Colombo Stock Exchange Report

INDUSTRIAL VISITS (GROUP 05)

Industrial Visit Report

Group 5

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L

COLOMBO STOCK EXCHANGE


Abstract

Content of this report is mainly focused on the information that we gathered during the

industrial visit to Colombo Stock Exchange. This report contains details about the Colombo

Stock Exchange, its organizational structure, company background, main functionalities of the

company, technologies used to process their main functionalities and etc.

In the report, we have illustrated the process of the company in detail explaining what

sort of an experience we have gained during the visit and how we gathered information during

the visit.

This report also contains details about the organizational background and how ICT is

being used to enhance the functionalities of the company and how this sector is functioning in

other countries together with suggestions to improve the process of the company.

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Acknowledgement

We would like to thank the administration authority of the Colombo Stock Exchange for

giving us this great opportunity to visit CSE. We would also like to thank Miss K. Sachitra

Lokuge and Miss Praboda Thilakarathne for leading us during the visit

Our sincere thanks should also go to Mr. Jehan from CSE who gave us a descriptive

explanation about the CSE and its functionalities,

Finally, We would like to thank all our group members for the support to create both the

report and the presentation.

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Table of ContentsAbstract.....................................................................................................................................................- 2 -

Acknowledgement.....................................................................................................................................- 3 -

1.0 Company profile............................................................................................................................- 5 -

1.1 Background...............................................................................................................................- 5 -

1.2 Vision........................................................................................................................................- 5 -

1.3 Mission......................................................................................................................................- 5 -

1.4 History.......................................................................................................................................- 5 -

1.5 Management Structure..............................................................................................................- 7 -

1.5.1 Rules Committee...............................................................................................................- 8 -

1.5.2 Audit Committee...............................................................................................................- 9 -

1.5.3 Arbitration and Disciplinary Committee...........................................................................- 9 -

1.5.4 Dispute Resolution Committee.........................................................................................- 9 -

1.6 Main functionalities..................................................................................................................- 9 -

2.0 Experience gained.......................................................................................................................- 10 -

2.1 Main Processes of the Colombo Stock Exchange...................................................................- 11 -

2.1.1 Share Trading Process.....................................................................................................- 11 -

2.1.2 Client Registration and Documentation process............................................................- 12 -

2.1.3 Company Registration & Listing for Equity & Debts....................................................- 13 -

3.0 How is it done in other countries................................................................................................- 14 -

3.1 London Stock Exchange ......................................................................................................- 14 -

3.2 New York Stock Exchange (NYSE) ...............................................................................- 15 -

3.3 Where do we stand with CSE..................................................................................................- 16 -

4.0 Proposed enhancements and suggestions....................................................................................- 17 -

4.1 Establish new branches...........................................................................................................- 17 -

4.2 Answering structured SMS queries.........................................................................................- 18 -

4.3 Improving efficiency in information dissemination................................................................- 18 -

4.4 Television programs regarding profitability of the investments.............................................- 18 -

Conclusion...............................................................................................................................................- 19 -

Appendices..............................................................................................................................................- 21 -

References...............................................................................................................................................- 22 -

Group members :.....................................................................................................................................- 23 -

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1.0 Company profile

1.1 Background

Under the Companies act, The Colombo Stock Exchange is organized as the form of

Limited Liability Company. It is function as a non-profit Organization. CSE is the only market in

Sri Lanka which facilitates trading of shares.

Through the primary and secondary markets the CSE provides companies the opportunity

to raise equity and debt capital required for their distribution. And provide a mechanism for price

discovery in an active secondary market.

The CSE has a mutual ownership structure and has a membership of 15 for today. All

members are corporate bodies, and each is licensed to carry out the duties as a stock broker.

1.2 Vision

To be the preferred choice for creation of wealth and value

1.3 Mission

Encourage issuers to raise capital through CSE

Increase the number of active investors

Provide facilities to trade equity, debt and derivative products

Ensure balanced regulation to maintain market integrity and investor confidence.

1.4 History

In 19th century British planters needed funds to setup tea plantations in Sri Lanka.

