ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange (CSE) will launch its new Central Counterparty (CCP) framework next month, marking a significant advancement in the evolution of the island nation’s capital market infrastructure, the bourse said.
This new move is aimed at enhancing the safety, efficiency, and transparency of the market, ensuring the smooth settlement of trades.
“With a CCP in place, Sri Lanka’s capital market becomes more resilient, trustworthy, and globally competitive,” Rajeeva Bandaranaike, Chief Executive Officer of the CSE said in a statement.
“It serves as a foundation for deeper market development enabling higher volumes, more sophisticated instruments, and broader investor participation.”
Since August 2021, the CSE has been operating under a Delivery versus Payment (DvP) settlement mechanism, ensuring that securities are delivered to the buyer only when the payment is made.
The DvP minimizes settlement risk and asset commitment risk by synchronizing the exchange of securities and funds.
However with the growth of trading volumes, the bilateral nature of DvP was seen posing issues such as higher operational complexity and increased credit and settlement risk.
To address these inefficiencies, CSE worked towards CCP implementation by establishing a separate entity, obtaining the necessary regulatory approvals, making system modifications, and creating stakeholder awareness.
CSE Clear (Pvt) Limited, a new company incorporated, is a fully owned subsidiary of the CSE that will act as the CCP for all equity transactions executed at the CSE.
CSE Clear is a licensed clearing house, regulated by the Securities and Exchange Commission of Sri Lanka (SEC).
“This advancement will support the CSE in introducing new products to the market, such as derivatives (futures and options) and other complex instruments,” Bandaranaike said,
“Furthermore, the robust risk management framework provided by a CCP gives investors the confidence to engage in more advanced trading strategies, including short selling — marking a significant step forward in the evolution of Sri Lanka’s financial market infrastructure.”
The CSE in its statement said there is no guarantee of settlement in the current DvP model and if one party defaults, all other parties are exposed, which could lead to cascading failures in the market.
The CCP is expected to play a critical role in modern financial markets – acting as an intermediary between trading parties, guaranteeing trades, managing risks, and providing the infrastructure to keep exchanges operating safely and efficiently even during times of market stress.
The CSE also said the CCP brings the key benefits including eliminating counterparty default risk by guaranteeing trades, enabling netting of trades, reducing the volume of settlements, building trust by enhancing the reliability of the settlement process, and implementing robust risk frameworks and default funds to protect the system among many others.
The CCP also helps to boost trading activity and fund availability as well as align with international standards, making the market more attractive to foreign investors, the CSE said. (Colombo/June 17/2025)
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