Stakeholder Ready
Annual Report 2015
Colombo Stock Exchange Annual Report 2015
Contents About CSE About the CSE 2 Our Vision, Mission and Values 3 Member Firms 4 Market Highlights 7 Operational Highlights 10 Our Envisioned Corporate Model 12 Stakeholder Relationship Matrix 14 Value Drivers and Strategy 17 Value Creation Model 19
Management Information & Executive Reviews Chairman’s Review 20 Chief Executive Officer’s Review 24 Board of Directors 30 Board Committees 34 Management Team 36
Operational Review Operational Review 38 Corporate Governance Framework of CSE 62 Corporate Sustainability Statement 64
Financial Information Annual Report of the Board of Directors on the Affairs of the Company 68 Directors’ Responsibility for Financial Reporting 71 Risk and Audit Committee Report 72 Independent Auditors’ Report 74 Statement of Profit or Loss and other Comprehensive Income 75 Statement of Financial Position 76 Statement of Changes in Equity 77 Statement of Cash Flows 79 Notes to the Financial Statements 80
Supplementary Information Notice of Meeting 115 Corporate Representation 117 Notes 119
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Stakeholder Ready
At the Colombo Stock Exchange, we understand our commitment to every stakeholder we serve. From investors, traders, brokers and issuers to data vendors, communities and individuals, they demand consistent value creation and delivery. Reliably, transparently and fast. The CSE offers our diverse stakeholders all the services and returns of a vibrant stock exchange. From quick face to face and online access and a responsive service to a vibrant product portfolio, state-of-the-art technologies and great returns.
Because we are pledged to serve the nation. And we are stakeholder ready.
The Colombo Stock Exchange Stakeholder Ready
1 Colombo Stock Exchange Annual Report 2015
About the CSE
Profile The Colombo Stock Exchange (CSE) is the nucleus of Sri Lanka’s capital market as the licensed operator of the stock market. We are regulated by the Securities and Exchange Commission of Sri Lanka (SEC) and was incorporated as a company limited by guarantee 30 years ago.
We connect buyers and sellers in cash markets in both equity and debt. The Automated Trading System (ATS) has the capability of trading multiple products on a single platform. We also perform regulatory oversight to ensure the fairness and integrity of the Sri Lankan capital market. Our post- trade services currently comprise settlement and safekeeping and are provided through a fully owned subsidiary, Central Depository Systems (Private) Limited (CDS). The CSE also sells real time and reference market data to vendors and other users.
Alongside the wider community which interact with us, our core stakeholder base constitutes of 36 Members and Trading Members, 294 issuers, 750,000 investors, 158 employees, and other stakeholders.
Group Structure The CDS supports the CSE in the post-trade area through the provision of securities depository services. To provide comprehensive end-to-end exchange services, C S E Clear (Private) Limited (C S E Clear) which anticipates the provision of clearing and settlement functions as a central counterparty (CCP).
Colombo Stock Exchange
Central Depository Systems C S E Clear (Private) (Private) Limited Limited (C S E Clear) (CDS) 100% 100%
2 About CSE
Our Vision, Mission and Values
As an institution of national significance, we maintain an unwavering focus and commitment towards creating conditions that support growth. Our activities are motivated by Sri Lanka’s own perspective for prosperity. Ours is a spirited approach towards a robust and sustainable future as reflected by our corporate maxims.
To be the preferred choice for creation of Encourage issues to raise capital Wealth and through the CSE Value
Increase the number of the investors
Integrity
Provide facilities for diversified products
Care Passion
Ensure balanced regulation to maintain market integrity and investor confidence Professionalism Teamwork
3 Colombo Stock Exchange Annual Report 2015
Member Firms
Members Bartleet Religare Securities (Pvt) Assetline Securities (Pvt)Ltd. Asia Securities (Pvt) Ltd. Limited No.120, 120A, Pannipitiya Road, 2nd Floor, Level “G”, “Bartleet House”, Battaramulla. No 176/1 - 2/1, Thimbirigasyaya Road, 65, Braybrooke Place, Colombo 2. Tel: +94 11 4 700 111 Colombo 5. Tel:+94 11 5 220 200 Fax: +94 11 4 700 101, +94 11 4 700 112 Tel: +94 11 7 722 000 Fax: +94 11 2 434 985 E-mail:[email protected] Fax : +94 11 2584864 E-mail: [email protected] Website: www.assetline.lk/stock_ E-mail: [email protected] Website: www.bartleetreligare.com brokering.html Website: www.asiasecurities.net Mr. R. Muralidaran Mr. Deepta Ekanayake Mr. Sabri Marikar Managing Director Managing Director Chief Executive Officer
Acuity Stockbrokers (Pvt) Ltd. Somerville Stockbrokers (Pvt) Ltd. Nation Lanka Equities (Pvt) Ltd. No. 53, Dharmapala Mawatha, Colombo 3. 137, Vauxhall Street, 44, Guildford Crescent, Tel: +94 11 2 206 206 Colombo 2. Colombo 7. Fax: +94 11 2 206 298 / 9 Tel: +94 11 2 329 201/5, Tel:+94 11 4 889 061/3, E-mail: [email protected] +94 11 2 332 827, +94 112 338 292-3 +94 11 2 684 483 Website: www.acuity.lk Fax: +94 11 2 430 829 Fax: +94 11 2 688 899 Mr. Prashan Fernando E-mail: [email protected] E-mail: [email protected] Director / CEO Ms. Shalini Dias Website: www.nlequities.com Director / CEO Mr. Ajahn Punchihewa Director/ Chief Executive Officer
John Keells Stock Brokers (Pvt) Ltd. J B Securities (Pvt) Ltd. Capital Trust Securities (Pvt) Ltd. 186, Vauxhall Street, 150, St. Joseph Street, 42, Mohamed Macan Markar Mawatha, Colombo 2. Colombo 14. Colombo 3. Tel: +94 11 2 342066-7, Tel:+94 11 2 490 900 Tel: +94 11 2 174 174, +94 11 2 174 175 +94 11 2 306250 Fax: +94 11 2 446 085, Fax: +94 11 2 174 173 Fax: +94 11 2 342068 +94 11 2 447 875 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.capitaltrust.lk Website: www.jksb.com Website: www.jbs.lk Mr. Tushan Wickramasinghe Mr. Tivanka Ratnayake Mr. Murtaza Jafferjee Managing Director Chief Executive Officer Chief Executive Officer / Managing Director
Asha Phillip Securities Ltd. Lanka Securities (Pvt) Ltd. S C Securities (Pvt) Ltd. 2nd Floor, 228/1, Galle Road, Colombo 4. 5th Floor, 26 B, Alwis Place, Lakshmans Building, Tel: +94 11 4 706 757, 2 554 942 Colombo 3. No. 321, Galle Road, Fax: +94 11 4 706 767 Tel: +94 11 4 711 000, Colombo 3. E-mail: [email protected] +94 11 47 11 001 Tele : +94 11 2 429 100 Website: www.lsl.lk Fax: +94 11 2 394 405 Fax : +94 11 2 429 199 Mr. Kosala Gamage E-mail: [email protected] E-mail: [email protected] Managing Director / CEO Website: www.sampathsecurities.lk Website:www.ashaphillip.net Mr. Harsha Fernando Mr. Dimuthu Abeysekera Director / Chief Executive Officer Director / CEO
4 About CSE
Members CT CLSA Securities (Pvt) Limited. First Capital Equities (Pvt) Limited. NDB Securities (Private) Limited. 4-14, Majestic City, 10, Station Road, No. 347/1/1, Dr. Colvin R De Silva 5th Floor, NDB Building, 40, Navam Colombo 4. Mawatha, Colombo 2. Mawatha, Colombo 2. Tel. +94 11 2 552 290/4 Tel: +94 11 2 145 000 Tel:+94 11 2 314 170 to 178, Fax: +94 11 2 552 289 Fax: +94 11 5 736 264 +94 11 2 131 000 E-mail: [email protected] E-mail: [email protected] Fax: +94 11 2 314 181 Website: www.ctclsa.lk Website: www.firstcapital.lk E-mail: [email protected] Mr. Kanishka Hewage Mr. Jaliya Wijeratne Website: www.ndbs.lk Chief Executive Officer Chief Executive Officer Mrs. Prasansini Mendis Chief Executive Officer
Trading Members Capital Alliance Securities (Pvt) Ltd. Taprobane Securities (Pvt) Ltd. Enterprise Ceylon Capital (Private) Level 5, “Millennium House”, 46/58 Navam 2nd Floor, No. 10, Gothami Road, Limited. Mawatha, Colombo 2. Colombo 08. 27th Floor, East Tower, Tel: +94 11 2 317 777 Tel: +94 11 5 328 200, +94 11 5 328 100 World Trade Centre, Echelon Square, Fax: +94 11 2 3177 88 Fax: +94 11 5 328 177 Colombo 1. E-mail: [email protected] E-mail: [email protected] Tel: +94 11 2 333 000, +94 11 2 147 147 Website: www.capitalalliance.lk Website: www.taprobanestocks.com Fax: +94 11 2 333 383 Mr.Harinlal Aturupane Mr. Niranjan Niles E-mail: [email protected] Managing Director / CEO Chief Executive Officer Ms. Priyani Ratna-Gopal Managing Director / Chief Executive Officer
SMB Securities (Pvt) Ltd. Candor Equities Ltd. TKS Securities (Pvt) Ltd. No. 102/1, Dr. N.M. Perera Mawatha (formerly Level 8, South Wing, Millennium House, 4th Floor, No. 245, Dharmapala Mawatha, Cotta Road) Colombo 8. 46/58 Nawam Mawatha, Colombo 2. Colombo 7. Tel: +94 11 4 388 138 Tel: +94 11 2 359 100 Tel: +94 11 7 857 799 Fax: +94 11 2670294 Fax: +94 11 2 305 522 Fax: +94 11 7 857 857 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.smbsecurities.lk Website: www.candor-holdings.com Website: www.tks.lk Mr. N. N. Jayatillake Mr. Ravi Abeysuriya Mr. Ralph Wijesinghe Chief Executive Officer Director / CEO Chief Executive Officer
First Guardian Equities (Pvt) Ltd. Entrust Capital Markets (Pvt) Richard Pieris Securities (Pvt) Ltd. 32nd Floor, East Tower, World Trade Centre, Limited No. 55/20, Vauxhall Lane, Colombo 02. Colombo 1. Level 15, East Tower, Tel: +94 11 7 448 900 , +94 11 5 900 800 Tel: +94 11 5 884 400 (Hunting) World Trade Center, Echelon Square, Fax: +94 11 2 330 711 Fax: +94 11 5 884 401 Colombo 1. Email: [email protected] E-mail: [email protected] Tele : +94 11 550 0600, +94 11 550 0698 Mr. Dilruk A. Fernando Website: www.firstguardianequities.com Fax : + 94 11 550 0699 Acting Chief Executive Officer Mr. Rohan Goonewardene E-mail: [email protected] Managing Director / CEO Website: www.serendibsb.com Mr. Naushervan Beg Director / Chief Executive Officer
5 Colombo Stock Exchange Annual Report 2015
Member Firms
Trading Members Claridge Stockbrokers (Pvt) Ltd. Softlogic Stockbrokers (Pvt) Ltd LOLC Securities Limited No.10 Gnanartha Pradeepa Mawatha, No.06, 37th Lane, No. 481, T.B.Jayah Mawatha, Colombo 8. Queens Road, Colombo 03. Colombo 10. Tel: +94 11 2 697 974 Tel: +94 11 7 277 000 Tel: +94 11 5889889 Fax: +94 11 2 689 250 Fax: +94 11 7 277 099 Fax: +94 11 2662883 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Mr. P .N. A. Epa Website: www.softlogicequity.lk Mr. Sriyan Gurusinghe Chief Executive Officer Mr. Dihan Dedigama CEO / Managing Director Chief Executive Officer
Navara Securities (Pvt) Ltd No. 25-2/1, Milepost Avenue, Colombo 3. Tel: +94 11 2 358 700 / 20 Fax: +94 11 5 005 551 E-mail: [email protected] Website: www.navarasecurities.lk Mr. Vedisa Jayasankha Alahendra Chief Executive Officer
Trading Members – Debt First Capital Markets Limited Perpetual Treasuries Limited Natwealth Securities Limited No. 2, Deal Place, Colombo 3. Level 3, Prince Alfred Tower, Prince Alfred Tower, Tel: +94 11 2 639 898, +94 11 2 681 888 No 10, Alfred House Gardens, No. 10-1/1, Alfred House Gardens, Fax: +94 11 2 639 899, + 94 11 2 576 866 Colombo 3. Colombo 3. E-mail: [email protected] Tel: +94 11 2206123, +94 11 2206107 Tel: +94 11 4716274 Website: www.firstcapital.lk Fax: +94 11 2206110 Fax: +94 11 4645776 Mr. Dilshan Wirasekara Mr. Kasun Palisena Mr. Gihan Jayatilleke Deputy Chief Executive Officer Acting Chief Executive Officer Chief Executive Officer
Capital Alliance Limited NSB Fund Management Company Commercial Bank of Ceylon PLC Level 5, “Millenium House” Limited Commercial House, 46/58, Nawam Mawatha, Colombo 2. No 255, 1st Floor, NSB Head Office, No. 21, Sir Razik Fareed Mawatha, Tel: +94 11 2317777 Galle Road, Colombo 3. Colombo 1. Fax: +94 11 2317788 Tel: +94 11 2 565 956, +94 11 2 565 957 Tel: +94 11 2 486 334 E-mail: [email protected] Fax: +94 11 2 574 387 Fax: +94 2 384 650 Mr. Gihan Hemachandra Mrs. B.P.J. Gunasekera Mr. Prins Perera Chief Executive Officer Chief Executive Officer Head of Global Markets
Wealthtrust Securities Limited Acuity Securities Limited No. 32, Castle Street, Colombo 8. 4th Floor, No. 53, Dharmapala Mawatha, Tel: +94 11 2 675 091-4 Colombo 3. Fax: +94 11 2689605 Tel: +94 11 2 206 280 E-mail: [email protected] Fax: +94 11 2 206 290 Mr. D.H.B. Ranawana Mr. Amal Fernando Chief Executive Officer Director / Chief Executive Officer
6 About CSE
Market Highlights
Equity 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Turnover (Rs. Mn) 253,251.0 340,917.1 200,467.8 213,827.2 546,255.8 570,326.8 142,462.6 110,453.9 104,985.4 105,153.7 Domestic (Rs. Mn) 166,151.5 246,796.8 128,227.6 160,543.3 486,959.4 464,733.6 99,010.8 50,796.9 63,815.7 70,675.1 Foreign (Rs. Mn) 87,099.5 94,120.3 72,240.2 53,283.9 59,296.4 105,593.2 43,451.8 59,656.9 41,169.7 34,478.6 Shares Traded (No. Mn) 9,414.7 16,721.5 9,054.2 9,691.2 24,543.7 18,489.2 4,762.7 3,154.9 2,887.3 3,912.3 Domestic (No. Mn) 7,693.2 14,726.2 7,861.6 8,289.6 23,151.6 16,684.5 3,784.2 1,934.9 2,009.9 3,178.2 Foreign (No. Mn) 1,721.5 1,995.4 1,192.6 1,401.7 1,392.1 1,804.7 978.4 1,220.0 877.3 734.2 Trades (No.) 1,506,790 1,982,709 1,421,303 1,857,384 4,579,352 3,355,126 1,266,299 776,244 876,928 952,382 Domestic (No.) 1,431,750 1,899,569 1,355,380 1,796,868 4,463,404 3,225,041 1,190,822 730,415 831,663 908,220 Foreign (No.) 75,040 83,140 65,923 60,516 115,948 130,085 75,477 45,829 45,265 44,162 Daily Average Turnover (Rs. Mn) 1,059.6 1,414.6 828.4 883.6 2,285.6 2,396.3 593.6 464.1 435.6 436.3 Market Capitalisation (Rs. Bn) 2,938.0 3,104.9 2,459.9 2,167.6 2,213.9 2,210.5 1,092.1 488.8 820.7 834.8 Turnover to Market Capitalisation (%) 8.4% 12.3% 8.7% 9.8% 24.7% 34.5% 18.0% 16.9% 12.7% 14.8% Market Capitalisation as a % of GDP 30.0% 31.7% 28.4% 28.6% 33.8% 39.5% 22.6% 11.1% 22.9% 29.8%
Contribution to Total Market Turnover (%) Foreign Companies 32.8% 26.0% 34.3% 23.6% 8.3% 15.3% 26.8% 49.0% 33.8% 26.3% Foreign Individuals 1.6% 1.6% 1.8% 1.4% 2.6% 3.2% 3.7% 5.0% 5.4% 6.5% Total Foreign Investor Contribution (%) 34.4% 27.6% 36.1% 24.9% 10.9% 18.5% 30.5% 54.0% 39.2% 32.8% Local Companies 30.4% 34.7% 30.4% 41.0% 34.5% 37.5% 33.9% 23.8% 29.0% 32.2% Local Individuals 35.2% 37.7% 33.5% 34.1% 54.6% 44.0% 35.6% 22.2% 31.8% 35.1% Total Local Investor Contribution (%) 65.6% 72.4% 63.9% 75.1% 89.1% 81.5% 69.5% 46.0% 60.8% 67.2%