Since then to now on, CSE has monopoly power in sector.

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1896 - The Colombo Share Brokers Association initiated trading of shares in limited liability

companies (CSBA)

1904 - Name changes to Colombo Brokers Association (CBA)

1984 – Establishing of Public Trading Floor and commencement of trading on the “open outcry

system”

1985 – Sri Lanka was the formalization of the market with the establishment of the “Colombo

Securities Exchange (GTE) Limited”.

1986 – The Colombo Securities Exchange (GTE) Limited becomes a corresponding member of

the International Federation of Stock exchanges (FIBV)

1988 – The stock exchange a adopts new rules for listed companies replacing the by-laws of the

Colombo Brokers Association

1990 – Name changed from the Colombo Securities Exchange (GTE) Limited to the – Colombo

Stock Exchange

1991 – Automation of the Cleaning House of the Stock Exchange with the establishment of the

Central Depository System

1995 – Upgrade the Central Depository System.

The stock exchange shifts office to new premises at the World Trade Center.

1996 – The introduction of a two-tiered board, The main Board and the Second Board.

1997 – Automation of trading with the installation of the art Screen Based Trading System

(ATM)

1998 - The CSE is admitted as the 52nd member of the World Federation of Stock Exchanges

The Central Depository System (CDS) gains membership in the Asia-Pacific Central

Securities Group (ACG)

1999 - Introduction of the Milanka Price Index (MPI)

Established a regional office in Matara

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2003 - CSE opened his second branch in Kandy

2004 – Launch of a new system for the trading of Debt Securities Trading System (DEX)

2005 – Opens a regional office in Kandy

2007 – Opens a another branch in Negombo

Launch of a new website www.cse.lk

2008 – Automated market surveillance system introduced to the CSE.

2009 - Launch of new CDS website www.cds.lk.

1.5 Management Structure

The policy making body of the CSE is the Board of Directors composed of nine

members. Five directors are elected by the 15 member firms while the Minister of Finance

nominates four.

Members Trading Members

Bartleet Mallory Stockbrokers (Pvt) Ltd Capital Alliance Securities (Pvt) Ltd

Acuity Stockbrokers (Pvt) Ltd SMB Securities (Pvt) Ltd

John Keells Stockbrokers (Pvt) Ltd First Guardian Equities (Pvt) Ltd

Asha Phillip Securities Ltd Taprobane Securities (Pvt) Ltd

Assetline Securities (Pvt) Ltd Amana Securities Ltd

Somerville Stockbrokers (Pvt) Ltd SKM Lanka Holdings (Pvt) Ltd

J B Securities (Pvt) Ltd

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Board of Directors

Elected Directors

Appointed Directors

http://www.cse.lk/


Lanka Securities (Pvt) Ltd

Asia Securities (Pvt) Ltd

Ceylinco Stockbrokers (Pvt) Ltd

Capital TRUST Securities (Pvt) Ltd

S C Securities (Pvt) Ltd

CT Smith Stockbrokers (Pvt) Ltd

D N H Financial (Pvt) Ltd

N D B Stockbrokers (Pvt) Ltd

The Exchange Secretariat, headed by the Chief Executive Officer is responsible for the

operations of the Exchange, and is accountable to the Board of Directors. The CSE Board has

four sub committees appointed to administer the operations of the CSE.

1.5.1 Rules Committee

The Rules and Bye-laws Committee of the CSE approves rules and regulations of the CSE,

which have wide implications on the conduct of the listed companies, member firms and

investors. The Committee ensures that such rules will strike a sound balance between the market

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Board Committees

Rules Committee

Dispute Resolution Committee

Audit Committee

Arbitration & Disciplinary Committee


development and regulatory role of the CSE by ensuring a reasonably effective investor

protection regime without imposing excessive regulatory burdens on the market.

1.5.2 Audit Committee

The Board set up an Audit Committee comprising four non-executive Directors, which

will assist the Board in discharging its responsibility in ensuring that all the systems and

procedures adopted at the CSE provide reliable and accurate information as to the state of affairs

of the stock market and the internal control systems of the Exchange are sound and well

administered.

