The Sri Lankan Capital market is one of the key areas which has witnessed an impressive growth in the post war period and the amount raised by companies up to December 2014, from the Capital Market during the last three years has passed the Rs. 160 billion mark.
The Exchange Commission of Sri Lanka (SEC) in a release said that during the post war era the market has grown steadily with the main Price Index ASPI going up by 278 %. The Market Capitalization has appreciated by 631% and as a percentage of the GDP it has appreciated from 11.1% to 36%.
The market also saw Rs 97 billion net foreign inflow in the past three years. Assets under management in Unit Trusts (Mutual Funds) have also increased by 1,708%. Another post war market performance was the average daily turnover going up by 205% while the total turnover of Corporate Debt market has appreciated by 6,036%.
The SEC in consultation with key industry participants had put forward a three year Capital Market Development Road Map in October 2012 to reposition the market to play an important role in capital formation and development of the economy.
Apart from Road Map to develop the capital market the SEC together with the CSE implemented several important initiatives in the recent past. These initiatives were implemented to increase the liquidity and strengthen the regulatory framework.
“The execution of the Road Map has progressed steadily over the years and most of the initiatives have reached substantial completion,” said Chairman SEC, Dr. Nalaka Gadahewa.
In a bid to broaden the capability and capacity of the bond market to supply financing to a wider spectrum of industries and projects the SEC is in the process of requesting issuers to include the rating rationale in the issue prospectus to enhance transparency and disclosures.
In addition, an upgrade to the CSE trading system for debt securities as well as upgrades to the surveillance system of the SEC to accommodate corporate debt trading is being finalized.
The unit trust industry is viewed as a vital segment of the capital market of Sri Lanka since it is considered the best conduit to mobilize savings of the less sophisticated investors. Over the years the unit trust industry has played a pivotal role in developing the capital market by channeling capital into the real economy.
With a view to developing the capital market of Sri Lanka the SEC took steps to encourage private sector and state owned enterprises to fulfil their funding requirements by listing on the CSE.
In this regard the SEC conducted listing promotion forums for commercial ventures in many parts of the country to create awareness on the possibilities of raising capital via the capital market and address any apprehensions faced by potential listed companies.
Discussions were also held with identified State Owned Enterprises (SOE) in an attempt to encourage them to list on the CSE. In addition the SEC together with the CSE published a Guide to Listing on the CSE in all three languages.
It is also envisaged that increased listings will lead to capital formation, improve liquidity and spur economic growth.
On the regulatory side the SEC re-instated the mechanism of listing by “introduction” with necessary safeguards to address any shortcomings and to protect investors and the integrity of the market.
The SEC also introduced a mandatory minimum public float requirement for listed companies following a practice that has already been adopted by a large number of international and regional jurisdictions.
With the expansion of the capital market, broker firms require a uniform robust back office system that could handle the volume, improve the trading and settlement efficiency with necessary risk mitigating and management mechanisms.
In facilitate this initiative the SEC called for Expression of Interests (EOIs) and upon evaluating the proposals shortlisted technically compliant vendors.
Thereafter the brokers have been requested to contract with a technically complaint vendor by December 31, 2014 and to implement the system by June 30, 2015.