Foreign Trading Activities Secondary Market Purchases (Rs. Mn) 84,414.6 104,689.8 83,607.0 72,614.2 49,776.8 92,425.5 43,057.3 66,632.2 46,796.8 37,167.3 Sales (Rs. Mn) 89,784.4 83,550.8 60,873.3 33,953.6 68,816.0 118,760.9 43,846.3 52,681.7 35,542.5 31,789.9 Net Foreign Flow (Rs. Mn) (5,369.9) 21,139.0 22,733.7 38,660.7 (19,039.2) (26,335.3) (789.0) 13,950.5 11,254.3 5,377.3
New Listings/ Issues Equity IPOs (No.) 2 5 1 6 13 8 2 2 0 2 Equity Introductions (No.) - 1 1 11 16 2 0 1 0 1 Debt IPOs (No.) 25 20 28 3 1 2 1 4 5 1 Debt Introductions (No.) - - 1 3 4 0 1 1 4 1
Capital Raised Equity IPOs (Rs. Mn) 329.6 2,693.8 494.4 1,739.4 19,155.7 4,347.5 681.8 1,518.5 - 500.0 Debt IPOs (Rs. Mn) 83,414.4 54,234.9 68,262.3 12,500.0 1,000.0 15,000.0 630.6 5,581.7 3,571.0 1,258.0 Rights Issues (Rs. Mn) 16,105.3 8,099.0 25,539.0 11,128.0 28,019.7 24,321.7 5,235.4 2,679.1 44,622.0 4,612.0 Conversion of Warrants (Rs. Mn) 7,972.76 0.03 0.5 1,954.8 2,675.0 Not Available Private Placement (Rs. Mn) 1,517.7 12,755.2 0.0 2,266.2 4,500.0 433.0 1,100.0 510.0 - -
7 Colombo Stock Exchange Annual Report 2015
Market Highlights
Returns, Yields and Valuation Multiples 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
All Share Price Index 6,894.50 7,298.95 5,912.78 5,643.00 6,074.42 6,635.87 3,385.55 1,503.00 2,541.00 2,722.40 Change % -5.50% 23.40% 4.80% (7.10%) (8.50%) 96.00% 125.30% (40.90%) (6.70%) 41.60% S&P SL 20 3,625.69 4,089.14 3,263.9 3,085.3 ------Change % 11.30% 25.30% 5.80% 8.4%* ------Market PER (Times) 18.0 19.7 15.9 15.9 15.8 25.2 16.6 5.4 11.6 14 Price to Book Value (Times) 2.0 2.2 2 2.1 2 3 1.7 0.8 1.8 2 Dividend Yield 2.2% 2.1% 2.9% 2.4% 1.8% 1.2% 3.0% 5.6% 2.5% 2.2% * Launched on 27th June 2012
Debt Trading Statistics Corporate Debt Turnover (Rs. 000) 4,714,012.7 7,139,730.4 2,229,221.3 75,717.1 2,690,664.4 72,288.0 136,765.0 102,639.0 98,903.1 405,211.4 Trades (No.) 220 401 173 39 62 92 42 27 144 321 Debentures Traded (No. 000) 42,201 56,909 19,999 740 25,861 693 1,020 953 1,020 2,421
Closed End Fund Turnover (Rs. 000) 55,316.5 131,872.5 44,160.0 21,865.5 137,848.1 621,264.6 4,615.6 - - - Trades (No.) 765 940 883 767 2,898 8,302 228 - - - Units Traded (No. 000) 818 1680 640 339 1,642 8,222 87 - - - Funds Listed (as at 31st December, No.) 2 1 1 1 1 1 1 - - -
Additional Data Companies Listed (No.) 294 294 289 287 272 241 231 235 235 237 Companies Traded (No.) 278 284 278 280 264 238 231 232 231 232 Delistings (No.) 4 3 1 2 0 1 6 2 2 4 Market Days (No.) 239 241 242 242 239 238 240 238 241 241
Warrants Turnover (Rs. Mn) 2,691.6 6,090.9 1,461.5 3,942.5 14,076.1 19,581.2 1,688.1 142.2 12.0 23.8 Trades (No.) 68,035 73,235 48,633 85,462 242,328 227,671 35,826 7,830 829 2,712 Warrants Traded (No. Mn) 163.6 677.5 334.2 754.7 2,733.1 1,531.6 148.8 24.8 6.4 9.4 No of Warrants Traded (as per Type of Warrant) 6 7 8 9 14 16 5 3 1 2 New Warrants Listed (Types) 1 - 2 1 1 12 2 2 0 0
8 About CSE
Market Capitalisation & Top 10 Companies Market Capitalisation No. of Trades – Equity Net Foreign Flow - Equity As at 31 Dec 2015 4,579,352 3,104.9 2938.0 2,167.6 2,459.9 2,213.9 38,660.7 22,733.7 21,139.0 1,982,709 1,857,384 1,421,303 1,506,790 (5,369.9) (19,039.2) 53.2 211.8 185.9 115.0 110.1 87.1 84.8 73.8 68.3 68.0
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 SLT JKH HNB DIALOG Equity Market Capitalisation (Rs. Bn) Net Foreign Flow - Equity (Rs. Mn) NESTEL CARSONS
Equity Trades (No.) DISTILLERIES HEMAS HOLDINGS CEYLON TOBACCO COMMERCIAL BANK Market Capitalisation (Rs Bn) Equity
Annual Turnover and New Issues - Corporate Debt Composition of Annual Turnover 59,296.4 83,414.4 68,262.3 54,234.9 94,120.3 2,459.9 87,099.5 53,283.9 72,240.2 12500.0 2,690,664.4 1,000.0 486,959.4 160,543.3 166,151.5 128,227.6 246,796.8 75,717.1 2,229,221.3 7,139,730.4 4,714,012.7
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Turnover (Rs. 000) Domestic (Rs. Mn) New Issues of Corporate Debt (Rs. Mn) Foreign (Rs. Mn)
9 Colombo Stock Exchange Annual Report 2015
Operational Highlights
1
2 3
4 5
10 About CSE
7
1. CSE hosts a special Market Opening Ceremony to mark the 30th 6 anniversary
2. CSE and MSE sign MOU for cooperation and mutual development
3. Lord Mayor of London visits CSE
4. South Asian Investment Conference 2015 held in Colombo
5. Invest Sri Lanka Investor Forum in 8 Zurich
6. CSE Opens trading at London Stock Exchange (LSE)
7. Awarded for “The most innovative use of Training and Development as an HR initiative for organisational development” at the 3rd Global Training and Development Leadership Awards
9 8. Colombo Stock Exchange adopts Global Industry Classification Standard (GICS)
9. 17th Annual Cross Training Seminar of the Asia-Pacific Central Securities Depository Group (ACG) in Colombo
10. Invest Sri Lanka Investor Forum in London
10
11 Colombo Stock Exchange Annual Report 2015
Our Envisioned Corporate Model
Colombo Stock Exchange
Listings
Members and Trading Member Market Data Trading Associated Services
Financial Derivatives Market* Cash Markets
Equities Exchange Traded Products and Structured Products Debt
Multi- LKR Exchange Structured Closed-end Corporate currency denominated Warrants REITs* Traded Warrants * funds Debt equities* equity shares Funds (ETF)*
Clearing* Trade confirmation, obligation calculation and reporting are currently facilitated through the ATS and the CDS. Central clearing is to be initiated with the start of operations of C S E Clear.
Settlement *Initiatives to be Settlement services are currently provided by the CDS. Upon start of operations, C S E Clear would provide introduced through settlement assurance. our strategic journey
Custody Depository and custody services are currently provided by the CDS.
Poised to diversify From the perspective of the exchange The CSE is the operator of the stock Market the report. In expanding our clearing and industry, the CSE currently focuses only on in Sri Lanka. Our current investor base has settlement operations, a subsidiary named cash markets (or spot markets) in equity a 34.4% : 65.6% mix of foreign to domestic C S E Clear has been incorporated in shares, warrants and closed-end funds in investment in the equities market. We March 2016 to act as a clearing company. the equities market together with corporate strive to increase our global reach through Phased implementation of central clearing debt securities in the debt market. For the concerted efforts to bring Sri Lanka to the is currently underway. purpose of this report we have depicted international platform. By also introducing our extended corporate model, given our multi-currency markets we hope to attract strategic vision to achieve product diversity listings of overseas issuers. Headway and provision of end-to-end services from made in introducing new products and listing to post-trade. markets has been outlined on page 41 of
12 About CSE
Revenue mix Our revenues are drawn from the following sources: • Listing of companies and additional listing of the securities of listed companies and continuing listing fees; • Trade activity on a per trade basis with fees related to a combination of the value and/or number of securities traded for a trade activity; • Depository services with fees related to a combination of the value and/or number of securities traded for a trade or post-trade activity; • The sale of market data-live, statistical, historical and end of day to vendors and other users; • Dividend income from the CDS; • Member associated fees and • Other incomes including investment income.
Depicted below is the revenue contribution comparison by source for the years 2015 and 2014.
Contribution by Revenue Source 2015, 2014
6.0% 2014, 20.7% Total Revenue Rs. 961.0 Mn
12.0% 19.3% 50.1% 2015, Total 4.2% 4.9% Revenue Rs. 852.76 Mn
18.6% 42.7%
2.4% 18.5%
1.0%
Listing (Primary Markets) Trading (Secondary Markets) Information Services (Market Data) Post-Trade (CDS) Members & Trading Members Other Revenue
13 Colombo Stock Exchange Annual Report 2015
Stakeholder Relationship Matrix
Stakeholder Relationship Matrix The CSE forms synergistic relationships with stakeholders, helping them elicit the best from us whilst supporting our own long-term ability to elevate value creation to a higher level.
Modes in which stakeholder is Stakeholder Focus areas that we engage about engaged
Government of Sri Lanka • Meetings on a needs basis • Areas of mutual interest including the impact on national budget (GoSL) • Quarterly reviews by CBSL from capital market development initiatives Stakeholders include the • Policy papers • Long-term sustainability of the market and critical aspects for Ministry of Finance, the which GoSL support is needed for example the listing of state Central Bank of Sri Lanka owned entities (CBSL) and the Department • Systemic risk mitigation measures of Inland Revenue • Exchange control matters as well as taxation impacting the capital market • Taking our unique selling proposition of Sri Lankan equity and debt markets to the global forum • Market statistics as a measurement of economic activity
Industry Regulator • Direct meetings • Policy and regulatory areas of mutual interest including the The SEC • Meetings by invitation represented CSE’s monitoring activities such as surveillance, investor and principally by the Chief Executive of market protection as well as broker supervision the CSE • General financial sector regulatory framework and our capability • Meetings arranged by the industry of meeting international standards in view of CPSS-IOSCO regulator with market participants compliance coming under the SEC’s jurisdiction • Market development initiatives applicable to a range of including unit trusts and custodians market participants including the implementation of CCP and • Meetings between the demutualisation Commissioners and the Board of Directors of the CSE • Joint Industry forums with the participation of SEC Commissioners, CSE Chairman & CEO and the CSE Board
Members and • AGM/Annual report • Regulatory compliance and reporting areas applicable to Trading Members • Direct meetings members including surveillance, broker supervision and enforcement • Circulars • Member expectation and service needs through their • On and off-site audits operational perspective • Awareness building sessions • Market development both foreign and local • Complaint meetings • Structural/infrastructure enhancements • Opinion polls • Investor protection • Industry advisory panels
14 About CSE
Modes in which stakeholder is Stakeholder Focus areas that we engage about engaged
Listed Issuers • One-on-one meetings • Services with regard to listing and additional listing • Circulars • Introduction of new products • Awareness sessions • Regulatory compliance including listing, trading and • Compliance monitoring reviews continuous listing • CSE website • Public consultation • Sponsorships • Market Opening Ceremonies
Potential Issuers • CSE website • Introduction of potential issuers to the listing process, guidance • Issuer relations forums and advise on the CSE Listing Rules • One-on-one meetings • Sponsorships
Investors • CSE website • Financial literacy and investor education to understand the • Investor education sessions range of investment products and investment process • Financial literacy publications • Presentation and clarification of the CSE and Sri Lanka’s value proposition for investment • Focused awareness sessions for target groups of investors • Complaint resolution • Roadshows • Press releases and interviews • Programmes and features on Radio and TV, and newspaper articles • Investor complaint meetings
Employees • Training programmes • Ongoing strategic and operational initiatives • Intranet • Performance management • Staff welfare activities and • Remuneration and benefits engagements • Employee inclusion and welfare • Performance management • Training and development • Job rotation scheme • Health and wellness • HR Clinics • Employee Recognition Initiatives
Technology providers • Meetings • Provision of technological infrastructure and requisite • Negotiations enhancements to support strategic initiatives • DR testing process • Technological reliability and readiness • Cost evaluation • Performance metrics • Disaster recovery and business continuity
15 Colombo Stock Exchange Annual Report 2015
Stakeholder Relationship Matrix
Modes in which stakeholder is Stakeholder Focus areas that we engage about engaged
Media • Results announcements • Performance, growth areas, company sustainability prospects • Annual report and interim report • Strategy • CSE website • Financial literacy and investor education • Roadshows • Press releases and interviews • Press Conferences
External Associations • Strategic alliances • Areas where cohesive strategic mileage can be gained in • Ad-hoc meetings enhancing operations and strategy
Regional Exchanges, • Partnerships and membership in • Areas where cohesion with other stock exchanges can fortify International Exchange stock exchange bodies and initiatives our operations as well as strategy and execution Bodies and Central including the World Federation of Securities Depository (CSD) Exchanges (WFE) and South Asian related alliances Federation of Exchanges (SAFE) as well as the United Nations Sustainable Stock Exchanges Initiative (SSE) • Cross Exchange training • Conferences and training • Memoranda of Understanding
Community • CSE website • Financial literacy with focus on markets, portfolio choice, • Social forums (Facebook, Twitter) investment risks and other aspects of informed investment decision making • Press releases • Community development • CSE Publications • Sponsorships and donations • Educational tours to the CSE trading floor • Environmental initiatives such as process changes enabling a paperless office • Workshops and seminars to educational institutions and general public • Foreign Employment Bureau programmes • Trade exhibitions • Corporate social responsibility initiatives
16 About CSE
Value Drivers and Strategy
Value drivers and strategy Our strategic journey is defined by the four key value drivers - stakeholder focus, products, operations and technology, and people. Here we set out some significant highlights of our strategies in action.
