ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange is planning to trade gold backed securities and create an over-the-counter market for repurchase deals on corporate debt, Chairman Dumith Fernando said.
“Similar to the Real Estate Investment Trusts framework which was introduced in the final quarter of 2020, we are working on the creation of an OTC market for REPOs on Corporate Debt, trading of Gold-backed products and Stock borrowing and lending,” Fernando said.
Under the current system holders of corporate debt cannot assign a security to another securities account to do a repurchase transaction and borrow against it but has to sell and buy.
There had also been problems for individual investors to sell corporate debt on the trading system due to lack of liquidity.
Under the CSE trading system is not possible to carry a offer listed securities overnight and holders had to call brokers on multiple days manually to place a sell order, which expire at the end of the trading day.
There are very few buy or sell quotes for each listed security, even if holders are willing to quote a offer price for a longer period. As a result buyers also do not have ready sell offers to hit.
Interest rates do not move much over time and steep discounts have to be taken to exit quoted debt as small investors say.
It is not clear whether the overnight expiry problem had been fixed now.
But even now large investors generally call debt brokers who call buyers on the phone, and then enter the order into the system to do the transaction.
The Securities and Exchange Commission and Colombo Stock Exchange moved fast to introduce rules to permit REITs.
In Sri Lanka some vocal investors and others also call for excessive investor protection, which has made for excessively tight regulations or risk aversion which prevented market development. (Colombo/Jan01/2021)