CSE opts for novel risk management system

By Hiran H.Senewiratne

The CSE took the initiative to streamline its trading activities by launching a novel risk management system, namely, the Delivery vs. Payment (DVP) system for stock market transactions yesterday. The purpose of this move is to minimize the asset commitment risk of sellers, market analysts said.

Under the DVP system, the physical custody of shares will be transferred to buyers only on the settlement date.

Previously, physical custody of shares was transferred immediately upon the execution of the transaction, while fund settlement took 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 had never experienced a settlement failure, the globally accepted mechanism for minimizing settlement risk is the DVP system, where the securities and funds are exchanged simultaneously on the settlement date, market analysts said.

Meanwhile, the CSE said the commencement of the pre-open session was delayed yesterday due to one broker system vendor having technical difficulties in connecting to the Exchange. Therefore, CSE trading started around 1 pm. Both indices moved downwards due to Covid 19 worries in the country. The All Share Price Index went down by 60.88 points and S and P SL20 declined by 12.06 points. Turnover stood at Rs. 834 million with one crossing. The crossing was reported in Cargills Ceylon PLC which crossed 130,000 shares to the tune of Rs. 31.9 million, its shares traded at Rs. 245.

In the retail market, seven companies that mainly contributed to the turnover were; Expolanka Rs. 120 million (1.5 million shares traded), LOLC Holdings Rs. 116 million (271,000 shares traded), Ambeon Capital Rs. 77.7 million (3.1 million shares traded), Singha Hospital Rs. 55.6 million (18.4 million shares traded), Nawaloka Hospitals Rs. 37 million (4.8 million shares traded), Renuka Capital Rs. 32.2 million (3.5 million shares traded) and Browns Investments Rs. 30.2 million (4.6 million shares traded). During the day 56.3 million share volumes changed hands in 11800 transactions.