Stakeholder focus We engage with an array of stakeholders to elicit mutual benefit. The modes through which we engage with our stakeholders and the frequency with which we do so, varies with each group. Stakeholder interest in us as Sri Lanka’s only stock exchange ranges from our economic impact, investment opportunities offered, strategy, operations, systemic risk and regulatory policy.
• The CSE achieved constructive dialogue with key government roleplayers about our role in the national economy and how to gain synergies through our sustainability initiatives.
• We have strong relationships and ongoing discussions on a number of fronts with our industry regulator-the SEC in addition to the CBSL.
• We came to the international forum continuing the Invest Sri Lanka initiative for the fifth year. Targeting Europe mainly, we held our roadshow in Zurich for the first time, followed by London.
• We are pleased with the CSE branding activities which helped gain traction particularly with other exchanges and exchange bodies; We supported cross market cooperation through memoranda of understanding with SAFE, WFE, the Maldives Stock Exchange (MSE) and the National Securities Depository Limited (NSDL)- the depository arm of the National Stock Exchange of India. We currently chair the SAFE and are proponents of regional cooperation in the sustainability journey.
• As part of our sustainability journey we are now a partner exchange of the SSE.
• Initiatives include the South Asian Investment Conference (SAIC), the 17th Asia-Pacific Central Securities Depository Group (ACG) Cross Training Seminar.
• We have expanded investor outreach through social media and technological applications .
• We improved engagement through the introduction of a new website for the CDS.
Refer section on ‘Priority Stakeholder Engagement’ on page 42
Products We are systematically working on enhancing our cash market product offering, both in equity and debt , whilst setting the foundation for the introduction of more sophisticated products in the future. We intend to broaden the portfolio choices available to investors whilst helping us enhance our revenue earning capacity.
• We intend to provide a broader set of investment options to our investors and access to varied platforms for our issuers through diversification.
• We worked to further enhance the equities listing franchise by initiating the Alternate Markets Segment (AMS) through which we intend listing inclusiveness for small and mid-size corporates via the SME Board; the AMS will include the listing of dollar denominated equities paving way for cross listings by foreign issuers.
• We perceived appropriate products including multi-currency equities, structured warrants and exchange traded funds. Having conducted research, conceptualisation and stakeholder engagement we are currently in rule approval stage with the SEC for several of these products; We have also formulated a blueprint on derivatives.
• Groundwork for two new indices-Sharia Index and Environmental, Social and Governance Index, was completed.
• We have adopted the four-tiered, hierarchical industry classification system GICS (Global Industry Classification Standard). The system enables market users capture and assess standardised industry data under a widely accepted norm.
Refer section on ‘Facilitative Initiatives for the Capital Market’ on page 41
17 Colombo Stock Exchange Annual Report 2015
Value Drivers and Strategy
Operations and Technology We are focused on enhancing our varied capabilities in technology, internal processes and policies which form our tangible institutional capacity. We are mindful of community capacity building given the symbiotic dependence of our wider community upon the CSE’s own capabilities.
• Technological reliability and stability remain a priority for the CSE. In 2015, we reported 100% uptime on our critical systems, the ATS and the CDS.
• Over the year, several technological enhancements were made to the CDS, including DS3 - Settlement Schedule Digitisation and the establishment of Straight Through Processing.
• We effected infrastructure improvements to our Disaster Recovery (DR) site and ran a successful live day trading from the DR site reinforcing our position from a business continuity perspective.
• We completed Phase 1 of the implementation of the CCP enabling the Request for Information to be called to move forward to Phase 2 and Phase 3.
• We migrated the existing ISO 27001 standard to the latest ISO 27001:2013 to ensure upto date security controls were in place to increase stakeholder confidence in our information security arrangements.
• The rollout of the Broker Back Office (BBO) system and customised Order Management Systems (OMS) at broker end enabling the phasing-out of the ATS front-end were brought to its final stages over the year. We are also in the process of introducing expansive changes to the broker Capital Adequacy Requirement (CAR) where a complete revisal of methodology and rules would be implemented.
• We also introduced expansive changes to the broker capital adequacy requirement (CAR) where a complete revisal of methodology and rules has been effected.
• We completed several internal productivity enhancements including the introduction of the WBS system - an intranet based goal tracker for monitoring strategic achievements, advancement of treasury management strategies and standardised procurement alongside the establishment of an enterprise resource planning solution and integrated applications.
• We made several amendments to our existing rules including listing, stockbroker, internet trading and market micro-structure inter-alia.
Refer sections on ‘Post Trade’, ‘Information Technology’ and ‘Regulatory Environment and Monitoring role’ on pages 44,46 and 47 respectively
People The sustainability of our business depends largely on our people. We aim to position ourselves as a knowledge based institution in what is a sophisticated and specialised sphere. We aim to be an employer of choice providing a stimulating working environment and employee equity whilst rewarding distinctive performance.
• In 2015, we reinforced a performance culture. We introduced a new performance management system. The KPI process was reviewed and revised bringing in a “performance focus”. We were mindful of re-aligning the remuneration and benefits in line with performance.
• With the introduction of a new Human Resource Information System (HRIS) replacing the legacy system we have not only automated the HR process but also documented and formalised all related policies and procedures.
• We aim to create a learning organisation; We focused on enhancing the skills and capabilities of our staff through local and foreign training and established procedures to continuously maximise our investments in high-end technical training. We converge skills upgrading with the CSE’s sustainability journey by targeting knowledge sharing on areas that pertain to strategic initiatives. These include diversification of our product offering, expansive technological process changes and risk management enhancements.
• Continuous and pervasive enhancement of competency and interaction is envisioned through job rotation.
• We continued to encourage employee inclusion and communication to ensure that CSE has an equitable and satisfying work environment; where many regular and novel interactive activities were introduced including the initiation of the CSE Toastmasters Club.
• Staff recognition schemes were revolutionised with a successfully implemented awards scheme.
Refer section on ‘Our People’ on page 56
18 About CSE
Value Creation Model
Value creation model and input capitals We depict our value creation model here to provide a bird’s eye view to our stakeholders of the interconnectedness of the five key input capitals we draw on in our operations and our material focus areas in driving value and the outputs we strive to achieve
Value Drivers and Material Corporate Model Outcomes Capital Inputs Issues
Stakeholder focus Stakeholder Market Data Listings Stakeholder focus Stakeholder prioritisation responsiveness Stakeholder centricity Priority stakeholders Members and Brand, trust and reputation building Stakeholder engagement Trading Enhanced visibility Brand positioning Diversification Member Expansion of investor base Strategic partnerships Associated Enhanced listings capital formation Trading Regional and global cohesion Services Long-term strategic partnerships Community initiatives Cohesive Regional cohesion Requests for donations/sponsorship capacity Enhanced financial literacy Enhanced corporate disclosure building Cash Markets Enhanced industry capacity Products New product identification Enabling regulation Products Diversification of product offering Market micro-structure enhancements Regulatory Increased portfolio choices for investors Market segmentation by readiness asset classes/issuer inclusiveness and new platform of listing for issuers Research and prototyping Revenue enhancement Economic climate Shares warrants Closed-end funds Corporate Debt Enhanced market size - improved liquidity Systemic risk Stakeholder responsiveness Broader outreach Licenses and regulatory approvals Strengthened visibility and branding Clearing
People People Settlement Employee retention Core competencies and execution skills Skilled workforce Organisation culture Unified culture Improved transformation Corporate philosophy Custody Training and development Creation of a learning organisation Compensation and benefits Leadership accountability Succession planning Performance driven work ethic Performance focus Engagement enablers Operations and Processes Financial Capital Balanced regulation Operations and Processes Improved governance Human Capital Technological infrastructure Integrated diversification Regulation Technological responsiveness and Intellectual Capital Governance readiness Enhanced information security Systems Manufactured Capital Resources Improved service delivery Enhanced resource planning Processes Social Capital Benchmarking Efficient risk management Business continuity Natural Capital Increased environmental consciousness
19 Colombo Stock Exchange Annual Report 2015
Chairman’s
Review
Undeterred by forces of attrition As the nucleus of Sri Lanka’s capital markets, we “ “provide requisite infrastructure and are entrusted with preserving the integrity, quality and stability of the market.
20 Management Information & Executive Reviews
compliance, more clearly identifying lacunas Responsible growth We are acutely aware of our pivotal position that exist in attaining international standards We have gained and avenues to surmount such gaps. “ as a national institution of economic momentum for future importance. The actions we take in transformation and Forces of attrition laying strong foundations for sustainable growth. Groundwork growth will have a profound impact on the The past year was a disappointing one for prosperity of our economy. As the nucleus the global economy, characterised by a has been set to of Sri Lanka’s capital markets, we provide slowdown in large emerging markets led diversify our product requisite infrastructure and are entrusted by spill-over effects of China; impacting offering; technological advanced economies which had not yet with preserving the integrity, quality and advancements and stability of the market. firmed up sufficiently in terms of growth. The IMF expects the global economy to expand reliability were achieved As an overarching objective, the CSE in 2016 by 3.2%, reflecting little deviation both within “ the CSE and positively positioned itself relative to the in size relative to 2015. Growth is expected in the depository arm, to be divergent in terms of texture, with key value drivers of stakeholder focus, the CDS. products, people and technology and expected gains in Europe and relatively less operations. In the past year we have gained growth in commodity-dependent countries momentum for future transformation and and China with Asia dubbed as a ‘wild- We are heartened by the diminished growth. Groundwork has been set to card’. political uncertainty by the latter part diversify our product offering; technological of 2015 and the growth agenda of the advancements and reliability were Global economic performance reflected as coalition government. The national budget achieved both within the CSE and in the mixed news in the equity market. Japan’s 2016 reflects GoSL clear standpoint depository arm, the CDS; stakeholder and Germany’s major equity indices regarding the sustainability of the capital engagement is concentric, and eliciting reflected single digit growth rates. China’s market. Notwithstanding trickledown effects sound responsiveness to related initiatives; equity index dropped by double digits on global trade which may negatively and a unified performance driven culture and the US’s S&P 500 remained almost impact the Sri Lankan economy and continues to be take shape. unchanged. Many regional markets reflected challenges to be faced by a bull run in negative sentiment. Overall, international the dollar market early in 2016, the CSE Reformist regulation markets continued to demonstrate commits to revive and grow our market As the only Sri Lankan exchange operator, interconnectedness and volatility in 2015. systematically, aligning with the GoSL our challenge lies in balancing the Volatility has been a recurring theme in reform initiative. responsibility in ensuring fair and orderly financial markets both here and abroad markets, with our growth agenda. Even across several asset classes. Cohesive capacity building as we intend to dispense regulatory As a stock exchange we operate in an duties, responsiveness to the needs and In Sri Lanka within the confines of an industry inherently built on sophisticated circumstances of stakeholders delineates economy characterised by a fundamental underlying principles of operation and our approach. Over the past year, the political transformation and resultant strategy. As such, one of the ubiquitous CSE has provided underpinning changes transitional monetary and fiscal policy elements of strategic advancement is with rules and legalities applicable in areas conditions together with uncertainty community capacity building extending including internet trading and listing, broker and flagging risk appetite affected the not only infrastructural, education, policy credit, and new products, in addition to performance of our equities market in and legal framework comprising tangible far reaching capital adequacy requirement particular. Economic growth for the year capacity building but also intangible changes supporting systemic risk was a subdued 4.8%. The ASPI fell 5.5% aspects including social skills, institutional, management. Further, comparative analysis and both components of our cash markets - cohesion and institutional culture intrinsic to was conducted as to CPSS and IOSCO equity and debt reflecting dampened activity the diverse market participants. levels.
21 Colombo Stock Exchange Annual Report 2015
Chairman’s Review
the market. Keeping abreast of evolving initiatives. In order to revitalise interest in We became broadly concepts in service delivery to investors, our market however, we need to bring “visible through enhancing professionalism and client- to stimulate the return of listings that are participation in regional centricity aiming to provide ethical and non- capable of manifesting expansive interest conflicting solutions must, in my view, enter due to size and intrinsic value. Proactive investment events and the collective intermediary psyche. engagement with potential issuers amongst cross training in the SOE’s is expected to provoke the re-entry post-trade area, over the Consolidation of equivalently attractive listings as seen year. Looking forward, We note that given the size and activity during various stages in our market - the levels of our market, to elicit economies spate of plantation company privatisations we are enthusiastic of scale, Sri Lanka’s brokering industry in the 1990’s and early to mid-2000’s large about stimulating is in need of rationalisation. Broker firms scale IPOs of telecom and downstream thought leadership and with tenuous cash flow and profitability petroleum sectors, for example.
proactive participation circumstances are currently not able to provide impetus for costly activities We also believe that many opportunities can in collaboratively“ including outreach and technology also be created through regional cohesion regionalising our enhancements. The CSE actively with our South Asian peers. Currently we markets. participates in an eclectic role than usually chair South Asian Federation of Exchanges anticipated by a stock exchange, for these whilst also engendering partnership through Our market has historically focused on activities. In order to create greater depth membership in the Sustainable Exchanges its equities franchise. Despite growing and enhanced ability to invest in technology Initiative of the United Nations. We recently interest in primary debt markets, secondary thus achieving cost effectiveness, efficiency proactively initiated and have seen results debt market activity is largely subdued of service delivery and profitability, it is our manifest through cooperation in initiatives with market making virtually non-existent. view that instigating merger and acquisition including enhancement of central securities Hence, bond markets remain an area amongst existing brokers is a necessity. depository operations and the anticipated of debate in our growth plan with much introduction of cross listings, through our needing to be done in terms of increasing The advent of more robust capital adequacy partnerships with India and Maldives, liquidity and participation. requirements and the evolving post-trade respectively. We became broadly visible sphere necessitating adjustments including through participation in regional investment In view of anticipated complexity and front to back office integration helped events and cross training in the post-trade integration via the execution of strategy, initiate a healthy dialogue regarding this area, over the year. Looking forward, we with stress on diversification of our endeavour. Our consolidation policy aims are enthusiastic about stimulating thought offering, intensive capacity building among to strengthen the industry by forming a leadership and proactive participation in capital market participants - particularly core group of well-capitalised stockbroking collaboratively regionalising our markets. brokers is a must. Essential skills to trade companies to face the challenges instigated debt securities and other sophisticated by market transformation and not merely as Appreciation instruments are certainly different from an exercise of obligatory consolidation for I offer my sincere thanks to my fellow those required to sell equities. Unifying regulatory convenience. Directors for their insights over the year our resolve within the matrix of market in ensuring that the CSE stays on course participants with emphasis on our Revitalisation notwithstanding the challenges of our stockbrokers would be necessary to make We have continually worked to take operating environment. the transition away from the traditional Sri Lanka to the local and international reliance from ‘shares’ to other equities, forum through a number of stakeholder debt and alternate assets to revolutionise engagements and brand repositioning
22 Management Information & Executive Reviews
I welcome Mr. A.C.J. Godfrey to the Board and look forward to working with him over the coming year. Mr. V.L.C. Nanayakkara who resigned from the Board in September, I thank for the services rendered.
On behalf of the Board of Directors, I wish to take this opportunity to thank our members for their support of the CSE and the accountable responsiveness they have shown in view of our strategic activities.
The CSE appreciates the significant effort taken by the government in taking Sri Lanka to the global forum. We recognise with gratitude the SEC and the CBSL for their efforts in transforming both the regulatory regime, post-trade reforms and active participation in the development discourse.
I would also like to thank our employees for their commitment to our transformative plans.
In adherence to the sustainability imperative we have committed to as a partner of the Sustainable Stock Exchanges Initiative, we will strive to create long term value for our stakeholders.
