lankan Government that brought an end to the 30 year old civil war.

• Foreign investment in the stock market is freely permitted except in the case of a few companies where there are certain restrictions imposed. Investment in shares in Sri Lanka and repatriation of proceeds take place through Share Investment External Rupee Accounts (SIERA) opened with licensed commercial banks. Income from investments such as interest, dividends and profit realized from such investments are not subject to Exchange Control Regulations by the Sri Lankan Government.

Post ceasefire agreement boom

• After witnessing mediocre performance throughout the 1990s mainly due to the Sri Lankan Civil War, the

ceasefire agreement signed in 2001 saw unprecedented growth in the both indices of the CSE. The All Share

Price Index, which was hovering around the 500 mark in August 2001, has surpassed the 2000 mark after that.

• This led CSE to be consistently dubbed as one of the best performing markets in the world. As of 2005 the

CSE had recorded a consistent annual growth of over 30% in the All Share Price Index (ASPI) for the

previous three years. It surpassed that in 2006, with the ASPI growing by 41.6%, and the MPI growing by

51.4% during the calendar year. CSE recorded the highest point in history on 26 February 2007. Milanka

Price Index (MPI) reached 4,214.8 points on that day.

• Buoyed by improved investor confidence due to positive political developments and strong corporate results

the CSE continued to achieve strong growth in 2007, as the ASPI surged passed the 3,000 mark for the first

time in its history on February 13,reaching a record high for the seventh consecutive day. The CSE has also

recorded an average daily turnover of Rs. 776.8 million for 2007.

Post war boom

• After the end of the Sri Lankan Civil War on 18 May 2009, CSE indexes increased rapidly creating new records.

• Market capitalization at the Colombo Stock Exchange reached record high on 6 October 2009 as it reached the Rs. 1 trillion mark for the first time in Sri Lanka’s history.

• All Share Price Index (ASPI) broke the record for its previous high by marking 3549.27 points on 11 January 2010. CSE was the best performing stock exchange in the world in 2009 as it jumped 125.2 percent during that year.

Internet Trading Members

• Acuity Stockbrokers (Pvt) Ltd.

• Asha Phillip Securities Ltd.

• Asia Securities (Pvt) Ltd.

• Bartleet Religare Securities (Pvt) Limited

• Capital Alliance Securities (Pvt) Ltd.

• CT Smith Stockbrokers (Pvt) Ltd.

• Assetline Securities (Pvt) Ltd.

• First Guardian Equities (Pvt) Ltd.

• Serendib Stock Brokers (Pvt) Ltd.

• J B Securities (Pvt) Ltd.

• John Keells Stock Brokers (Pvt) Ltd.

• Capital Trust Securities (Pvt) Ltd.

• Lanka Securities (Pvt) Ltd.

• S C Securities (Pvt) Ltd.

• SMB Securities (Pvt) Ltd.

• NDB Securities (Private) Limited.

• First Capital Equities (Pvt) Limited.

• Taprobane Securities (Pvt) Ltd.

• New World Securities (Pvt) Ltd.

• TKS Securities (Pvt) Ltd.

• Candor Equities Ltd.

• IIFL Securities Ceylon (Pvt) Ltd.

Conclusion

• The CSE is also exploring a number of ways of attracting moreinvestment into the equity market by, for example, organising a rangeof investor awareness programmes for private individuals, fewer than1% are active investors in equities.

• Another recent initiative that the CSE hopes will create more demandfor equities among local and international investors is the recentlaunch of the S&P Sri Lanka SL20 Index, which, says the CSE, pavesthe way for index-based products such as Exchange Traded Funds(ETFs).

• Another positive signal for the market is that overseas investors, whowere hesitant about the Sri Lankan recovery story in the immediateaftermath of 2009’s ceasefire, are now net buyers.

Cont.…

So in summary, the market is attractively valued, PE ratios are lower than what we

have seen in most regional markets. It is a good diversification opportunity. The low

market cap to GDP, at just 30 percent, there is a lot of room for growth. Most of the

growth sectors in the economy are represented in the market. There is increasing

foreign participation. Total foreign participation is as high as 40 percent now in the

market. We have seen that foreign inflow in 2012 and year-to-date in 2013. And

while liquidity is an issue, the relevant authorities are taking steps to increaseliquidity.

So ladies and gentlemen, that is a brief

presentation on CSE and some recent

developments in the market.

Thank you for being here today.

Any Questions ….?