What is a Stock Exchange?
A Stock Exchange provides a liquid, open market for buying and selling of shares, debentures etc. of publicly owned companies. Companies, which use the mechanism of the stock market to raise debt or equity capital, commonly enter the stock market through issuing shares or debentures to the public.
What is a listed company?
When a company raises funds to support its growth by selling ownership interests (shares in itself) to the investing public, those shares need to be "listed" and traded on that country's stock exchange/s. These companies need to be in compliance with an Exchange's set of listing rules such as previous profit records, issued/paid up capital etc. in order to be admitted to the official list.
What is the Colombo Stock Exchange (CSE)?
The Colombo Stock Exchange (CSE) is the organization responsible for the operation of the stock market in Sri Lanka. The CSE is a company limited by guarantee duly established in Sri Lanka and licensed by the Securities and Exchange Commission of Sri Lanka (SEC) to operate as a stock exchange in Sri Lanka.
How do I purchase shares?
There are two ways to purchase shares
- From a new issue of shares (Primary Market) -
The primary market is the market for new shares or debenture issues. In the primary market, the security is purchased directly from the issuer (company). In a primary issue, the company offering the share/debenture issue publishes a document known as the prospectus. It is an invitation to the general public to buy shares or debentures of that company.
- On the Secondary Market through a stock broker -
A market in which an investor could either buy or sell shares, debentures and Government Securities from or to another investor, subsequent to the original issuance in the primary market.
Types of securities traded at the CSE
- Shares (Voting and Non-Voting)
- Corporate Debentures
- Government Securities
- Closed End Funds
What is Central Depository Systems (Pvt) Ltd?
Central Depositors Systems (Pvt) Ltd (CDS) is a wholly owned subsidiary of the CSE, which has taken over the functions of Clearing, Settlement and Registration from the Stock Exchange.
How do I open a CDS account?
To open a Securities Account in the CDS you should complete an Account Opening Form, which can be obtained from your stockbroker or custodian bank. There are no fees charged for opening a CDS account. Your participant organization may call for documents establishing your identity. It is possible to open and operate an account on the same day.
Every account will be identified through a unique account number and all correspondence and dealings, including trading and depository activities, will refer to this account number.
Your CDS accounts should be operated through your Participant organization, and any changes to your account will have to be forwarded through the Participant. You cannot issue instructions directly to the CDS.
What is the purpose of my CDS account?
Your CDS account enables you to participate in paperless trading on the Colombo Stock Exchange. Your account will be maintained in double-entry book-keeping format and will be updated on real time as your participant lodges your transactions at CDS.
What is the reason for holding my securities in scrip-less form?
The trading system at the Colombo Stock Exchange is fully automated and thereby the paper securities you lodge in your CDS account are translated into an electronic portfolio. When you buy securities, your account is automatically credited with the shares purchased and the corresponding seller's account is automatically debited with the same amount. Thus the entire process is automated and involves no exchange of bills or certificates.
Who is a Participant?
A participant is a central depository agent, either a stockbroker or a custodian bank, who has been authorized by CDS to open accounts in CDS on behalf of investors.
Who are stockbrokers?
Stockbrokers are registered members of an Exchange, authorized to buy and sell shares. These stockbrokers provide their services to the investing public interested in trading in shares of listed companies.
What do I deposit in a CDS account?
Shares, debentures, warrants, government securities and units of closed end funds
Must I open a CDS account?
Yes, if you intend to trade in shares, which have been selected for depositing, through the Colombo Stock Exchange.
Can I use a different broker from the one I have been using?
You may maintain multiple accounts through several Participant organisations. You can also transfer securities across accounts held with different Participants.
Will it cost me more to use CDS?
No. There is absolutely no increase in cost for the CDS accountholder.
What is the process of depositing securities?
- Visit a participant with the certificates you want to immobilize.
- Be sure you have already opened an account or are ready to do so.
- You will be issued with and assisted to complete a Security Deposit Form.
- Sign your form with the signature used when buying the shares.
- Return the form to the participant together with the certificates you have included on the form to be deposited.
- You will be given a receipt as evidence of your deposit.
- The participant will forward the form and the certificate to CDS
- CDS will forward the certificates and forms to the companyâ€™s shares registrar for verification.
- When the registrar confirms the certificates as genuine, the shares will be deposited in your account.
- Once the shares are in your account you can trade in them.
How do you withdraw shares from CDS?
You can withdraw shares from your account, using a withdrawal form that can be obtained from your broker, the CDS will facilitate the removal of shares from your account so that you may receive a scrip from the relevant company.
How does Intra- Account transfers occur?
You may also transfer part or all, of your portfolio between accounts opened through different participant firms. Once the Intra-Account transfer is completed and forwarded through the respective participant, the CDS will acknowledge by returning a duplicate of said form. Once checked for accuracy and completeness, the transfer will take effect.
The Exchange has permitted free transfers through different accounts in the CDS in order to accommodate foreign clients operating in different time zones to that of Sri Lanka on completion of the relevant form. However these transfers can only be effected before the expiry of two market days from the date of conclusion of the first transaction ( T +2); and only on condition that there would be no change in the fund settlement source indicated at the time of the first transaction as a result of the subsequent transfer
How does Inter-Account transfers occur?
Private Transfer of securities may also take place between account holders providing a valid relationship exists, prior approval of the Securities and Exchange Commission of Sri Lanka must be sought in order for such transfers to take place. However, in the instance of death of an account holder, securities may be transferred to next of kin, using the relevant CDS form without SEC approval.
What do I get to prove I have deposited securities?
- You get the receipt of the deposit form
- You get a monthly statement if you have a deposit or a trade that month.
- You get a quarterly statement if you have not had a trade for three months.
- The statements are issued directly to your address as indicated on the account opening form.
How Safe Is CDS?
CDS has taken measures to ensure the security of your shares. The company has back up facilities and procedures that would ensure business continuity in the event of anything happening either to the computer system or its usual premises. CDS has taken precautions to ensure its system is not interfered with. CDS has employed staff of high integrity and keep very high levels of confidentiality.