Vajira Kulatilaka Chairman
27 April 2016 Colombo
23 Colombo Stock Exchange Annual Report 2015
Chief Executive Officer’s Review
Holistic approach to sustainability
Insightful growth The operational The operational backdrop of 2015 was one defined by a tenuous global economy “ backdrop of 2015 was “ and volatile markets. Our own economy was in fundamental political transition until one defined by a tenuous August, with uncertainty tapering away towards the latter part of the year. Since then global economy and we have gained clarity regarding GoSL’s economy-wide reform, compelling us to focus increasingly on our industry from a sustainability perspective. volatile markets. We take into consideration several material themes which could affect the CSE’s ability to create sustained value for stakeholders. Each is interwoven with our value drivers that affect the CSE’s efficiency, growth and innovation. As we progress in our strategic journey, we will continue to evaluate the impact and relevance of these material issues;
24 Management Information & Executive Reviews
Stakeholder responsiveness a broader set of asset classes. For the particularly stockbrokers to continually The CSE operates in an environment Exchange, diversification is a foundation for upgrade their skills and continue to where a wide range of stakeholders are increasing size and liquidity in the market be client-centric. Particularly with the impacted by, rely upon or are influenced requisite for growth and sustainability. progression to expanded product offering by our initiatives and activities - regulatory, and broader markets, both our own as operational or strategic. Several key The CSE also needs to identify services that well as communal human capital capacity stakeholder groups also impact upon our can be offered to the varied market users building becomes a focal issue. ability to meet strategic objectives or are including investors and issuers. In short, themselves the target groups that we intend revenue intelligence is a material focus Regulatory readiness to impact through these initiatives. for us. By identifying new services and From the perspective of global exchanges, also through introducing a comprehensive there is a continued evolution of the We recognise that being responsive end-to-end service suite (which currently regulatory environment, which is no less to needs of our stakeholders and excludes central counterparty services) we apparent in Sri Lanka. In our case this their circumstances within the capital intend to fortify our earnings streams. This perspective is not purely an exercise of market context is critical to sustaining altered financial consciousness is needed to laying more stringent controls on market the Exchange’s growth. Our priority progress from a ‘mutual’ to a profit making participants. We seek to gap the lacuna stakeholders are our members, issuers and commercial perspective. in legalities to establish a balanced and investors. Nevertheless, we engage with appropriate regulatory regime that befits due consideration, the wider community Cohesive capacity building a market still evolving towards emerging and many other groups of stakeholders with Cohesive capacity building is two-pronged. market status. the intention of preserving and reinforcing The keystones are technology, its reliability our symbiotic relationships. and readiness in addition to optimising As such, regulatory readiness is a human capital. We are a technology- material area of focus for us setting Diversification intensive business. Our trading, post-trade, the stage for the agenda of reform and Although we are the only stock exchange in surveillance and back office functions continuous enhancement against a global Sri Lanka currently and are not at present are all critical to market infrastructure standard which has changed rapidly to facing local competition, as a frontier provision. Our market users connect to our accommodate the implications of volatility market in the global environment we technological infrastructure and pervasive and interconnectedness. compete with emerging markets as well as infrastructure capabilities extend to the other well placed frontiers particularly in the wider stakeholder base. The reliability, Systemic risk Asian market perspective. We have recently stability and readiness of our technology Having implemented enterprise risk been recognised for our impetus for growth is hence a material issue for us. We also management institutionally, as a market and sustainability. In order to advance, focus on achieving technological integration operator, systemic risk is a material focus eliminating our vulnerabilities in size and in trade through post-trade operations to for us stemming from our wider role and diversification is a must. elicit economies of scale as we broaden our duties towards the community. Systemic asset classes and services. risk refers to the cascading effects that Currently we offer cash market products impact the propensity for industry failure in equities and debt with a traditional bent Within the key area of human capital due to interconnectedness. Moving to towards the equities segment. From an optimisation, we look inward at our own a Risk based capital structure for Stock investor perspective, diversification signifies institutional capacity as well as outward Brokers and the transformative activities in increased portfolio choice and enhanced at select priority stakeholders. As a highly post-trade to create appropriate defence ability to reduce risk. From an issuer’s point specialised industry we rely on attracting lines, underpin this material area of focus. of view, it is access to financing through and retaining a specific set of core skills. We also rely on our intermediaries,
25 Colombo Stock Exchange Annual Report 2015
Chief Executive Officer’s Review
Value driven advancement We have not rested
As the heart of the local capital market, in recent years we have made significant efforts to
“on our past glories but strengthen our ability to respond to the changing needs of stakeholders ensuring that we can continue to provide the best possible growth opportunities for the national economy. We continued to approach “ were previously recognised as the “Most Sustainable Growth Exchange” in Asia for 2014. sustainability and value We have not rested on our past glories but continued to approach sustainability and value creation holistically. creation holistically. Our value drivers define the various aspects that are inward and outward looking that drive our performance and potential. The goals identified, timelines and related budgets were allocated to relevant divisions. In monitoring our goals and A multi-pronged value driver which encompasses the many achievements the newly introduced intranet operational and structural elements including technological Operations and based Work Breakdown Structure (WBS) enhancements, risk management and other process technology system facilitates the cascading of goals enhancements that aid our growth and sustainability as a market from institution to divisional and ultimately operator. personal level.
Our focused execution of strategy will We remained focused on our most valuable asset which is our work as a positive stabilising force for the people, embedding our core philosophy and sustainability journey advancement of the marketplace. into our teams. We continue to deliver a work environment which People is both catalytic in terms of work ethic and nurturing in terms of In 2015, we made sound progress towards inclusion. delivering on our strategic initiatives.
Stakeholder focus We interact with a matrix of stakeholders starting with our We have a diverse stakeholder base. members, issuers and investors and extending to the wider Stakeholder Priority target groups include members, community. focus issuers and investors. In addition, we interact with market participants including unit trusts, settlement banks, custodian banks, investment banks, data vendors, media and others. One of our strategic initiatives is to facilitate the expansion of our product and service offering to increase the portfolio choices of Products We implemented several other initiatives to our investors. fortify our stakeholder-centricity:
In 2015 we experienced energetic primary markets driven by debt listings. Reflecting our constructive dialogue with key GoSL Although we were faced with a testing market environment during the year, maintaining our role-players and conducive tax advantages focus on improving the quality and efficiency of our core operations is crucial, going forward. provided, it is heartening to note improved The CSE strategic plan 2016-18 which aims at strengthening our markets was formulated utilisation of the debt primary market as a with this in mind. An Internal Strategic Planning Summit (ISPS) was held to engage the source of financing. Nevertheless paucity of various divisions of the Exchange in the strategic planning process. Substantial knowledge activity levels in the secondary market debt gathering was completed regarding the analysis concepts to be applied at the ISPS, financial trading highlights our continuous call for and business position of the company and strategic projects of other stock exchanges. engaging capacity building in this market. Several pre-ISPS brain storming sessions were conducted leading up to the detailed analysis of the internal and external environment, stakeholders, financial and business position. We engaged well with our issuers over the Periodic review reports and presentations were presented to the Board and staff. A gap year. We initiated and intend to continue analysis was also conducted with the mid-year and year-end reviews and incorporated into the ERM framework.
26 Management Information & Executive Reviews
the necessary engagement of SOEs in point in our performance orientation the Products market based ownership, thus promoting system gained high acceptance as being The CSE is working to broaden our offering listing and consequent enhancement of fair and transparent in evaluating and and asset classes available through our our market’s liquidity. Interest has been rewarding employees. platforms in order to give a broader portfolio stimulated for the listing of select SOEs choice to investors and improved access to and we are enthusiastic about the potential With the intention of creating a learning finance for issuers. for equity market revitalisation we perceive organisation we focused on enhancing the competencies of our staff through local through these engagements. Cash markets in equities and debt currently and foreign training fostering requisite comprise equity shares, warrants, closed- We also remain in close contact with knowledge and innovation. The skills end funds and corporate debt securities. regulatory bodies including our industry upgrading covered areas impacted by our Significant research was completed for the regulator the SEC and the CBSL, enabling strategic journey including new products, introduction of products that complement a strong footing in evolving regulatory post-trade and enterprise risk management traditional equities including structured regime supporting end investor protection amongst others. Job rotation and continual warrants and exchange traded funds. The and comprehensive legal reform to support knowledge sharing programmes have CSE is currently seeking regulatory approval our growth plans. broadened the overall competencies and to provide access to overseas issuers to interactivity of our staff. use CSE technology and systems. We are We elicited positive feedback from our enthusiastic regarding regional cohesion interactions with our Members and Trading We encourage diversity within our team and elicited through continued dialogue and Members, particularly regarding our aim towards a unified culture which values action regarding cross border trading. strategic initiatives including the proposed a satisfying work environment stimulating Additionally the transitive groundwork was introduction of Risk based capital for performance. Over the year, we stimulated completed for a blueprint on derivatives and Brokers. inclusion and engagement through related capacity building constituting several many novel and regular team events to training sessions for staff was carried out. We continued our Investor Education elicit collaboration. The newly initiated Programme throughout the country as Toastmasters Club has set a process to Enabling rules are being formulated for aggressively as in previous years. We also build leadership and communication skills several products including multi-currency continue to engage overseas investors with of future leaders within the CSE. Through securities alongside facilitative market promotional roadshows in multiple overseas its impact we have been able to identify infrastructure including book building. markets. the hidden capabilities of employees and enable a more meaningful career growth People Ours is a well received and recognised and exposure. Staff recognition schemes The HR function of the Exchange has brand. Over the year our intellectual were revolutionised with a successfully undergone an evolutionary process in property rights were crystalised by the implemented awards scheme. A focus recent years. A holistic approach to registering of both the CSE and CDS here was to reinforce our corporate values enhancing our greatest asset has yielded trademarks. Visibility was further heightened amongst staff. measurable enhancement of efficacy through our brand repositioning activities. in areas including retention, alignment, We engaged actively with other stock At the time of publication of this report, we productivity, development, inclusion and exchanges and exchange bodies. We are honoured by the accolade received motivation. currently spearhead the South Asian in our first international HR award for Federation of Exchanges and participate “The Most Innovative Use of Training A main focus in 2015 was on introducing in encouraging peers in eliciting regional and Development” at the World Human a performance driven culture. A new cooperation. In representing our Resources Development Congress in Performance Management System was fundamental attitude regarding long- Mumbai, India in February 2016 as a successfully implemented. By linking the term value creation we also joined the testimonial to the prowess made in this bonus scheme to the yearly performance Sustainable Stock Exchanges initiative of area. ratings, we have been able to converge the the United Nations in 2015. efforts of the workforce towards achieving their highest potential. Marking a turning Operations and Technology Technological stability, responsiveness and readiness remain a priority for the
27 Colombo Stock Exchange Annual Report 2015
Chief Executive Officer’s Review
As a part of the CCP project, stock In the year 2015, we worked within an As a stock exchange “ brokers have been able to strengthen environment of suppressed secondary with a long term view of their risk management systems with our markets. The level of market activity is moving away from its DVP Complaint Back Office and Order impacted by a number of factors, including traditional confines of cash Management Systems. general economic conditions. Our reliance hitherto on trading income particular from markets we have adopted In view of systemic risk, we initiated a traditional equity franchise and that it a strategy of enhanced process to introduce risk based capital for necessitates the securing of stable income
financial discipline Member Firms taking into consideration sources was underscored due to the IOSCO guidelines. A consultative approach erosion financial performance resultant from encompassing“ revenue was taken in developing a Capital subdued market performance. We reported diversification and cost Adequacy Ratio (CAR) methodology and operating revenues of Rs. 641.6 Mn. efficiency. we intend implementation during 2016 with Our underlying net loss after tax amounted the approval of the SEC. to Rs. 7.7Mn, 125 % decrease on the CSE to facilitate universal growth through previous year. Revenue performance We continued to preserve the highest operational efficiency, streamlining and although dampened by the market related standards endorsed in the market innovation. variable revenues, was moderated to an infrastructure sphere. Notably, a focal extent by growth in our non-trading income A range of significant technology projects areas was Disaster Recovery, in line with inclusive of revenues generated from are underway at the CSE in this regard. ISO 22301 best practice standard. We primary markets, post-trade and information The high end technology framework proved conducted a live trading day from the CSE services. With improved financial discipline robust and efficient. We recorded 100% Disaster Recovery site for the first time we successfully contained operational costs uptime for all our critical systems. in the history of CSE, with no significant as reflected by a decrease of 4.3% YoY of operational issues. The results were the overall cost base. Risk Management independently validated. The CSE has embarked on a project to Our strategy is to support the As financial and capital markets are address the settlement risk prevalent in the competitiveness of our revenue making challenged globally to keep pace with market today through moving to a Delivery capacity by growing new services that changing and covert cyber security Vs Payment System (DVP) for secondary investors and intermediaries will value. threats, we successfully completed several market transactions thus resolving one of information and cyber security assignments the major risks in the market. to ensure up-to-date security controls Aim to decrease reliance on trading income Together with DVP, we intend to introduce were in place for all information assets. As Trading revenue Non trading a central counterparty clearing for all a certified organisation for ISO 27001 (the streams revenue streams global ISO standard for Information Security secondary market transactions through a Secondary Primary Markets Management System), we migrated the new clearing company that would be set up Markets Information existing standard to the latest, namely ISO for this purpose. Services 27001:2013 in 2015 increasing stakeholder Post trade The CSE has long operated in a non DVP confidence in our information security environment which creates a significant arrangements. Member asset commitment risk which was a major associated fees concern particularly for foreign institutional Looking forward Investment and investors. As a stock exchange with a long term other
view of moving away from its traditional non trading income Aim to increase We appreciate the support given by the confines of cash markets we have adopted Securities & Exchange Commission of a strategy of enhanced financial discipline Overall aims are to broaden revenue Sri Lanka in this connection and for fast encompassing revenue diversification and earning capability, lessen reliance on tracking the enabling legislation and cost efficiency. trading incomes while growing the assistance with key market infrastructure. total revenue base.
28 Management Information & Executive Reviews
Contribution to total adjusted As a partner exchange of the Sustainable In conclusion, the CSE aims to maintain revenue by source 2015 Stock Exchanges Initiative, we an unwavering commitment to providing wholeheartedly commit to the sustainability thought leadership to our stakeholders perspective. Our objectives for the year whilst gaining traction in all value drivers, 19% 12% ahead is to become more internationally continuing to build undeterred on the focused with representation in global available growth and transformation exchange related forums, whilst pursuing opportunities. 5% our value creation focused organic growth 43% agenda. 19%
Acknowledgements Rajeeva Bandaranaike 2% I take this opportunity to express my Chief Executive Officer sincere appreciation to the Chairman Listing (Primary Markets) and Board of Directors whose valuable 27 April 2016 Trading (Secondary Market) contribution strengthened our resolve Colombo and inspired us in taking the CSE forward Information Services (Market Data) braving the challenging times. Post Trades (CDS) Members & Trading Members We appreciate the input given by the Other Revenues SEC in our initiatives and in particular for sharing our motivation towards a balanced regulatory regime. We look forward to • Initial listing revenue – up 81% to further fruitful collaborations with the Rs. 95.55 Mn. relevant Ministries, the CBSL and other • Additional listing revenue – up 35% to government institutions which have actively Rs. 7.09 Mn. participated in supporting our strategic • Trading revenue was down 24% initiatives. • CDS revenue was largely stable at Rs. 162.95 Mn. I wish to thank our Members and Trading Members, issuers and investors for their As an initial effort we successfully diversified faith in us. As a market operator we look into offering services for corporate actions forward to continuing to improve what we for listed companies through the CDS. do for all our stakeholders. I am also happy Our services were enhanced by several to note the responsiveness of investment value additions including the time efficient banks, custodians, unit trusts and other completion relative to industry norms. We participants whose participation designs the also find that Information Services are successful course of our initiatives. an area that has further potential to be exploited. My sincere appreciation goes out to the CSE Team who continue to exert their best An additional area that we intend to efforts and commitment to deliver on our develop is our provision of market data, stated strategic objectives and elicit the both live and reference, to an increased successful outcomes highlighted in this interest group, with the advent of a broader report. offering and investment tools including the Sharia and ESG indices. The introduction of a broader offering and with it increased investor choice and issuer inclusion will underpin our heightened progress toward financial sustainability.
