Wednesday Nov 13, 2024
Wednesday Nov 13, 2024
Wednesday, 23 June 2021 03:27 - - {{hitsCtrl.values.hits}}
Stockbroking firms yesterday unanimously backed the timely launch of the globally-adopted Delivery Versus Payment (DVP) system to the Colombo bourse, saying it was a step in the right direction without causing any change to the current trading practices.
The CEOs of broking firms welcomed the DVP during a joint meeting with the Securities and Exchange Commission (SEC) and the Colombo Stock Exchange (CSE) yesterday.
They assured of their fullest support to the SEC and CSE for a smoother implementation of the DVP which is a transformative move and a milestone for CSE bringing it on par with most reliable exchanges in the world in terms of guaranteeing settlement.
The joint meeting was to discuss some concerns or misunderstandings on the part of investors after the SEC and CSE jointly announced the implementation of DVP from 26 July.
Brokers highlighted the fact that the market was getting ready for the DVP for a long time now and said that it will help the market to attract foreign investors. Furthermore for local investors DVP doesn’t change the way they have been trading (including day trading) with no settlement day change (the present T+3), no additional cost whilst they could also have access to credit provided by the brokers.
DVP is more of a system change for the brokers, it was pointed out.
It was agreed at the meeting that greater and continuous investor awareness and education on DVP was critical and all stakeholders agreed to do their own part. Ahead of the roll out, the CSE has been testing the DVP and engaged in industry-wide mock runs to address any teething issues.
SEC Chairman Viraj Dayaratne PC, Director-General Chinthaka Mendis, CSE Chairman Dumith Fernando and CEO Rajeeva Bandaranaike were among officials attended the meeting.
The SEC and CSE leadership explained the objective of introducing a DVP system was to minimise the asset commitment risk of sellers. Under the DVP system the physical custody of shares will be transferred to buyers only on the settlement date.
Presently the delivery of shares occurs immediately upon the execution of the transaction while fund settlement takes place three market days after the transaction date (T+3), thus exposing the seller to a three-day settlement risk.
Although stringent measures had been introduced to reduce settlement risk and the CSE has never experienced a settlement failure, the globally accepted mechanism for minimising settlement risk is through a DVP system where the securities and funds are exchanged simultaneously on the settlement date.
