UK catches CSE buzz

Walking in you can feel the buzz; the excitement. Looking up, you see the all important board with the listings and the numbers changing every second... all at the Colombo Stock Exchange.

Though not as aggressive as the New York Stock Exchange with brokers glued to their cell phones, screaming at the pit, nevertheless, the world’s second best performing stock market does get your adrenaline pumping.

I accompanied the Council for Business with Britain (CBB) on a visit to the Colombo Stock Exchange (CSE) on 29 November 2010.  The CSE has 240 listed companies with 23 brokering firms and 16 custodian banks, including the two British banks operating in Sri Lanka – HSBC and Standard Chartered Bank.

The CSE operates three main systems: the Central Depository System (CDS), the Automated Trading System (ATS) and the Debt Securities Trading System (DEX). The automation of the CSE commenced in 1991 with the installation of a central depository and an electronic clearing and settlement system for share transactions. The trading activity was later automated with the installation of the Automated Trading System (ATS) in 1997, enabling precise and reliable transactions.

Both the ATS and the DEX were put together by the Sri Lankan company now owned by the London Stock Exchange (LSE) – Millennium IT. Millennium IT (MIT) will soon introduce a new platform for the LSE called the Millennium Exchange. Like the LSE, the CSE also has plans to introduce a new trading platform in 2011.

Founded in 1801, the LSE has over 2,727 companies trading on both the Main Market and the Alternative Investment Market (AIM). The AIM is a sub-market of the LSE that allows smaller companies to float shares with a more flexible regulatory system than is applicable to the Main Market.

The AIM was launched in 1995 and has raised almost £24 billion for more than 2,200 companies. Flexibility is provided by less regulation and no requirements for capitalisation or the number of shares issued.

The high performing CSE will help Sri Lanka establish itself as a leading global financial services centre.  Financial and professional services could soon represent a major component of Sri Lanka’s economy and account for a significant percentage of GDP. (Currently, they represent 12 % of GDP in the UK economy.)

Moreover, just as the LSE is home to companies from over 60 countries around the world, the CSE, too, has the potential to continue to grow and be ranked as a top performing stock market globally.

The credit crunch has had a major impact on the global economy and financial institutions around the world over the past couple of years. However, financial markets in both London and Colombo have continued to function efficiently without interruption despite the volatility and challenges facing the financial sector.

The key focus for Sri Lanka in the coming years will be to structurally strengthen, diversify markets and establish a strong skills base to become a truly a global financial centre.  A regulatory framework that uniquely balances market confidence and consumer protection while embracing financial innovation underpins the UK’s success in the financial services sector and is an area where Sri Lanka has growth potential.

At UK Trade and Investment (UKTI) at the British High Commission, Colombo, we actively support UK companies entering the financial sector in Sri Lanka because we see the potential. At the same time, we are seeking Sri Lankan companies to invest in the UK’s financial sector.

The transfer of knowledge between the two countries – as exemplified with the acquisition of Millennium IT by the LSE – would bode well for the future of both countries. We also look forward to announcing some impressive partnerships between UK companies and Sri Lankan financial services next year.