29 Colombo Stock Exchange Annual Report 2015
Board of Directors
Mr. Vajira Kulatilaka Mr. M. R. Prelis Chairman Director Mr. Kulatilaka is the Chairman of the Colombo Stock Exchange and Mr. Prelis counts a 27 year career in banking with 21 years has been a Director of the Exchange since 2009. He also serves as collectively as Chief Executive Officer / Director of DFCC Bank and the Chairman of the South Asian Federation of Exchanges (SAFE). Nations Trust Bank. He has held the posts of Chairman - Ceylon Electricity Board, National Institute of Business Management, Mr. Kulatilaka, is designated as Director/Chief Executive Officer - Association of Development Finance Institutions of Asia & Pacific NDB Capital Holdings PLC and overlooks the operations of the headquartered in Manila, SME Bank, Executive Director National Investment Banking Cluster of the NDB Group, which comprises of Asset Management Co Ltd (NAMAL), Director BNP-Paribas NDB Investment Bank Limited, NDB Securities Pvt Limited, NDB South Asia Asset Management Ltd, Director HDF Securities Ltd Wealth Management Limited and NDB Capital Limited, Bangladesh. and Deputy General Manager (Merchant Banking & Consultancy) He carries over 31 years of experience in the Finance Sector and Bank of Ceylon. He is currently the Chairman of the Capital Trust Capital Market of Sri Lanka. Prior to joining NDB Investment Bank Securities Group and an Independent Director of Dialog Axiata. Limited, he functioned as the Chief Executive Officer at CKN Fund Management (Pvt) Limited. Mr. Kulatilaka has been instrumental in An Honours graduate in Mechanical Engineering (University of managing some of the largest IPO’s in Sri Lanka. Ceylon), he also holds a Master’s in Industrial Engineering and Management from Purdue University, USA as a Fulbright Scholar Mr. Kulatilaka is a Chartered Financial Analyst and has obtained and ISMP from Harvard Business School. He is a Chartered a B.Sc. Degree in Civil Engineering with First Class Honours from Engineer of UK, a Fellow of the Institution of Engineers, Sri Lanka, a the University of Moratuwa, and MEng in Industrial Engineering Member of the Institute of Personnel Management and a Fellow of & Management from the Asian Institute of Technology. He also the Institute of Bankers, Sri Lanka. He also functions currently as a obtained qualifications as a Fellow Member of the Chartered member of the National Research Council of Sri Lanka. Institute of Management Accountants UK. He was adjudged the ‘Best Investment Banking CEO Sri Lanka 2014 and 2015’ by Global Banking and Finance Review in recognition of his contribution to the investment banking arena of Sri Lanka. In addition to the above he serves as a Council Member at the University of Moratuwa.
Mr. Kulatilaka currently holds directorships at NDB Capital Holdings PLC, NDB Investment Bank Limited, NDB Securities Pvt Limited, NDB Wealth Management Limited, NDB Capital Limited – Bangladesh, NDB Zephyr Partners Limited – Mauritius, N D B Zephyr Partners Lanka (Private) Limited and Emerald Sri Lanka Fund I Limited - Mauritius.
30 Management Information & Executive Reviews
Mr. Ray Abeywardena Mr. Asanga Seneviratne Director Director Mr. Abeywardena is the Managing Director of Acuity Partners Mr. Seneviratne was the Director / CEO of Asia Capital PLC, the (Private) Limited. He has been associated with Sri Lanka’s capital largest Investment Bank quoted on the Colombo Stock Exchange. markets for over 29 years, initially as a Stockbroker and since 2009 He was the Managing Director, Asia Securities (Pvt) Ltd., which was as an Investment Banker. Mr. Abeywardena is the Chairman of Acuity ranked as the number one stock broking Company in Sri Lanka for Stockbrokers (Private) Limited and Acuity Securities Limited. He is a many years. Director of Guardian Acuity Asset Management Limited and serves as an independent Non-Executive Director on the Board of Asian He has more than 25 years of experience in finance, investments, Alliance PLC, as a Non -Executive Director of Lanka Ventures PLC capital management and has invested in the hospitality and property and Lanka Energy Fund Ltd. Mr. Abeywardena is a past Chairman of industry. the Colombo Stockbrokers Association. Mr. Seneviratne pioneered online trading in Sri Lanka through his He is a member of the Chartered Institute of Marketing, UK and company, Investor Access Asia (Pvt) Ltd with CDAX, the first online holds a Master’s Degree in Business Administration from the trading system in Sri Lanka, enabling direct access to the Colombo University of Wales, UK. Stock Exchange from the clients’ personal computer.
Mr. Seneviratne is presently the Chairman of Nation Lanka Equities (Pvt) Ltd. He also serves as the Managing Director of Asia Fort Asset Management (Private) Limited, Anilana Hotels and Properties and Investor Access Equities (Private) Limited. He had also served as the Chairman of the Stock Brokers Association of Sri Lanka.
Mr. Seneviratne is also the President of the Sri Lanka Rugby Football Union and in the Executive Committee of the Asian Rugby Football Union (ARFU).
31 Colombo Stock Exchange Annual Report 2015
Board of Directors
Mr. Aravinda Perera Mr. Dakshitha Thalgodapitiya Director Director Mr. Perera counts over 30 years in the Banking sector and is An Accountant by profession, Mr. Dakshitha Thalgodapitiya now presently the Managing Director of Sampath Bank PLC. functions as the Consultant to the Board of Investment of Sri Lanka. He represents the Board of Investment on the Petroleum Resources He is a Member of the Institute of Engineers (Sri Lanka) MIE (SL) and Development Committee (PRDC) and is a member of the Board of a Chartered Engineer (C.Eng.) Governors of the University of Vocational Technology.
He is also a Fellow Member of the Chartered Institute of Mr. Thalgodapitiya counts over 38 years of experience at CEO Management Accountants, UK (FCMA) and a Fellow of the level in both the public and private sectors. He has served the Institute of Bankers, Sri Lanka (FIB). He also holds an MBA from public sector as Chairman / CEO of Sri Lanka Land Reclamation & the Post Graduate Institute of Management, University of Sri Development Corporation, River Valleys Development Board and Jayewardenepura. Lanka Machine Leasers Ltd. He has also served as Director of a large number of public corporations engaged in infra-structure Presently, he is a Director of Siyapatha Finance Ltd & SC Securities development and in the irrigation and water management sectors. (Pvt) Ltd; subsidiaries of Sampath Bank. He also represents Sampath He has carried out many consultancy assignments for International Bank as a Director of LankaBangla Finance Ltd in Bangladesh. organisations and donor agencies.
He is also a Director of the Colombo Stock Exchange, Lanka Mr. Thalgodapitiya holds postgraduate qualifications in Management Financial Services Bureau Ltd and a Governing Board Director of the from the George Washington University, Washington D.C., USA. Institute of Bankers of Sri Lanka.
Mr. Perera is also a past President of the Association of Professional Bankers of Sri Lanka.
32 Management Information & Executive Reviews
Ms. M.A.D.S. Jeeva Shirajanie Niriella Mr. Anton Godfrey Director Director Mrs. Niriella received an LLB Honours Degree and M.Phil Degree in Mr. Godfrey is the Executive Chairman of AGXA Global and AG Law from the University of Colombo. She joined the faculty of Law International. at Colombo University in 1992, and is currently the Deputy Director Virtual Campus, University of Colombo. She serves as a visiting He is the Founder of AGXA Global which focuses on resources resource person in many Higher Educational Institutions locally and trade, energy, pulp and paper, technology, futures & options. The internationally, as well as being part of Editorial and Reviewer Boards company has global presence in Australia, Singapore, India and for several International Journals. Sri Lanka with a principal network span over Europe and North America.
Mr. Godfrey possesses over two decades of extensive expertise on capital markets derivatives, international trade-futures and FDI initiative with global networking skills. Mr. Godfrey holds an MBA from the University Of Leicester UK, Chartered Marketer and a Fellow of The Chartered Institute of Marketing UK and the Australian Institute of Management.
An Entrepreneur with demonstrated business acumen, he is the recipient of the Outstanding Asia Pacific Entrepreneurship Award, APEA 2013. Mr. Godfrey also contributed to international trade councils as President including the Ceylon Chamber of Commerce and is currently a Board Member of the Western Australian Chamber of Commerce and Industry’s panel, focusing on global trade.
33 Colombo Stock Exchange Annual Report 2015
Board Committees
1. Rules Committee *Mr. Nanayakkara ceased to be a member **Mrs. Niriella was appointed Chairperson The Rules Committee of the CSE ensures of the Committee upon his resignation from of the Committee on 22nd September 2015 that the Rules of the CSE achieve the the Board on 1st September 2015 upon the cessation of Mr. Nanayakkara purpose of maintaining a market in from the Committee. which securities are issued and traded 3. Arbitration and Disciplinary in an organised and fair manner. The Committee ***Another elected Director will replace Mr. Committee approves or amends proposed The Arbitration and Disciplinary Committee Kulatilaka on the Committee in the event amendments to Rules pertaining to listed reviews any disputes or disciplinary matters there is a conflict of interest in Mr. Kulatilaka companies and broker firms. All decisions arising between the Members of the CSE as participating in any matter before the above of the Committee will be submitted to well as disputes arising between investors Committee. the Board of Directors for approval, and Members. Further, matters pertaining modification or rejection as per the Terms to breach of CSE and/or Central Depository 4. Dispute Resolution Committee of Reference and the Articles of Association Systems (CDS) Rules or provisions of the The Dispute Resolution Committee of the of the CSE. Securities and Exchange Commission CSE adjudicates upon the decisions of the Act by Members will also be referred to Secretariat on disputes arising between Four meetings were held during the year. the Committee for review. The Committee investors and Members. The Committee consists of four Directors of CSE, one of may grant a hearing to the Member and/or The members of the Committee are: whom shall be an elected Director and the the complainant if required. The decisions other three shall be appointed Directors. of the Committee shall be referred to the Mr. C.V. Kulatilaka (Chairman) Members of the Committee shall notify the Board of Directors for ratification and the Mr. M.R. Prelis Board of Directors before the hearing of any decision of the Board will be conveyed Ms. J. Niriella possible conflict of interest and abstain from to the relevant parties in dispute. The Mr. A. Seneviratne hearing a charge in which they may have Committee consists of one elected Director a conflict of interest. The Committee may and three appointed Directors. Mr. R. Abeywardena establish its own procedures except where it is expressly provided in the Stockbroker Eleven meetings were held during the year. 2. Risk and Audit Committee Rules and/or the Articles of Association of The primary function of the Risk and Audit the CSE. The members of the Committee are: Committee is to ensure the establishment of an appropriate risk management Ms. J. Niriella (Chairperson)* Seven meetings were held during the year. framework within the CSE, to monitor the Mr. D. Thalgodapitiya integrity of financial statements and review The members of the Committee are: Mr. Anthony Godfrey (appointed on 20th internal controls and work of internal and March 2015) external audit functions. The Committee Mr. L. Nanayakkara (Chairman) (appointed Mr. M. Prelis (ceased to be a member on should comprise of at least two appointed on 20th March 2015)* 7th January 2016)** Directors and two elected Directors, one Ms. J. Niriella** of whom shall have recent and relevant Mr. D. Thalgodapitiya * Ms. Niriella was appointed Chairperson financial experience. This Committee is Mr. M. Prelis (ceased to be a member on with effect from 20th February 2015. also empowered to review the financial 22nd September 2015) statements of the CDS. ** Mr. Kulatilaka was appointed to the Mr. V. Kulatilaka (appointed on 22nd Committee on 26th January 2016 in place Twelve meetings were held during the year. September 2015)*** of Mr. Prelis. Mr. A. Godfrey (appointed on 22nd The members of the Committee are: September 2015) 5. HR Committee Mr. D. Thalgodapitiya (Chairman) The HR Committee is entrusted with *Mr. Nanayakkara ceased to be a member Mr. M.R. Prelis evaluating, assessing, deciding and of the Committee upon his resignation from recommending to the Board of Directors Ms. J. Niriella the Board on 1st September 2015. on any matter that may affect the Human Mr. R. Abeywardena Resource Management of the CSE. Mr. A. Perera Mr. L. Nanayakkara (appointed on 20th March 2015)*
34 Management Information & Executive Reviews
The Committee reviews and recommends 7. Member Evaluation Committee the compensation and benefits of the CSE The Member Evaluation Committee is staff and lays down policies and parameters responsible for evaluating and reviewing for compensation structures, makes applications submitted by Broker Firms recommendations to the Board of Directors for a significant change in shareholding. of the additional/new expertise required The Committee’s role would be to ensure by the CSE and promotions for the Heads compliance with the guidelines and of Divisions, approves annual increments procedure set up by the CSE Board, and bonuses and establishes a succession granting approval for a significant change plan in respect of the office of the CEO and in shareholding of a Broker Firm and make key management personnel of the CSE. suitable recommendations to the CSE Recommendations of the Committee are Board. submitted to the Board of Directors for approval, modification or rejection. Two meetings were held during the year.
One meeting were held during the year. The members of the Committee are: Mr. V. Kulatilaka The members of the Committee are: Mr. D. Thalgodapitiya Mr. C.V. Kulatilaka (Chairman) Mr. A. Godfrey (appointed on 20th March Mr. M.R. Prelis 2015) Mr. D. Thalgodapitiya Mr. R. Abeywardena 8. Market Development Mr. A. Perera Committee The above Committee was set up in March Mr. A. Godfrey (appointed on 20th March 2015 to give policy direction to the market 2015) promotional strategies of the CSE with a view to developing and broad basing 6. Consultative Committee of the stock market. The Committee is also Market Stakeholders mandated to give policy direction aimed The Consultative Committee of Market at developing the debt and equity IPO Stakeholders was set up to provide markets. recommendations and responses to the Board of Directors or the Rules Committee One meeting was held during the year. of the CSE on market development and rules relating to CSE operations and to the The members of the Committee are: Board of Directors of the CDS on new rules and amendments to rules of the CDS. The Mr. A. Godfrey - Chairman Committee comprises of sixteen members Mr. V. Kulatilaka representing all stakeholders of the CSE Mr. R. Abeywardena selected by the Board of the CSE. The Mr. D. Thalgodapitiya Committee is chaired by the Chairman of Mr. A. Perera the CSE.
Three meetings were held during the year.
35 Colombo Stock Exchange Annual Report 2015
Management Team
Rajeeva Bandaranaike Renuke Wijayawardhane Chandrakanth Jayasinghe Chief Executive Officer Chief Operating Officer Chief Information Officer
Lalin Paranavitana Priyana Gunesekera Renu Ranatunge Assistant General Manager Enterprise Risk Head of Listing & Corporate Affairs Head of Legal Management
Kusal Nissanka Niroshan Wijesundere Nalin Fonseka Head of Finance & Administration Head of Market Development Head of Central Depository Systems
36 Management Information & Executive Reviews
Nishantha Hewavithana Nilupa Perera Prashanthi Sabesan Head of Research and New Products Head of Trading and Market Surveillance Head of Human Resources
Nilma Samarasinghe Kushlani Coswatte Wasantha Perera Head of Strategy Head of Internal Audit Head of Information Security & Compliance
Janaka Mahagedarawatta Kaushal Siriwardena Charita Dumbukola Manager Data Centre Operations Manager Systems Operations Head of IT Project Management
37 Colombo Stock Exchange Annual Report 2015
Operational Review
Primary Market
We play a pivotal role in providing access to capital via“ our equity and debt markets to a range of issuers.
