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An introduction to the Colombo Stock Market: Sri Lanka 

Coutersy of Colombo Stock Exchange

 
The rapid development in the stock market during the past few years has attracted a large number of investors to the stock market as an alternate way of investment. The contribution of the stock market to the economy has been heavily debated. The Colombo Stock Exchange is providing you this introduction to the stock market to enhance your knowledge about the capital market in Sri Lanka and assist you in making a sound investment.

 

 

WHAT IS A STOCK MARKET?

The stock market (or Stock Exchange) is a market where securities such as shares, debentures etc. issued by companies are traded. Companies which use the mechanism of the stock market to raise debt or equitycapital, commonly enter the stock market through issuing shares or debentures to the public.

Some companies issue new shares through an Initial Public Offering (IPO) while others may opt to sell aportion of the existing share capital, known as an Offer For Sale. In both instances, the investing public subscribes to the issue directly by paying the value of the share to the company. There is another method by which companies enter the stock market without issuing shares to the public, which is known as an introduction.

Companies may also opt to issue debentures (explained later in this booklet) through a debenture issue and issue debentures to the public through a public offer. Once the shares or debentures are allocated to the investors who subscribed, they become shareholders of that company respect of a share issue and debenture holders in respect of a debenture issue. Thereafter these shareholders or debenture holders are free to sell either part of in whole their shares or debentures in the stock market

WHEN WAS A STOCK MARKET ESTABLISHED IN SRI LANKA?

Share trading in Sri Lanka dates back for a century, in 1896 when the Colombo Stock Brokers Association(CSBA) commenced the trading of shares in limited liability companies. Share training however, was formalized in 1985 with the establishment of the Colombo Stock Exchange (CSE).

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 established under the Companies Act No. 17 of 1982 and licensed by the Securities and Exchange Commission of Sri Lanka (SEC) to operate as a Stock Exchange in Sri Lanka. The Securities and Exchange Commission of Sri Lanka (SEC) is the government regulator for the stock market in Sri Lanka.
The CSE has 15 member firms (stock broking firms). These member firms act as market intermediaries performing a number of services to investors and companies. All member firms are institutions, subject to the regulations of the SEC, and have to obtain a license annually.

WHAT ARE THE SERVICES OFFERED BY MEMBER FIRMS (STOCKBROKERS)

Shareholders or investors wishing to either buy or sell securities in the stock market must register with one or more stockbroker companies. The relevant transaction will be attended to by the stockbroker/s of your choice. It is therefore mandatory that investors use a market intermediary to buy/sell shares or debentures in companies listed in the stock market.

Stockbrokers provide a range of services such as the opening of securities accounts in the Central Depository system (CDS), receiving and executing orders to buy or sell securities,offer investment advice on suitable investments, portfolio management, conducting and publishing research on companies, attending to the settlement of transactions and attending to the necessary documentation in respect of any transaction. In addition, stockbrokers also provide services to companies such as sponsoring listing applications for companies, underwriting share issues, advice and facilitating takeovers and mergers etc.

 

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