1.5.3 Arbitration and Disciplinary Committee

The Arbitration and Disciplinary subcommittee reviews and considers all doubts and

disputes arising between the Members of the CSE in the course of business as well as matters of

a disciplinary nature concerning the

Members and clients of Members and recommends suitable action to the Board of Directors.

1.5.4 Dispute Resolution Committee

The Dispute Resolution Committee of the CSE is set up to resolve disputes arising between

investors and member firms as well as any disputes among member firms, in order to maintain

the professionalism of the member firms that, in turn, will reinforce the investor confidence and

the integrity of the market-place as a whole.

1.6 Main functionalities

The core functions and services of the Colombo Stock Exchange(CSE) could be categorized

as follows:

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• listing companies to raise debt and equity capital, convertibles, warrants, asset securitizations,

etc.

• providing trading facilities for the secondary trading of all securities that are listed

• providing on-line market data and other market related products

• posting trade clearing, settlement, registration and depository facilities for all secondary market

transactions;

• transferring of technology to other exchanges

• Training

2.0 Experience gained.

We went to Colombo Stock Exchange as our first industrial visit. We have gained very

good experience during the given time period. We participated to a presentation and a discussion

in Colombo Stock Exchange. The person who generated the discussion explained us about the

company background, industry background, management structure, the main functionalities of

CSE and the main processes of the company. After that we went to see how the CSE handle their

functions and how they interact with the external parties.

We gathered lot of information by the presentation and the discussion. We prepared a

questionnaire before went to the CSE and asked those questions in the discussions and gained lot

of information. We experienced how CSE doing their functions and handle their processes. So

we gathered more information. We also referred CSE website and got further information.

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2.1 Main Processes of the Colombo Stock Exchange.

2.1.1 Share Trading Process.

CSE uses an Automated Trading System (ATS) for all of their transactions. When an investor

who has already opened an account in CDS wants to buy or sell shares he or she can inform his

stockbroker about the order, which contains the data about the company name, number of shares

and the share price. This can be done over the phone, fax, and personal visit or through internet.

Stockbroker then places that order in the ATS. If there is a matching order then a transaction will

occur. As soon as the order get tallied with another order CDS accounts for that particular

transaction will get debited and credited and finalized. As a proof a printed document with all the

data about the transaction will be provided for both parties. When an order doesn’t get a

matching order, then that will be retained in the system until it gets a matching one.

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Share Trading Process.

2.1.2 Client Registration and Documentation process.

Shares can be purchased directly from the issuing company after reading the prospectus and

filling up necessary application forms. This can be done in an Initial Public Offer (IPO) or a

Seasoned Public Offer (SPO). If you like you can open a CDS account now and deposit them.

But at this point it’s not compulsory.

When to open a CDS account.....You may need to sell shares you bought. Then you have to open a CDS account. And some one

might need to buy shares not directly from a company (primary share market) but from another

investor (secondary share market). You have to open a CDS account now as well. Anyone who

wants to deal with the secondary share market has to obtain the services of a stockbroker. So

contact a stockbroker / custodian bank and open a CDS account through that participant. Once

you have a valid CDS ID, you are registered in CSE and allowed to dotransactions in the

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secondary share market. Then that person can deposit securities, withdraw securities, transfer

securities, settlement of transactions, etc. A single investor can contact more than one

stockbroker and open more than one CDS accounts as well.

How to open a CDS account.

2.1.3 Company Registration & Listing for Equity & Debts.

Any public limited company can get registered in CSE. There are three ways of getting the

registration for equity. Offer for Subscription, Offer for Sale and Introduction.

There are two methods of debts registration named as Offer for Subscription and introduction.

Once a company got the registration it should be listed. For equity there are two ways such as

Main Board and Diri Savi Board.

For debts there are two ways such as main Board and second Board. If any company fails to

comply with the rules and regulations of the CSE be transferred to the default board.

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Company Registration & Listing for Equity & Debts.