Our primary markets enable companies to raise capital efficiently based on their unique needs“ whilst providing them visibility. Our capital market caters to issuers raising funds through equity and debt.
listing on our equity and debt markets Additionally, seven listed companies Cash Market Line Up respectively raising Rs. 0.33 Bn and Rs. 3.0 carried out scrip dividend issues, while Bn. One closed-end fund listed its units at one company concluded a capitalisation of the CSE, after a period of six years from the reserves. One listed company opted for a initial listing of units at the CSE. Of the 19 warrant issue, and seven companies sub- Equity Debt further issues raising Rs. 25.6 Bn, 14 issues divided their shares. The year 2015 also *No. of Listed *No. of Debt only Companies - 287 Listed Companies were Rights Issues, reflecting approximately saw three amalgamations / mergers being (Includes Companies - 07 63.0% of total funds raised. carried out. who have also listed Debt) The pipeline of companies looking to raise Listings and Issuer Relations capital over the next year is encouraging, In our capital formation function an array Main Board particularly with the continued dialogue with of tasks from the reviewing of a listing *No. of Listed Companies - 219 potential issuers which are SOEs. application to the final listing of securities is undertaken: Diri Savi Board *No. of Listed Companies - 68 No. of Security Issues Amount Raised (Rs. Mn) * As at 31st December 2015 3% 7% 2% 0.3% The total amount of capital raised across 2% 1% 1% 1% our debt and equity markets, both through IPOs and further issues totalled Rs. 109.8 14% 15% Bn, representing an all-time high. The year 25% 76% saw a strong up-tick in the primary market in debt at the CSE, with 25 issuers raising the highest ever amount of Rs. 83.4 Bn up 53.9% YoY.
Debt IPO activity levels reflect the IPO-Equity IPO-Equity enthusiasm of issuers to extract cost Closed-End Funds Closed End Funds effective capital structures in a conducive IPO-Debt IPO-Debt environment created by tax incentives on Rights Issues Rights Issues listed debt. Four new issuers obtained Private Placements Private Placements listed status for the first time by successfully Conversion of Warrants Conversion of Warrants
38 Operational Review
• Follow up on Default Board companies • The granting of “CSE Approval” for Corporate affairs in order to ensure compliance with the initial and further listing of securities We focus on ensuring fairness, CSE Listing Rules. whilst ensuring compliance by issuers transparency and accountability on with their obligations under the CSE the financial reporting framework and • Handling special assignments. Listing Rules and other additional compliance with requisite corporate requirements. The CSE approved 63 governance practices by listed companies. • Looking into investor grievances that listing applications over the year. A priority is to supervise the effectiveness of may be lodged by an investor against a communication in order to build and retain company listed on the Exchange. • Performing the required system strong relationships with listed companies entries to list securities on the recently and investors: upgraded Central Securities Depository Primary market related compliance System. • Reviewing of annual reports and interim and monitoring financial statements for compliance Compliance Review Annual reports of all listed companies • Guiding and advising the stakeholders with Sri Lanka Accounting Standards, are reviewed by the CSE jointly with the on the CSE Listing Rules. CSE Listing Rules and Companies Act SEC. Accordingly, 149 annual reports requirements. • Carrying-out timely amendments to the were allocated to the CSE from the total CSE Listing Rules in order to make the • Monitoring of the Continuous Public sample, with the remainder reviewed by Rules more effective. Holding Requirements of Listed the SEC. In the review of published annual Companies to ensure compliance with reports, the identified non-compliances are • Ensuring accurate and timely the CSE Listing Rules. communicated to the respective companies announcements are made to the market for rectification and future compliance. pertaining listings. • Guiding and advising the stakeholders on the Continuing Listing Requirements. The listings process has been further strengthened by the implementation of a • Carrying-out timely improvements procedure where we engage in continuous to the CSE Listing Rules to enhance dialogue with the SEC, thereby ensuring effectiveness and efficiency. that the requirements and concerns of the SEC are also adhered to before granting listed status to securities.
Annual Reports Reviewed Interim Financial Statements Reviewed 141 137 132 130 143 141 95 95 93 279 143 24 139 44 48 49 106 144 142 38 27 33 Reviewed Non- Reviewed Non- 2015 2014 2013 Compliances Compliances Observed Observed Reviewed Observation Letters Sent 2015 2014 September December March June
39 Colombo Stock Exchange Annual Report 2015
Operational Review
Secondary
Market Our secondary markets create liquidity“ and facilitate efficient“ trading through a multi asset trading platform with current focus on equity and debt.
Characterised by volatility, the year gave 14.9 % in 2015. The CSE’s All Share Price in market size. Activity levels remained way to negative sentiment in most equity Index (ASPI) recorded a 5.5% decrease subdued during 2015 and can expect to markets. At year end, the S&P500 was while the S&PSL20 Index recorded a meet a challenging year as gilt markets down 0.7% YoY and UK’s FTSE 100 decrease of 11.3%. adjust within a tight monetary policy. registered a decrease of 4.9%. The MSCI Turnover decreased by 25.7% to Emerging Markets Index which covers over Market capitalisation of the equity market Rs. 253.3 Bn in 2015 from Rs. 340.9 Bn 835 securities across 23 markets fell by amounted to Rs. 2,938.0 Bn from Rs. in 2014. Average daily turnover declined to 3,104.9 Bn reflecting a 5.4% decline Rs. 1059.6 Mn per trading day from Rs. 1414.6 Mn in the previous year. Index Returns , 2015 Domestic participation decreased to 65.6% Stock Exchange of Thailand SET Index -14.0% from 72.4% of turnover against the previous year. Foreign investors were net sellers at Indonesia Stock Exchange Jakarta Composite Index -12.1% year end marking a net foreign flow of Rs. Taiwan Stock Exchange TAIEX Index -10.4% 5.37 Bn. Foreign participation contributed to 34.4% of turnover relative to 27.6% Stock Exchange of Hong Kong Hang Seng Composite Index -7.5% in 2014. Overall, institutional investors Philippine Stock Exchange PSE All Share Index -6.4% contributed 63.2% of turnover as against Colombo Stock Exchange All Share Price Index -5.5% 60.7% in 2014. Debt markets remained within the confines of negative sentiment Bursa Malaysia Berhad FTSE Bursa Malaysia EMAS Index -2.3% with turnover levels lowering by 34.0% YoY. Singapore Exchange FTSE ST All Share Index -2.2%
Karachi Stock Exchange KSE All Share Index -2.0%
National Stock Exchange of India CNX 500 -0.7%
Korea Exchange KOSPI Index 2.4%
Ho Chi Minh Stock Exchange VN Index 6.1%
Shanghai Stock Exchange Shanghai Composite 9.4%
Source: Bloomberg
40 Operational Review
Facilitative Initiatives for the Capital Market
We intend to enhance portfolio choices and asset classes“ available to investors and issuers.“ We have advanced well in the transition process in enhancing our existing equity and debt franchise.
Broadening Products and Asset Evolution of Market and Market Size, Classes Maturity of Investors and Market Progress relating to the segments, products Intermediaries, Ownership and Governance and investment tools to complement Structure and Regulatory and Policy liquidity and depth in our markets is outlined Framework. We have compiled a detailed below: blueprint based on the research conducted for each product based on the same We completed ground-work to introduce framework. We are rolling out the action a platform to cater to small and medium plan specified in each blueprint. enterprises, multi-currency securities and BOI companies through an Alternate Hence, we have started working on Markets Segment (AMS). By eliminating Exchange Traded Funds (ETFs), Structured exchange rate volatility risks by enabling Warrants (SWs), Real Estate Investment trades to be strictly denominated in foreign Trusts (REITs) and Financial Derivatives. We currency, from actual trade execution to are working with the regulator in connection final settlement the multi-currency segment to ETFs and SWs. We are also in is expected to attract foreign companies. discussions with respective tax authorities on tax concessions that are very crucial for The introduction of new financial products successful implementations of REITs. to the market is looked at in terms of very comprehensive framework of six dimensions as - Internal Talent and Capabilities, Technology and Infrastructure,
41 Colombo Stock Exchange Annual Report 2015
Operational Review
Priority Stakeholder Engagements
We understand the importance of effective stakeholder engagement“ and its role in creating and maintaining value. Our stakeholder engagement“ initiatives are structured and driven to initiate and sustain constructive stakeholder relationships over time.
Issuer engagement non-active investors and the public at large. Driven by CSE’s branch network, these proved Complementing our primary market effective in catalysing interest amongst retail investors. development activities, we offer a dynamic platform for issuers by facilitating listing and The CSE continued to focus on the “inactive investor” in 2015 and held a number of events engaging potential issuers through a range to revitalise interest in market participation amongst hitherto inactive investors. Events of events and one-on-one meetings. targeting retired public servants were a fresh addition to our lineup. Launched in partnership with the Department of Pensions this programme targeted pensioners as a viable niche Primary market related services of investors, covering financial literacy topics centered on personal financial planning and We completed the necessary process investment. changes to provide E-IPO services enabling investors to participate in IPOs of their Type of Programme No. of Events No. of Participants preference via online application forms. The services will be introduced in 2016. Awareness programmes 516 24,004 Educational programmes 312 19,765 With transparency of issue pricing in mind we have also set the foundation for the Total 828 43,769 launch of book building on the CSE.
Investor engagement Education and awareness raising The CSE continued its investor education and awareness drive, reaching out to a broad range of socio-economic and demographic segments around the country. Targeting various aspects of financial literacy our outreach programmes include regional investor forums, educational workshops, seminars on market conditions, Seminar Series on current market Regional investor forums in Kandy and programmes for schools and universities, conditions at CSE Matara trade exhibitions and other awareness programmes targeting active investors,
42 Operational Review
Technology based empowerment regional platform of stock exchanges within major institutional investors from around The CSE Mobile Application and other the SAARC region providing a forum to Europe. Participants at these forums social media platforms act as key tools in promote the exchange of technology and conveyed positive sentiments on the Sri our investor empowerment strategy. These experiences in order to support the growth Lankan Capital Market, mainly driven by tools are used to disseminate a constant, and development of capital markets within the country’s economic development, interactive stream of real-time data, news, the region, while also increasing regional commitment to governance and future and social commentary on the market, and global integration. growth prospects. The two forums were listed companies and general economic followed by a noteworthy inflow of foreign outlook. The Chairman of the CSE was unanimously investments made by institutional investors elected as the Chairman of the SAFE from around Europe. at the Annual General Meeting of SAFE Mobile App Downloads concluded on April 26th, 2015. Accordingly, Market Open Ceremonies the CSE Chairman Mr. Vajira Kulatilaka In 2015 we launched the Market Open Android 14,433 succeeded Dr. Muhammad Abdul Mazid as Ceremony initiative. These ceremonies were the Chairman of SAFE for a two year term introduced to serve as a platform primarily iOS 3,530 of office. to generate exposure for listed companies Twitter followers 1,736 as they mark important milestones in the LinkedIn followers 2,286 The SAIC created the platform for capital market. exchanges in the region to share Facebook 8,886 (likes) operational experiences in formulating Financial service industry Web page views 17,518,874 common standards for listing, trading, partnerships clearing, settlement and investor protection During the year, the CSE entered into a CSE visibility and brand and best practices in accounting standards number of partnerships in the financial positioning and regulation. Chairmen, CEO’s and senior services industry with the objective of We conducted significant brand position representatives of 14 member exchanges energising brand presence and signifying activities for visibility and recognition of from India, Pakistan, Bangladesh, Nepal, expertise. The CSE continued its not only the market’s value proposition for Mauritius, Maldives, United Arab Emirates commitment to promote transparency, investment but also our ability to act in the and Bhutan attended the conference. accountability and governance in financial forefront of cooperation and synergistic reporting by renewing its strategic partnership. Sri Lanka in the global forum partnership for the Annual Report Awards The foreign investor forums were introduced competition organised by the Institute of Cross Exchange Activities as a key initiative to promote the Sri Chartered Accountants of Sri Lanka (CA Sri South Asian Federation of Exchanges Lankan capital market as an investment Lanka). In another key strategic partnership, (SAFE) and South Asian Investment destination in 2011. The CSE continued the CSE partnered with the CFA Institute Conference (SAIC) this initiative in 2015 by hosting its first of Sri Lanka for its Research Challenge, a The CSE hosted the SAFE AGM and the ever investor forum in Zurich, followed by programme promoting best practices in SAIC working in collaboration with the another in London. Both forums proved equity research among analysts. SAFE Secretariat and the WFE. SAFE is a successful, attracting the participation of
Representatives from exchanges across South Asia at SAIC Inauguration of Market Opening Ceremonies with listed companies
43 Colombo Stock Exchange Annual Report 2015
Operational Review
Post
Trade The CDS provides settlement and depository services“ “in the local market. With the advent of CSE Clear a full suite of CCP functions will be provided in this sector.
Reflecting suppressed market activity levels, Introduction of custody services by sub-divisions/consolidations, capitalisation the number of equity trades settled in 2015 the CDS of reserves, scrip dividends, share swaps, decreased by 24.0% to 1,507,555 trades. The CDS currently contributes amalgamations and conversion of warrants The number of accounts opened remained approximately 19% of the composite into shares with several value added stable relative to last year, with 27,618 new revenues of the CSE through its depository services. accounts being opened. Deposits showed services. The CDS began providing custody a 77.6% increase and transfers showed a services in view of corporate actions over Operational enhancements and decrease of 9.2% in volumes. The value of the year, setting the foundation for the post-trade related stakeholder equity trades settled in 2015 was Rs. 253.3 enhancement of consolidated revenues engagements Bn and settled debt trade value was Rs. and to enhance overall earnings quality. DS3 - Settlement Schedule Digitisation 4.5 Bn. The total market value of shares This new venture was initiated with value Solution held amounted to approximately Rs.2.9 addition including streamlined and efficient The CDS launched DS3 in 2015, enabling Tn with marginal change YoY. The share completion in lesser number of market the digitising of settlement schedules. It of securities held in custody of the CDS days relative to industry norms, providing provides a mechanism to digitally sign both remained high with equity and debt customised reports and the formulating and the settlement schedules using digital reflecting 95% of equity and 99% of debt processing of direct upload of shares arising signatures embedded in a USB Crypto being dematerialised. from further issues related to rights issues, token which can be downloaded by the
Operational Highlights (No.) 2015 2014 2013
New Accounts 27,618 27,656 27,608 Deposits 97,464 54,872 98,342 Withdrawals 22 21 12 Transfers 28,605 31,486 22,005 Trades 1,507,555 1,983,649 1,197,413 Listed Companies 294 294 289 Participants 52 50 45 Value of Securities held by the CDS as at 31st December (Rs. Mn) Total Market Value of Securities 2,934,901 2,988,693 2,269,417 Quantity of Shares held by the CDS as at 31st December (No. Mn) Domestic Investors 60,408 58,055 53,094 Foreign Investors 20,474 20,274 18,236 Total Quantity of Shares 80,883 78,329 71,330 Equity Shares De-Mat % 95.0% 94.0% 94.0% Debt Securities De-Mat % 99.0% 95.0% 93.0%
44 Operational Review
settlement banks through a web portal. in early 2016, where end investors could developments done to the website the CDS The product was developed by LankaClear access their depository accounts via is currently planning to provide selective (Private) Limited, a company owned by the the internet for a wide spectrum of CDS online facilities using the website as a basis CBSL and all licensed commercial banks Services. for contact terminus. operating in Sri Lanka. Currently the CDS is performing live operations through DS3 with The SMS based Trade Verification Service Memorandum of Understanding with three settlement banks. enables investors to verify trades executed National Securities Depository (Private) in their account on daily basis and would Limited of India (NSDL) Post trade enhancements enhance the transparency in the order A memorandum of understanding was The CDS identified certain post trade executions by Stockbrokers. The SMS entered into with the NSDL over the year, enhancements in order to improve the based Trade Verification Service was with the intention of exploring areas for operational efficiency and also to reduce extended across more telecom operators cooperation and establishing operational the systemic risk. during the year. linkages. We elicited reforms such as eVoting, eIPOs and eDividends, exploring 1. In addressing the issue of delays in trade Consolidation of Asset Classes in Monthly the manner in which these could be affirmations from global custodians, Statements adapted effectively to the local market. exploring the possibility of introducing We introduced the consolidated CDS an electronically enabled system monthly statements to provide CDS 17th Cross Training Seminar of the infrastructure to communicate trade account holders a compiled view of all the Asia-Pacific Central Securities Depository details in accordance with the ISO asset classes held in their respective CDS Group (ACG) 15022 or ISO 20022 accounts. The securities are displayed in The CDS hosted the 17th Cross Training two categories as equity securities and Seminar of the Asian Securities Depository 2. To introduce a system to re-reverse debenture securities, for ease of reference. Group (ACG) which is a regional association trades over Rs. 20 Mn. which are initially Previously CDS account holders received of all Depositories in Asia marking its rejected by the client two separate statements for debt and inaugural hosting of an international event. equity Attended by 95 foreign participants from 22 3. To facilitate the splitting of contracts member organisations and six non-member Revamping of the CDS Website organisations the event reported the highest These measures were identified in The official website of the CDS was number of participants so far in an ACG consultation with the Broker Firms and revamped during the first quarter of Cross Training Seminar. Delegates from Custodian Banks. The CDS is working with 2015. The revamping included changes various depositories who participated in the the SEC to implement these measures. to the appearance of the site as well programme took the opportunity to visit the as the content presented therein. The CDS and the CSE’s trading floor during the Account holder Services modernisations aimed to provide an Cross Training Seminar. CSE laid the technological foundation to improved connectivity to the various implement a CDS e-portal to be launched stakeholders of the CDS. Further to the Broker Awareness Raising A series of awareness sessions on the CDS operations was conducted for Broker Firms during the latter part of the year. Areas covered included CDS eServices, using the new website to provide value added services to account holders and information on the provisions of the Financial Transactions Reporting Act and industry specific rules. The sessions were attended by 114 participants from 28 Broker Firms. During the programme the participants were introduced to the concept of decentralisation of certain CDS operations, which received positive feedback. 17th Cross Training Seminar of the Asia-Pacific Central Securities Depository Group
45 Colombo Stock Exchange Annual Report 2015
Operational Review
Information Technology
We are highly reliant on our information technology
“platforms and aim at providing reliable, responsive and stable technology solutions that meet our integrative strategic and operational“ requirements. During the year under review we recorded 100% uptime in all our critical systems.
