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Basics Of Sri Lankan Share Market. The “Big Picture”

Basics of Sri Lankan share market. The “Big Picture”

We posted our first article on How to make money in Sri Lankan stock market last year. It was the first part of a series of posts on Sri Lankan stock investing. If you haven’t read it, you can check it out here.

This post covers the essential players in Sri Lankan stock market.

I always want to see the big picture before I get into something. That’s just the way it is for me. That’s the reason behind this post. You need to understand the key players in Sri Lankan stock market to know how things work. Don’t worry if you have no idea about stock investing. I have simplified everything so that even a monkey could understand!

Colombo Stock Exchange (CSE)

Colombo Stock Exchange is the place where stocks are being bought and sold. It’s basically a market place where you can buy and sell your stocks (see, it wasn’t that bad right?). It’s also called the secondary market, as shareholders have the opportunity to trade their shares after subscribing to them in an IPO (Initial Public Offering). IPO is where a company sells a stake in its company to the public for the very first time and once it’s sold, it can be traded in the CSE which is the secondary market. More on that in the next post.

If you wondered where CSE is located, it’s in the World Trade Center and it has branches in Kandy, Jaffna, Matara, Kurunegala, Anuradhapura, Ratnapura and Tissamaharama.

This is where all the companies have their stocks listed. As of 31st January 2017, 295 companies are listed in the CSE from 20 different sectors. The total value of all the shares in CSE is Rs. 2701.6 Billion. More about that in the next articles.

Security Exchange Commission (SEC)

SEC is the regulatory body of the Sri Lankan stock market. Their job is to ensure that everything happens fairly, efficiently in a transparent manner. They make sure that whatever happens in the market is fully disclosed to public. They protect the investors against fraudulent and manipulative practices. You can find out more about them here.

Central Depository System (CDS)

These are the guys who hold the securities (shares) in custody on behalf of the investors and companies. All the shares that have been issued in the Colombo Stock Exchange are with them. They are responsible for clearing and settling transactions.

Even though they are a ‘depository’ system, they don’t maintain a physical stock of all the shares in Sri Lanka (because all shares are held in electronic form).

Stockbrokers

Investors like you and I cannot buy shares directly from the Colombo Stock Exchange. That’s where stock brokers come in. They are the middle party that connects buyers and sellers to facilitate transactions. As an example, if you want to buy 100 shares of Dialog PLC, you have to ask a stockbroker firm to do it on behalf of you. Then they will purchase the stocks for you. But if you have access to the respective stock brokers online platform, you can place your order directly as well.

So in a nutshell, when you want to buy stocks, you place your order via a stockbroker and your order is sent to the order book in the CSE. If your price matches and the transaction gets executed, the CDS will transfer the shares to your CDS account from the sellers CDS account, however settlement is made on T+3 basis (Transaction Day plus three days).

There are 27 stockbroker firms in Sri Lanka of which 15 are members and remaining trading members. In a future post, we will take you through a step-by-step process of selecting a stockbroker firm in Sri Lanka.

That’s all for this week. The next post is all about opening an account in the Colombo Stock Exchange. If you want the future posts directly delivered to your email, sign up below. That way, you will not miss a single post.

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Nishan De Silva

Nishan is the founder of Jump.lk. He is a life enthusiast who loves reading and eating. His ambition is to travel 100 countries before dying (even though he hasn't been out of the country yet!)

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