Financial System is a set of interrelated and interdependent components which comes with the intention of channeling funds from the surplus units to deficit units. In Sri Lanka, the financial system consists of the followings.
- Financial institutions/intermediaries
- Financial markets
- Financial instruments
- Regulatory authorities
- Financial infrastructure
Under this article I will be mainly focusing on the Colombo Stock Exchange which is coming under the regulatory authorities. This could be a positive thing, as Colombo Stock Exchange could then feature for international investors and traders that may already use investment software such as this stash app or the many other platforms available to investors all over the globe.
Regulatory authorities are the main institutions and the bodies who have the controlling and the supervision power over the financial system. in Sri Lanka following bodies and the institutions have the power to take the supervision and the control over the financial system.
- Central Bank of Sri Lanka (CBSL)
- Securities and Exchange Commission (SEC)
- Colombo Stock Exchange (CSE)
- Insurance Regulatory Commission of Sri Lanka (IRCSL)
From this point onwards our main focus will be the Colombo Stock Exchange. Under the components of a financial system I previously mentioned a component known as financial markets and in the financial markets there are mainly two types of markets namely;
- Capital market and
- The money market
And in Sri Lanka, the main capital market where both the debt and equity transactions occur is known as the Colombo Stock Exchange and it brings both the investors and the companies in to one place. This is a company which has been organized as a company limited by guarantee and was formed under the Companies Act No. 17 of 1982 and was licensed by the Securities and the Exchange Commission of Sri Lanka which is also known as SEC. And this is a mutual exchange and consist of the followings.
- 25 full members
- 12 trading members who have been licensed to undertake the securities transactions.
This article will address three major areas of CSE. They are the equity listing boards, ways of listing company and the stock market indices.
1.0 Equity Listing Boards
There are 3 equity listing boards in CSE. They are;
- Main Board
- Dirisavi board
- Default Board
Companies can take their names in to the respective boards when the respective criteria are met.
1.1 Main board
- At the time of listing; the company should have a stated capital which is not less than Five Hundred Million Rupees.
- The net profit after tax for three years at a stretch, should have been earned immediately after the date of application.
- Positive net assets for the last two financial years immediately after the date of application.
- A 25% of a minimum public holding out of the total number of shares is required.
1.2 Dirisavi board
This board is usually prevails for the small and medium scale and the startup companies.
- At the time of listing the stated capital should be not less than Hundred Million Rupees.
- Positive net assets for the final year immediately after the date of application.
- 10% of a minimum public holding out of the total number of shares.
- A minimum operating history for one year immediately after the date of application.
1.3 Default board
In a situation where a particular company violates or does not comply with the listing rules the particular company will be put into the default board.
2.0 Ways of listing companies
2.1 Offer for subscription
Here the companies can get themselves listed on the stock market after directly inviting the public to subscribe for their securities. That means once the stocks are initially offered to the public a particular company can be listed in the stock market.
2.2 Offer for sale
Here the company can get itself listed in the stock market by inviting the public to subscribe for its securities which are already issued and in use. The company do this by sponsoring an intermediary.
2.3 By introduction
Under this method a company get itself registered in the stock market without an initial public offering. When a company listing its name by introduction it does not raise any capital and this method is considered as one of the cheapest and the easiest ways of listing a company.
3.0 Stock market indices
Stock market indices depicts the performances of stock markets and particularly in Sri Lanka the following indexes are often use to see how the Colombo stock market performs.
3.1 All Share Price Index(ASPI)
In Sri Lanka ASPI is the main stock index which measures the movements of the share prices of all the listed companies. The index values of ASPI is calculated on an on-going basis and particularly during the trading sessions only.
3.2 S & P SL 20
In ASPI it measured the performances of all the shares listed in the CSE. Here this index only measures the performance of the top 20 largest and the modest liquid stocks in the CSE.
3.3 Sector indices
This index depicts the price movements of all the share prices of each service sector. So this is bit different from ASPI since this provides information regarding the price movements of different sectors.
3.4 Total Return Indices
The main assumption on which the TRI is developed is that all the cash distributions such as dividends by the companies are reinvested back in to the index and is considered as one of the equity indexes. Both the capital gains which have been obtained by the particular company and the dividend income are tracked by this TRI.
4.0 Conclusion
In this article our main focus was to discuss about Colombo Stock Exchange and mainly we covered three aspects.
Main board, Dirisavi board and the default board were discussed as the equity listing boards and we discussed about the ways of listing a company too. Offer for subscription, offer for sale and by introduction are the ways of listing a company. And then finally we discussed 4 major stock indices used in Colombo Stock Exchange too. All Share Price index, S & P SL 20, Sector Indices and the Total Return Indices were discussed as the stock market indices.
And for further references I have included some of the useful links that you can refer so that you can have a better understanding.