Systems access Board and Committee Papers and Multiple rounds of vulnerability and threats Upon successful implementation of a supplementary information directly through assessments conducted for internal assets state-of-the-art Depository System and the iPad devices. as well as publicly available services which simultaneous upgrade of the ATS in the guaranteed an uninterrupted service for all latter part of 2015, we underwent a period A new corporate intranet portal was stakeholders. As an independent function of system stabilisation with no significant introduced to enhance sharing of starting from 2015, many information critical incidents being reported. information among employees across the security projects completed including CSE, resulting in valuable time and cost- Privilege User Management System We enhanced the ATS to facilitate the saving benefits. which enhanced real time monitoring and implementation of the Volume Weighted recording of critical user activities related to Average Pricing (VWAP) and the new An HRIS was implemented replacing the trading and depository systems. depository system to incorporate GICS, a legacy system, thus automating a large globally recognised four-tiered, hierarchical portion of routine HR tasks, increasing staff Most of today’s advanced attacks are industry classification system efficacy. targeted to get sensitive information, intellectual property, authentication CSE also upgraded its Trade Market Information and Cyber Security credentials, insider information and each Surveillance system to its latest version In light of the increasing volume of global attack is often multi-staged with pre- with more enhanced features for effective cyber-security threats and breaches, we meditated steps to enter and compromise surveillance of the Market. made cyber-security preparedness a priority the network. To mitigate sophisticated over the year. The threat of cyber-crime and cyber-attacks such as zero day, malware and advanced persistent threats, the CSE Technology based productivity information security breaches adversely initiated multiple assignments and controls We identified the need to streamline impact our business operations and which are in the process of implementation. internal processes, work more efficiently necessitates much attention. As a certified and improve visibility across the entire organisation for ISO 27001, we migrated organisation. To achieve this objective the existing standard to the latest, ISO several workflow automation solutions 27001:2013 during the transition period including automation of the purchase in 2015, to ensure up-to-date security requisition process and tracking progress controls in place for all information assets. of enterprise-wide projects and goals were implemented. The CSE conducted multiple systems, technological and information security As a part of the workflow initiative, we governance audits with independent audit successfully implemented a digital, and advisory firms to ensure Information paperless solution that is secure and and Cyber Security operations are up effective, enabling the Board of Directors to to the internationally accepted criteria.
46 Operational Review
Regulatory environment and monitoring role
Ours is a highly regulated industry. The global regulatory“ regime pertaining to exchanges undergoes continual evolution and currently higher levels of regulation and particular emphasis on systemic risk are apparent characteristics. Regulatory readiness enabling us to navigate regulatory changes are a material focus for us.“ We continually evaluate and refine our regulations whilst aiming to adopt internationally accepted standards.
Setting the stage for global • Rules pertaining to the basis for • Rules Governing Serious Loss of standards determining the Reference Price at an Capital of Stockbroker and Stock In keeping with this aim we conducted a Introduction. Dealer Firms self-assessment on the Listing Rules and The new Rules pertaining to the ‘Basis The Rule amendments relating to the Stockbroker Rules of the CSE against for determining the Reference Price at serious loss of capital were approved by the 38 IOSCO Objectives and Principles of an Introduction’ were approved by the the CSE Board on 16th July 2015. Securities Regulations (published in June CSE Board on 30th June 2015. 2010), in order to ascertain the extent of Rules of the CDS compliance with same by the CSE. Stockbroker Rules of the CSE: • Amendments to Section 11 of the • Rules pertaining to Implementation CDS Rules relating to CDS Account Rule amendments of Interim Measures to Mitigate Statements Over the year we carried out the following Settlement Risk The proposed Rule amendments were amendments to the CSE/CDS Rules: The Rule amendments to facilitate the approved by the CSE Board on 16th implementation of Interim Measures to July 2015. Listing Rules of the CSE: Mitigate Settlement Risk were approved • Entire Revision of the Listing Rules by the CSE Board on 30th June 2015. Registration of Trademarks and An entire revision of the Listing Rules Trade names of CSE and CDS was carried out in consultation with • Rules to facilitate the implementation The name “Colombo Stock Exchange”, the the public, including the relevant of Capital Adequacy Requirements CSE logo and the CDS logo were registered stakeholders. The proposed new Rules/ (CAR). with the National Intellectual Property Office amendments to the existing Listing The draft Rules for the implementation of Sri Lanka as set out below, in terms of Rules were approved by the CSE Board of the CAR was approved by the the Intellectual Property Act No. 36 of 2003: on 15th December 2015. Rules Committee on 13th July 2015. Subsequently, the draft Rules were • Trademark No. 132904 for “CSE Logo” • Rules pertaining to Issue and further revised taking into consideration in Class 36 the observations of Member/Trading Listing of Shares pursuant to an • Trademark No. 132905 for “Colombo members of the CSE. The revised Rules Amalgamation of Companies. Stock Exchange” in Class 36 The new Listing Rules pertaining to the were approved by the CSE Board on ‘Issue and Listing of Shares pursuant to 8th February 2016 • Trademark No. 132906 for “CDS Logo” an Amalgamation of Companies’, were in Class 36 • Internet Trading Rules approved by the CSE Board on 30th The aforementioned registrations were New Rules pertaining to Internet Trading June 2015. gazetted on 13th February 2015. were approved by the CSE Board on 16th July 2015.
47 Colombo Stock Exchange Annual Report 2015
Operational Review
Execution of Agreements/Deeds Broker Supervision • The Arbitration and Disciplinary for the CSE/CDS We continued to closely supervise the Committee of the CSE initiated In total, over 100 Agreements/Deeds activities of our Members and Trading disciplinary proceedings against a were prepared/reviewed and finalised for Members during the year under review. Broker Firm in relation to specific Rule execution by the CSE and the CDS during violations carried out by such Broker Firm and appropriate disciplinary action the course of 2015. Systems Reviews has been taken against the Broker Firm We carried out fifteen on-site inspections concerned. Our Monitoring Role during year 2015. Trading and Market Surveillance • Further, the Arbitration and Disciplinary We play a central role in ensuring that the Enforcement Actions Committee of the CSE has initiated market is fair, orderly and transparent. We Details of enforcement actions carried disciplinary proceedings against another ensure that timely and quality disclosures out in relation to key violations of CSE Broker Firm on a direction made by the are made by listed companies. We also Stockbroker Rules during 2015 follows: SEC and pursuant to an investigation seek to ensure that investors are provided carried out by the CSE in this regard in with adequate information by reviewing • Minimum Net Capital Requirement – terms of Rule 9.2.1 (1) of Section 9 of corporate announcements and media Three Broker Firms failed to meet the the Stockbroker Rules of the CSE. articles and monitor the timeliness of minimum Net Capital Requirement Financial Statement submissions to the during certain months in the year 2015. CSE. The said firms subsequently complied Credit Rules with the requirement. • Single Client Limit – Violation of the Market Surveillance plays a key role in single client credit limit (15% of credit extendable) was identified with regard building and maintaining market confidence. • Adequacy of Client Funds - Four Broker to five Broker Firms during year 2015. A total of 32 cases of suspected market Firms did not maintain adequate funds All such Broker Firms took corrective malpractices were detected during the in their respective Client Bank Accounts actions subsequently to comply with the year. Of these, eight cases were for to settle the Creditors over T+3 requirement. alleged insider dealing, a further four for balances during certain months in 2015. front running and 20 cases of market However, these Broker Firms were able manipulation. All the cases were referred to to comply with the said requirement by • Credit Extending Limit – Violation of the SEC for further investigation. 31st December 2015. credit extending limit (three times the Adjusted Net Capital) was identified with regard to two Broker Firms during certain months in 2015. The said Broker Interim Financial Statements Reviewed Firms subsequently complied with the requirement. 28 28 Shareholding Changes 23 The Board of Directors of the CSE
19 approved the following shareholding
17 changes: 15 12 12
10 10 • Change of shareholding of one Broker 9 9
7 Firm amounting to 38.98% in June 6 5 2015. 3 3 3 2 2
• Change of ownership of one Broker Firm e e e/ due to a group re-structuring by way of endor chase dwar amalgamation of the parent company eements eements eements eements Latters of Softwar e Pur e/Har Agr Agr
Addendums with the group holding company in Data V Maintenance Understanding Non-Disclosur November 2015. dwar Mortgage Bond s Memorandums of Lease Agr Softwar Har Service Agr Letters of Engagement/ 2015 2014
48 Operational Review
• Repurchase of shares by one Broker Capital Adequacy Requirement We also commenced developing an Firm during March 2015. (CAR) automated reporting mechanism on CAR The CSE developed a CAR methodology which would enable the Broker Firms to • Consolidation of shares followed by a taking a holistic approach to risks that report their respective CAR positions to the rights issue of one Broker Firm in May Broker Firms are subjected to. The following CSE on a daily basis. 2015. regulatory principles and benchmarks underpin the new approach: Periodic referrals to the Board and the • Transfer of shares held by a shareholder Risk and Audit Committee of the CSE to two existing shareholders of one • Principle 30 of the International Referrals are made on an ongoing basis Broker Firm during the month of April Organisation of Securities Commissions to the Board and the Risk and Audit 2015. (IOSCO) Objectives and Principles of Committee of the CSE, highlighting the Securities Regulations (issued in June performance of Broker Firms. • Reduction of stated capital of one 2010) which identifies the purpose of Broker Firm in April 2015. capital adequacy, which is, as a general Referrals to Board of Directors guideline, that capital must be sufficient Comprehensive periodic referrals were • Issue of shares of three Broker Firms to protect a financial organisation’s made to the Board during 2015 on the during the months of July 2015 and customers and counterparties from financial and non-financial performance of September 2015. various risks including market risk, all 28 Broker Firms who are trading in Equity settlement/counterparty risk, credit risk, on the CSE. The financial performances Appointment of Agents operational risk, and liquidity risks. encapsulated information with regard to the Eight Agents were appointed by seven Profitability, Net Capital Position, Adequacy Broker Firms during the period under • The Report of the Emerging Markets of Client Funds, Debtors’ Position, Total review. Committee of the IOSCO, “Guidance to Assets Position, Shareholders’ Funds, Total Emerging Market Regulators Regarding Income Earned, Total Expenditure, etc. Branch Offices Capital Adequacy Requirements for One branch office was opened by one Financial Intermediaries” published In terms of the non-financial performance, Broker Firm. Eleven branch offices were in December 2006, which identifies information with regard to material non- closed by seven Broker Firms during the as one important element of capital compliances with the CSE Stockbroker period. adequacy, the practice of developing a Rules by Broker Firms - such as the risk profile for securities industry through minimum Net Capital Requirement, Admission of Primary Dealers as considering market risk, credit risk, and Adequacy of Client Funds, Credit Trading Members for Debt Securities liquidity risk inter-alia. These risks are Extending Limit, Single Client Limit, CDS Pursuant to the decision taken by the to be accounted for while determining Margin Requirement of 15% for purchase CSE to enhance the secondary trading the capital adequacy requirement of transactions over Rs. 20 Mn. were activities of Corporate Debt securities, one a Broker Firm resulting in different presented along with other non-financial Primary Dealer was admitted by the CSE minimum capital requirements for information relating to Systems Audits of as a Trading Member for Debt Securities respective Brokers based on the type of the Broker Firms, client complaints etc. during 2015. Another Primary Dealer which risks each is exposed to. obtained Trading Membership in 2014 Referrals to Risk and Audit commenced trading activities during 2015. We adopted a consultative approach when Committee developing the CAR methodology garnering Periodic referrals were made to the Risk sound responsiveness from Broker Firms and Audit Committee during 2015 which and the SEC over the year. The CSE plans highlighted the different risks identified to implement the CAR methodology during in relation to several Broker Firms of the 2016 in consultation with the SEC. CSE. These referrals covered the risks identified based on selected Financial and Non-Financial criteria and on significant rule violations of the CSE Stockbroker Rules.
49 Colombo Stock Exchange Annual Report 2015
Operational Review
Enterprise Risk Management
In the context of sustainability and value creation, enterprise“ risk management has become an inextricable component of our strategy. We implemented an Enterprise Risk Management (ERM) Policy and Framework in 2015 to enhance our risk management capabilities whilst protecting value whilst pursuing our growth trajectory. The CSE’s ERM Policy and Framework is“ intended to provide guidance and to ensure that risk management practices are consistent across the institution.
Risk Governance Committee (RAC) comprising selected to support our corporate philosophy and The CSE Board of Directors is responsible members from the CSE Board. The Board strategic goals. The Risk Governance for reviewing and approving the overall RAC and an Executive Level Committee Framework clearly sets out the roles and risk management strategy and policy. of CSE monitors the effectiveness of risk responsibilities of the Board and Executive The Board has delegated the detailed management activities across the CSE Levels committees to oversee the enterprise oversight and monitoring to the Risk & Audit to ensure that these activities continue wide risk at the Exchange.
Risk Governance Committees
Board Level
Risk and Audit Committee Dispute Resolution Committee
Executive Level
IT Steering Committee Investment Committee
Procurement Committee Management Committee
50 Operational Review
Three Lines of Defence The ERM framework at CSE which defines the responsibilities and accountabilities for the management of risk at all levels in the enterprise is based on the Three Lines of Defence model.