3.0 How is it done in other countries

A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to

trade stocks and other securities. There are a large number of stock exchanges all over the world

trading their securities. The best performing exchanges in the world include Tokyo Stock

Exchange, New York Stock Exchange (NYSE), London Stock Exchange & the Stock Exchange

of Singapore. An evaluation on the technological aspect of two most leading stock exchanges in

the world is analyzed below.

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http://en.wikipedia.org/wiki/Security_(finance)

http://en.wikipedia.org/wiki/Stock

http://en.wikipedia.org/wiki/Trader_(finance)

http://en.wikipedia.org/wiki/Stock_broker

http://en.wikipedia.org/wiki/Entity


3.1 London Stock Exchange

The London Stock Exchange is one of the world’s oldest stock exchanges, tracing its history

back more than 300 years when it started life in the coffee houses of 17 th century London. The

Exchange quickly grew to become the City’s and one of the world’s most important financial

institutions. The London Stock Exchange is the most international of all stock exchanges. It has

over 3,000 listed companies, 335 member firms and its real-time financial data reaches over

100,000 screens worldwide. The London Stock Exchange provides four main services: equity

markets where businesses can raise capital, trading services, market information and derivatives.

The LSE's current trading platform, based on Microsoft's .NET framework, was

developed by Microsoft and Accenture.

Microsoft used the LSE software as an example

of the supposed superiority of Windows

over Linuxin the "Get the Facts"

campaign, claiming that the LSE system

provided "five nines" reliability. For Microsoft,

LSE was a good combination of a highly visible

exchange and yet a relatively modest IT

problem. After suffering extended downtime and

unreliability the LSE announced in 2009 that it

was planning to switch to Linux in 2010.

In October 2010, the London Stock Exchange announced that the new Linux based

trading system. named Millennium Exchange, had smashed the world record for trade speed,

with 126 microsecond trading times being recorded on the Turquoise dark pool trading venue

and would go live on November 1. The system which was developed by Millennium IT, a Sri

Lankan IT company bought by the LSE in 2009, were taken out of service following a 2-hour

outage of the Turquoise venue on November 2. The incident was according to LSE officials

caused by human error that "may have occurred in suspicious circumstances". Plans were to

introduce Millennium Exchange also on the main share trading platform in December. The LSE

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http://en.wikipedia.org/wiki/Five_nines

http://en.wikipedia.org/wiki/Get_the_Facts

http://en.wikipedia.org/wiki/Linux

http://en.wikipedia.org/wiki/.NET_framework


stated it was hoping the software would be ready for use again early in 2011. The London Stock

Exchange’s technology roadmap is designed to deliver greater agility, capability, scalability, and

improved performance;

3.2 New York Stock Exchange (NYSE)

It is the world's largest stock exchange

by market capitalization of its listed companies

at US$11.92 trillion as of Aug 2010. Average

daily trading value was approximately US$153

billion in 2008. NYSE’s technological

innovation includes automatic order routing

and processing, online order comparisons, wireless order managements, off-hours trading

facilities, and, e-commerce initiatives. The NYSE’s

ability to develop innovative systems is rare, valuable,

and appears to be extremely difficult to imitate, NYSE

is currently sharing its technological expertise with

The Tokyo Stock Exchange Group through an

agreement with them.

Efficient market data infrastructure in NYSE delivers

lower latency, with fewer points of failure and minimal

redundant caching. The Market Data Platform

minimizes total cost of ownership through the

provision of consistent administrative interfaces and an

API suite that enables simplified substitution of

transport solutions. The components that comprise the Market Data Platform are built from a

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http://en.wikipedia.org/wiki/United_States_dollar

http://en.wikipedia.org/wiki/United_States_dollar

http://en.wikipedia.org/wiki/Market_capitalization


collection of reusable modules and thin abstraction layers, enabling to deliver flexibility and

extensibility.

NYSE Technologies owns the industry's

only comprehensive software architecture

that provides high performance enterprise-

wide, end-to-end control over transactional

information moving between systems and

across networks. The solution encompasses

best-of-breed message handling software

with a suite of operational and business tools

for managing, monitoring and analyzing

trading activity across any size or scale of

deployment.

