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Thursday May 23rd, 2024

CSE’s 2024 Vision for Inclusive Capital Markets

Rajeeva Bandaranaike -Chief Executive of the Colombo Stock Exchange

Rajeeva Bandaranaike, Chief Executive Officer of the Colombo Stock Exchange, discusses the capital market landscape and the initiatives to enhance capital market participation, shedding light on new listing opportunities, measures taken to ensure transparency and accountability, efforts to attract small and medium-sized enterprises (SMEs) as issuers and promote financial literacy.

Can you give us an overview of the current market landscape and discuss what CSE has in store for 2024?

In the first quarter of 2024, the ASPI grew 7% while the S&P20 grew 8%. Initially slow in January with Daily Turnover Average (DTA) at Rs715 Million, the market has picked up pace, with the DTA at Rs1.7 billion in February, Rs1.8 billion in March and Rs2.8 billion in April.

Moving forward, our focus lies on enhancing market infrastructure, maintaining an effective regulatory framework, expanding product offerings, encouraging new issuances, and fostering market inclusivity.

Infrastructure improvements entail five key projects: establishing a central counterparty system to mitigate post-trade risks, enhancing market surveillance, fortifying broker infrastructure, replacing the Central Depository System (CDS), and implementing a standardized financial reporting system.

Regulatory efforts continue with amendments to listing, CDS, and trading participant rules to strengthen enforcement and facilitate new product introductions.

We are driving a new product development programme which includes a debt market development component, introducing new debt products like sustainable bonds, infrastructure bonds, high-yielding bonds, revising fee structures to encourage debt trading, enabling corporates to use the corporate debt market, and launching equity-based products such as stock borrowing and lending.

Our primary focus is to engage potential issuers and promote market-based funding actively.

Additionally, we will look at starting work on a financial derivatives market during the latter part of the year post-CCP implementation.

To broaden market participation, we are enhancing accessibility through digitalization initiatives like the CSE mobile app. Stockbroker firms are also launching their mobile app versions and the CDS e-connect platform, allows investors to manage accounts seamlessly. We have expanded our physical branch network to ensure nationwide representation.

Financial literacy efforts span schools, universities, and investors. We have initiated Capital Market clubs in 100 schools countrywide and we will also launch a stock market simulation game to nurture investment skills. At the university level, we have established partnerships for internships, research, and knowledge sharing. Additionally, we conduct numerous investor forums nationwide to promote financial education.

What new listing opportunities has CSE introduced, to facilitate capital raising for issuers?

We now have specialized boards to cater to diverse segments: the “Empower” Board for SMEs, the “Diri Savi” Board for mid-sized companies, the “Catalyst” Board for state-owned enterprises, and the “Main Board” for larger companies. Additionally, local corporates can raise foreign-denominated capital and foreign companies can dual list on our multi-currency board, enabling them to raise funds in Colombo.

Given the stabilization in the economy, a listing on the CSE now is an attractive value proposition for corporates to raise either debt or equity capital not only in LKR but also in foreign currency.

Regarding debt products, our focus has been on green bonds. Since the publication of the rules, we are actively collaborating with potential issuers and market intermediaries. We have engaged with audit firms for pre- and post-certifications, partnered with international agencies like IFC and UNDP for capacity building and conducted technical workshops. With the groundwork being prepared and the interest it has generated we are confident of a couple of green bond issuances.

How does the CSE view the role of corporate governance within Sri Lanka’s capital markets, and what specific measures are being taken to ensure transparency and accountability?

The question appears to have two distinct aspects: corporate governance and corporate reporting.

Firstly, regarding corporate governance, the listing rules have been strengthened. Recent revisions include delineating roles between Chairman and CEO, mandating a Senior Independent Director, assessing the fitness and propriety of directors, specifying minimum director numbers for listed companies, expanding criteria for director independence, and outlining the composition of audit, nomination, and related party transaction committees. Moreover, 12 mandatory policies, such as those addressing bribery and corruption, have been made a requirement from 3Q of 2024.

Secondly, concerning corporate reporting, our corporate disclosure policy mandates accurate and timely disclosure of price-sensitive material information by listed companies. Recently, enforcement measures for violations were introduced, such as non-submission of financial reports or failure to disclose material information. These measures aim to ensure transparency and accountability in corporate reporting practices and contribute to a robust corporate governance framework for companies.

How is the CSE attracting SMEs as issuers, and what targeted activities are in place to enhance SME participation in the capital market?

Recognizing the significance of SMEs in the Sri Lankan economy, we launched the Empower Board to facilitate access to capital. We are actively promoting SME listings through dedicated programmes and engaging with sponsors to mentor and support SMEs for the initial two years.

Additionally, a USAID funding programme assists with pre-operational expenses related to listings. We have a dedicated unit and have implemented new criteria and rules tailored to SMEs. We engage directly with SMEs, and we have conducted forums across the country from Colombo to Kandy, Anuradhapura, Kurunegala, Jaffna, and Matara. With four companies already listed on the Empower Board and a promising pipeline, our efforts aim to onboard more SMEs into the market. We focus on supporting SMEs, enabling them to leverage market-based funding for growth, succession planning, and long-term sustainability.