The Securities and Exchange Commission (SEC) has prioritised the digitisation of its licensee, the Colombo Stock Exchange (CSE), to enable its activities to be conducted digitally and for clearing and settlement to be carried out electronically. A joint committee of the SEC and the CSE is currently being formed, to consider the necessary measures for this digitisation, as an urgent requirement in light of the restrictions on movement brought about by the Covid-19 pandemic. This is according to a letter dated 30 April signed by SEC Director General Chinthaka Mendis and addressed to CSE Chief Executive Officer Rajeeva Bandaranaike. Referring to a trail of letters exchanged between the SEC and the CSE over the past couple of weeks, Mendis has pointed out that the measures currently in place at the CSE are inadequate. “The inadequacies of the measures currently in place at the Colombo Stock Exchange to conduct all of its core activities digitally came to light during the correspondence exchanged between the CSE and the SEC recently. You will appreciate that it is imperative to have a mechanism in place for the CSE to conduct all core activities of the stock market digitally as well as to have measures in place to ensure electronic clearing and settlement in order to keep abreast with the development of technology,” Mendis noted. Mendis was referring to an earlier letter in which the CSE had requested the SEC to permit it to reopen for trading irrespective of the curfew situation, after having been closed for more than a month since the curfew was imposed. In its response, the SEC in turn requested the CSE “to carefully identify all operational requirements, including issues of settlement, and spell out in detail the means by which the CSE intends to resolve them”. According to the SEC, this is because it is “imperative” to satisfy itself that the CSE is able to ensure all operational requirements which are necessary for the stock market to function in a “fair and orderly manner” are met. On 25 April, the CSE replied to this letter with a detailed explanation of the measures it intends to take to ensure all requirements are met. Speaking to us on 24 April, CSE Chairman Ray Abeywardena explained what kind of mechanisms this would include. “For example, if an investor can’t make a settlement through a cheque due to the curfew, the CSE must have an employee at the ready who can travel to the investor’s house and collect the cheque. Or else, we must ensure that the investor has internet banking to make the payment. So, we are expected to cover all bases,” he noted. The latest letter appears to be a clear indication that the SEC was not satisfied with the measures the CSE detailed in its response. It has long been acknowledged by investors and market analysts that the CSE lags far behind other Asian stock exchanges in its digitisation. However, another school of thought among the investor community and market analysts is that the SEC is concerned about a large outflow of dollars from the market if it was to be opened, due to a number of foreign investors waiting anxiously till the market opens to sell its stocks. A large dollar outflow would be something the Government could ill afford considering that it is currently desperate for dollars to avert a foreign exchange crisis. Therefore, observers opine that any matters regarding settlements, while they may be of concern, are not the chief determinants of the market’s sustained closure. However, when inquired SEC officials vehemently denied such assumptions saying that the reasons for the extended market closure are simply those stated and nothing beyond them. It also denied any political influence to keep the CSE closed. The joint committee proposed by the SEC is to have two members of the SEC and three officers of its Secretariat, and it will also include two members of the Board of the CSE and three officers of its Secretariat. SEC Chairman Viraj Dayaratne PC has nominated Commission Members Manil Jayesinghe and Naresh Abeysekera as well as Director General Chinthaka Mendis and Directors Harshana Suriyapperuma and Prabash Wanigatunga to serve as the SEC-nominated members of this committee. This committee will “identify measures/mechanisms required for the Colombo Stock Exchange to conduct all core activities of the stock market digitally as well as to enable clearing and settlement electronically, and to make recommendations to have the said measures/mechanisms in place”, according to the letter. CSE Chairman Ray Abeywardena has been invited to nominate members from the CSE for the committee or to moot any alternative proposal.