NYSE Technologies Wheel

3.3 Where do we stand with CSE.

The CSE operates 3 main systems:

1. The Central Depository System

2. Automated Trading System

3. Debt Securities Trading System

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.

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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.

4.0 Proposed enhancements and suggestions

4.1 Establish new branches

Colombo Stock exchange Should broaden its network by establishing new branches around the

country. Even though CSE is performing outstandingly it doesn’t reach the local investors quite

well. Only three percent of the local investors have invested in the stock exchange ever in their

life.

CSE enjoys a monopoly in SriLanka since other equity markets operate in the country. So

they have enormous opportunities to expand their local customer base. If they can reach a larger

crowd, It will increase the demand and attract new companies to enlist themselves. That will

ultimately increase market capitalization which will lead to improved performance in the Stock

market.

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4.2 Answering structured SMS queries

If CSE can provide a service where the customers can get stock details via SMS, It would

encourage most of the investors. Mostly the local investors. Here they can introduce a system

where they automate replying to structured queries raised by the customers

4.3 Improving efficiency in information dissemination

CSE can further improve their market information through efficient data dissemination to

their investors with a real time approach. It would make sure no parties gain undue advantages

on early information. And no party loses on unavailability of timely information. This approach

would introduce more transparency to the process and make the transactions more straight

forward.

4.4 Television programs regarding profitability of the investments

CSE can broadcast television programs evaluating the Profitability of available

investment options in the CSE by industry experts. With such programs both the parties investors

and the enlisted companies would benefit.

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Conclusion

CSE is the Stock exchange in Sri Lanka for both foreign and local investors. Most

countries around the world have their own stock exchanges. Some countries like America and

India have multiple stock exchanges.

The Colombo Stock Exchange is the one and only stock exchange in Sri Lanka. It

provides a modern and fully automated trading platform. It provides trading facilities for stock

brokers and traders, to trade stocks and other securities.

The headquarters of the CSE is located at the World Trade Center Tower and it has 4 branches

around the country.

There are two main indices in the Colombo Stock Exchange. They are,

1. The All Share Price Index (ASPI)

2. The Milanka Price Index (MPI)

There is also a index called Total Returns Index (TRI) as well.

The Colombo Stock Exchange operates 3 main systems. They are,

1. The Central Depository System

2. Automated Trading System

3. Debt Securities Trading System

CSE maintains two boards named as Main Board, DiriSavi Board. All listed companies are

displayed is this two boards. The Colombo Stock Exchange has 239 listed companies and 32 of

them are listed in the main board.

The CSE is a limited liability company which is registered under the companies Act, and it

functions as a non-profit organization. Colombo Stock Exchange has no competitors or related

companies in the field, but the government plans to introduce new licensed companies to the

field.

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There are three types of stock brokers in Colombo Stock Exchange. They are,

1. Full service brokers

2. Discount broker

3. Direct-Access brokers

Stock brokers do a vital part in stock market activities. They are having the responsibility

of issuing the buying or selling orders in the stock market as their client needs. Stock brokers

charging a fee called a brokerage for their services.

CSE is one of the best performing Stock Exchanges in the world. Information and

Communication Technology is heavily being used to enhance the functionalities of the CSE. The

excellent performance of CSE has been attributed to its advanced infrastructure of a fully

automated trading platform. Investors can access to the stock data and full detailed reports of

ongoing transactions by computer interfaces in their internal network and they are able to watch

the changing of prices and other details on a huge digital board rise inside the CSE.

So, our visit to CSE was very educational and it helped to expand our knowledge on the areas

which were previously unknown to us. And we hope to exercise the aggregated knowledge

optimally to achieve our educational and carrier objectives in the future.

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Appendices Our Questions:

1) What are the main functionalities of the Colombo Stock Exchange?

2) What is the world ranking of CSE among the SEs in the world?

3) What is “All Share Price Index" & how is it calculated?

4) What is “Milanka Price Index" & how is it calculated?

5) Milanka Price Index is composed of a select group of 25 companies and that list is

reviewed in each quarter year. How are those companies listed to the Milanka price

index? What are the measurements?

6) CSE operates 3 main systems what are they?

7) What is the highest number of transactions recorded within a day?

8) How can an individual buy the shares from CSE?

9) What are the most demanded Shares in the CSE?

10) What are the additional benefits an individual gets by investing in CSE other than the

dividends?

11) Why an entity should trade via the Brokering companies?

12) What is the procedure an entity should follow to get him enlisted in the CSE?

13) How many companies listed in Colombo stock exchange?

14) Are there any maximum or minimum levels of capital an entity could raise through the

stock exchange?

15) How can an entity ass the performance of a company that he has invested in?

16) Why the businesses should quote them in the Stock exchange?

17) What makes CSE more attractive to foreign investors?

18) CSE is a member of World Federation of Exchanges (WFE) since 1998 and a member of

South Asian Federation of Exchanges (SAFE) since 2000. What are the advantages we

receive from those federations?

19) How about the gross profit from local and foreign investors currently?

20) How did the CSE managed to overcome the recent economic down turn while most of the

major stock exchanges in the world crucially failed?

21) Has CSE faced to some failures in near future? If it has, what are the reasons for that as

they are identified?

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References

Colombo Stock Exchange | Welcome. 2010. Colombo Stock Exchange | Welcome. [ONLINE] Available at: http://www.cse.lk. [Accessed 01 December 2010].

Colombo Stock Exchange. CSE - About, Profile, History, Companies. 2010. Colombo Stock Exchange. CSE - About, Profile, History, Companies. [ONLINE] Available at: http://www.advfn.com/StockExchanges/about/CSE/ColomboStockExchange.html. [Accessed 01 December 2010].

Colombo Stock Exchange - Wikipedia, the free encyclopedia. 2010. Colombo Stock Exchange - Wikipedia,

the free encyclopedia. [ONLINE] Available at: http://en.wikipedia.org/wiki/Colombo_Stock_Exchange.

[Accessed 01 December 2010].

Stock Market Today. 2010. Stock Market Today. [ONLINE] Available at: http://www.stock-market-

today.net/. [Accessed 01 December 2010].

London Stock Exchange - Wikipedia, the free encyclopedia. 2010. London Stock Exchange - Wikipedia,

the free encyclopedia. [ONLINE] Available at: http://en.wikipedia.org/wiki/London_Stock_Exchange.

[Accessed 01 December 2010].

Stock Prices, Financial Markets News, FTSE 100 Index - London Stock Exchange. 2010. Stock Prices,

Financial Markets News, FTSE 100 Index - London Stock Exchange. [ONLINE] Available at:

http://www.londonstockexchange.com/home/homepage.htm. [Accessed 01 December 2010].

NYSE, New York Stock Exchange . 2010. NYSE, New York Stock Exchange . [ONLINE] Available at:

http://www.nyse.com/. [Accessed 01 December 2010].

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http://www.nyse.com/

http://www.londonstockexchange.com/home/homepage.htm

http://en.wikipedia.org/wiki/London_Stock_Exchange

http://www.stock-market-today.net/

http://www.stock-market-today.net/

http://en.wikipedia.org/wiki/Colombo_Stock_Exchange

http://www.advfn.com/StockExchanges/about/CSE/ColomboStockExchange.html

http://www.cse.lk/


Group members :

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name Index numberA.I.D.K Senevirtne 2009/ict/054

E.M.P De Silva 2009/ict/084

R.M.I Sabith 2009/ict/049

G.R. Sapukotana 2009/ict/051

S,C. Rangoda 2009/ict/087

C.U. Serasinghe 2009/ict/055

G.K.D.B Kiriella 2009/ict/088

SANDARUWANI M.H.K.P. 2009/ICT/086

W.M.T.P. Weerasinghe 2009/ict/073

T.K.N Weragoda 2009/ict/074

Colombo Stock Exchange Report

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