Audit & Risk Management Committee (ARMC)
Chief Executive Officer (CEO) Defence Third Line of Third Assistant General Manager - ERM
Management Committee (MC) Enterprise Risk Management (ERM) Defence Second Line of
Risk Management Function
Market Broker CDS IT HR Finance & Legal Research Strategy Trading Development Supervision Administration & New & Market Products Surveillance Defence First Line of
Risk Coordinators
Three types of risk management activities at each defence level are carried out to support to achieve the strategic objectives of the CSE:
First Line of Defence Second Line of Defence Third Line of Defence
Daily Risk Management Risk Management Function Independent Assurance
The First Line of Defence is mainly focused The Second Line of Defence comprises The Third Line of Defence is the Board of on evaluating the divisional business the Management Committee (MC) of CSE (via the Audit and Risk Management processes, possibilities of failures in CSE together with Risk Management Committee (ARMC)), supported by the the processes and the impact to the Function (RMF). The primary role of the Risk Management Function (RMF) of organisation due to such failures. This MC and RMF is to provide the framework CSE, which, as part of their activities, is would be carried out by the Divisional Risk and guidance in which each division can responsible for ensuring that CSE’s risk Coordinator. The Risk Coordinator for operate, identify and report on enterprise management process is appropriate and each Division is identified and appointed wide risks. RMF will consolidate CSE functioning as designed. by the respective Divisional Head. Risk risks across divisions, and the business Coordinators along with the respective processes with high severity (Probability * Divisional Heads identify and escalate key Impact) to the organisation are escalated risks in their division to Risk Management to the CSE Board. RMF will provide Function (RMF). support and guidance to the divisions with respect to risk management activities to ensure consistency in dealing with risks.
51 Colombo Stock Exchange Annual Report 2015
Operational Review
Risk Management Process Risk is identified by evaluating the impact derived by the multiplication of impact and The risk management process at the CSE is and the probability of failure of business likelihood where a high score has a greater a cyclical process that commences with risk processes in each division and tabulated severity and is required to be addressed identification followed by risk assessment, in the risk register of the respective immediately depending on the impact to risk treatment/mitigation, monitoring and division. Heads of the divisions along the organisation reporting to the Board Level. with the Divisional Risk Coordinators will identify the risk at a divisional level. Key risks in divisions will be escalated to Financial/ the organisational level and maintained Reporting in the organisational risk register which Strategic k Ris ation will be submitted to the CSE Board with tific A n s R de M se recommended mitigating strategies. Risks I e s is as s k
u m that have been identified are broadly Compliance r e e m n
e t categorised under one of the following
g n & Operations n t i
categories for risk treatment plans that are t
r
o
p appropriate to mitigate the risks. M
e T
i
r
t
R
e
i
g
a
R
a
t
t
m
i
i
s
o Risk assessment is carried out based on
e n k
n
t
g
/
n
i the combination of the probability of an
r
o
t i
n o M event (likelihood) and the impact of its
failure. Impact and likelihood is measured on a scale of 1 to 5. Risk Severity is
Overview of Principal Risks Risk Category Risk Focused Description Risk Mitigation
Strategic Low Turnover Levels The CSE is generating low • The New Product Development team was set up in order to turnover levels due to lack of research and conceptualise diversification liquidity, lack of products and lack of large capital listings and • Introducing Alternate Market Segment is in progress. limited free float. • The introduction of Dollar denominated securities, ETFs and investor tools including the Sharia Index and ESG Index is in progress.
• A new web portal interface was developed for Corporate Actions and Company Announcements of Listed companies.
Broker Failure There is a high probability of • Developed a methodology to implement Risk based Capital settlement failure by clients which Adequacy to control the amount of risk undertaken by the could lead to broker failure as Broker as against their liquid capital, instead of current Net their capital is not sufficient to Capital Requirement. absorb such failures. • The necessary rules were also developed. Unavailability of an OMS and a • The implementation of OMS and BBO systems is in BBO system leads to poor risk progress and expected to be completed by Q2 2016. management.
52 Operational Review
Risk Category Risk Focused Description Risk Mitigation
Strategic Attraction and Loss of key employees will have • Reward and recognition mechanisms were introduced to Retention of Right a greater impact on the CSE appreciate the contributions of the employees. Talent operations as the Exchange is a specialised organisation • Training opportunities are identified and provided to all staff which requires knowledge based members. competencies • Internal/Industry salary surveys are carried out and anomalies are to be corrected over a period of time.
• Employee concerns are discussed in common quorums/ focus groups.
• Competency based training initiatives are underway.
Mutual Exchange The Exchange is currently a • Implementation of the Demutualisation process is in Member owned organisation with progress. Members having equal voting rights in decision making.
Compliance Lack of Adequate Failure of one Broker could lead • Establishment of a clearing company with Delivery vs. Risk Management to failure in the settlement cycle Payment (DvP) environment. The project is in progress at CSE - Settlement thus causing a domino effect where Phase 1 was completed with the submission and Risk where other Brokers may also fail approval of the Inception Report by the CSE, the SEC and due to lack of available funds to the CBSL. meet settlement obligations. • The interim measures to be undertaken prior to implementation of a clearing company have been suggested.
Low Investor Investor confidence has • Upgrading of the Surveillance System and strengthening of Confidence been affected due to lack of the enforcement process has been effected. enforcement activities in the market and market malpractices. • Conduct broker training, support broker research skills and introduction of Corporate Governance Rules for Broker Firms are in progress.
Legal Risk Risk arising from failure to • Participation in initial discussions and review legal aspects safeguard the interests of the pertaining to new business implementations to ensure CSE due to acts / omissions and that the market continues to operate in an orderly and fair non-compliance of rules and manner. regulations laid by the SEC and other governing bodies. • Continuous upgrade of legal knowledge and industry knowledge.
Financial Financial loss Uncertain environmental (both • Active treasury management function, to increase local and global) conditions have investment income. directly impacted the revenue generating stream of the CSE • Standardisation of the procurement function. which has adversely affected the • Increased the revenue through data sales. organisation. • New revenue generation through CDS services.
• New CDS corporate actions & E-services.
• Fee increased for CSE & CDS services.
53 Colombo Stock Exchange Annual Report 2015
Operational Review
Risk Category Risk Focused Description Risk Mitigation
Operational Failure of Systems System downtime and failure of • A comprehensive Business Continuity Plan (BCP), including and Processes processes will have an adverse a Disaster Recovery Plan was tested successfully. effect to the entire capital market operations. • Enhancement of IT, Security and ISO Procedures was carried out.
• Staff awareness was raised regarding Polices & Procedures through continuous awareness sessions.
• Enhancement of information security and cyber security framework/building information security governance were effected.
Risk monitoring is carried out to identify the weaknesses in the existing risk management strategies and to introduce corrective actions to mitigate the existing risk as well the new risk identified during the review process.
Risk reporting is carried out on quarterly basis where the updated Organisational Risk Profile is submitted to the Board Audit and Risk Management Committee. Prior to submission of the report to the Board, the Organisational Risk Profile and the recommended mitigating strategies are reviewed and deliberated at a Management Committee meeting.
Review We regularly review the risk management process to ensure that an effective and robust risk management framework is in place to achieve our strategic objectives while meeting our stakeholder expectations.
54 Operational Review
Business Continuity Management Significant Highlight – Proposed Implementation of a Central (BCM) Counterparty (CCP) The CSE has implemented a We have commenced the implementation of a clearing company in view of mitigating asset comprehensive BCM System which is ISO commitment risk and counterparty risk for clearing and settlement of trades carried out at the 22301:2012 compliant to ensure continuity CSE. Subsequent to a stringent evaluation process by an evaluation committee appointed of business and technology operations in jointly by us, the SEC and the CBSL, BTA Consulting Limited from the United Kingdom was the event of a disaster. Business Continuity selected as the Consultant/Project Manager to the project. A five phased project plan was Plan (BCP) is tested annually by conducting developed and finalised jointly with the consultant. a Disaster Recovery (DR) drill by activating The phased approach to the project is set out below: the alternative (backup) site. A live DR drill was held for the first time in the history Phase 1 • Detailed business and operational model for the proposed of CSE on 3rd July 2015 with industry CCP Business participants. The exercise successfully Requirements and • Project implementation plan and road map, with proposed recovered and resumed critical functions/ Inception Report milestones systems to ensure smooth functioning of the business operations at CSE from the • Consolidated Inception Report backup site. The live drill was observed and audited by an independent external • Publish RFP audit team to ensure compliance to ISO Phase 2 22301:2012 standards. • System evaluation and selection Procurement & Vendor • Hardware and software procurement A comprehensive questionnaire was Management developed to assess the Broker Firms’ • Systems installation readiness on business continuity to ensure their continuation of the business as market participant as well as to provide a better • Drafting of rules, regulations and by-laws in compliance Phase 3 service to their clients. with the international best practices and in accordance with Legal, Regulatory current domestic laws, rules and regulations Risk Assessment of Outsourced & Operational • Drafting of the operational and user manuals for CCP Business Processes Documentation We have also commenced to carry out an initial and routine risk assessment of outsourced business processes. Comprehensive templates have been • Project management, monitoring and reporting Phase 4 developed to evaluate the risk of initial and • Training and skill development of staff, market participants, routine outsourced Business Processes to Operationalisation and other stakeholders ensure a reliable service is provided by the of CCP & Go-Live outsourced vendor. Recommendations are • CCP launch made at the end of each assessment to the respective division in order to improve the outsourced vendor’s business processes • Post implementation issue handling, troubleshooting and thereby meeting the CSE’s expectations. Phase 5 monitoring of the CCP systems with hardware/software Post vendors Implementation • Ensure implementation of all products and transaction types identified at the initial market study on a phased basis
The Inception Report was finalised and delivered in July 2015 and was presented to the CBSL, SEC and CSE. The Inception Report was approved by CBSL, SEC and CSE in August 2015. As at the date of publication of this report, Phase 2 and 3 has been commenced with an official Request for Information being called by the CSE.
55 Colombo Stock Exchange Annual Report 2015
Operational Review
Our people: a transformative journey
As an organisation that is called upon to face changing market“ dynamics, it is a core responsibility to deliver sustained and reliable services and facilities to our stakeholders. It is“ inevitably our workforce that ensures that the process is executed efficiently to satisfy stakeholder expectations.
Our mission in managing human capital is Gender Diversity Age Diversity closely aligned with the Exchange’s vision % % of becoming a world-class institution. 43 Therefore our human resource strategy has 57 been aligned with the objective to ensure a 43 43 sustainable process that drives results by 57 developing a culture that is conducive to 57 57 the CSE’s functions.
Building a Unique Team Our aim in managing human capital is closely aligned with the Exchange’s strategy for long-term value creation. The diversity of CSE’s workforce is significant Females 18-20 Years 41-50 Years in facilitating our product and service Males 21-30 Years 51-55 Years offering, operational activities and strategic 31-40 Years initiatives. Individuals from varied social, Gender Diversity within the on par with the future vision of the CSE. ethnic and cultural backgrounds constitute management our dedicated team. This helps us create an Our HR strategy was focused on the environment that encourages diverse ideas retention of talent, engaging employees in and amalgamates an array of skills to better the most effective manner and providing a seamless operational function related to meet stakeholder expectations. 15 Human Resources. Putting things into context Notwithstanding the challenging market conditions that prevailed throughout the 7 year, the constraints in resources had to 4 be managed prudently. Our objective was 4 3 3 to focus on preparing the organisation for 2 the future by ensuring that the knowledge, 0 skills and attitudes of our employees are Assistant Manager Senior C Grade Manager Manager
Males Females
56 Operational Review
Talent acquisition and retention Aiming to provide the best exposure, The CSE believes in providing equal prospects for internal and external individuals who our staff have been trained at institutions seek opportunities within the organisation in order to learn and grow. Through internal job such as the Massachusetts Institute of postings, the opportunity is first given to the current employees of the CSE, thus facilitating Technology, USA; The Securities and lateral transfers to broaden the exposure of employees within the CSE. In its specialised Exchange Commission of the USA, the role within capital markets, filling jobs internally has given a strategic advantage in terms of Bombay Stock Exchange and several finding employees who fit the roles. This has also helped in minimising training cost when an other regional and global exchanges. employee is to familiarise themselves with the job role and the industry.
By attracting talent through external sources, enable diversity of capabilities, transferable skills and exposure to related businesses such as investment banking. We envision ourselves as an employer of choice and by attracting highly credentialed, skilled and innovative employees, we in tend to foster a culture that is creative and driven to produce results in a consistently changing environment. We currently employ a workforce of 158 reflecting a 3.0% yoy growth and recorded a staff turnover rate of 9.6% in 2015.
Recruitment Trend Analysis 2012-2015 Workforce Growth
150 23 24 146
19 17 140
9 8 129
1 0
2012 2013 2014 2015 2012 2013 2014 2015
Permanent Staff No. of Employees Interns
Building a culture driven to perform Managing the morale and motivation of employees has been a major focus in our transition to a performance driven culture. By linking the bonus scheme to the yearly performance ratings, we have been able to converge the efforts of the workforce towards achieving their highest potential.
Developing a competent workforce Institutional capacity building through continued and pervasive training is an important component of human capital transformation.
We recorded a total of 41 hours of training (5 days of training) in average per employee. This is a 70% increase in training for the workforce in comparison to 2014. Foreign trainings contributed to 13% of the total trainings.
57 Colombo Stock Exchange Annual Report 2015
Operational Review
Training Man Hours 2014-2015 Expanding the horizons of personnel Projects such as employee job rotation and consistent knowledge sharing programmes
41 have enabled employees to enhance 38 their networks, gain new skills and obtain 33 knowledge in a diverse range of subjects 26 25 24.07 relating to Capital Markets. 23 24 23.29
17 15 The newly initiated Toastmasters Club 13.06 has set a process to build the leadership 9.4 8.16 6.43 and communication skills of future leaders 0.15 3.9 3.36 0.5 0.75 0.15 0.3 0.7 0.7 within the CSE. Through its impact we have been able to identify the hidden capabilities July May April of employees, and to enable a more June March August January October
February meaningful career growth and exposure. November December September 2015 2014 Employee engagement Engaging employees to an intense work Training Comparisons 2014-2015 environment has been a significant part in our HRM strategy. Our approach has been three fold.
12 2015 81 d an s d on r iti E a n m w g W p e o e l c o R e l f y a R 14 e r
e
2014 e
58
s
Foreign Training Programmes Local Training Programmes t i f e B n e
e
e y E o l m p
Creating a learning organisation Our long-term objective is to build a knowledge driven workforce at the CSE and we have taken measures to disseminate knowledge on a consistent basis. Educational material has Working within the given resource been made accessible to employees with the help of our internal training programmes. limitations, the approach to the mentioned Throughout the last calendar year, employees were exposed to regular programmes that triad had to be carefully calculated to educated them on information, and new trends within the global and local capital markets. maximise effect with minimal resource In this manner employees at the CSE were made aware of the stakeholder functions and allocation. Thus, we were able to upcoming initiatives that are in place within the industry that will affect the CSE and all its successfully provide the three tenants stakeholders. through the following projects:
58 Operational Review
30th Anniversary celebrations, all staff event
1. CSE Star Performers 2. Welfare events 3. Employee benefits This event was organised to recognise Among the other noteworthy We believe in taking care of our employees within the CSE who showed engagement events were the avurudu employees as they serve to be the exemplary performance in embodying uthsawaya, staff trip, all staff sports day, lifeblood of the organisation. Our the company values, innovation, year end calypso night, health week, benefits structure has helped us gain and significant achievements in the women’s day special celebration the confidence in the staff and retain an extra-curricular activity, and and the blood donation campaign. As their enthusiasm by ensuring that their branch performance. The event also a celebration of the 30th anniversary best interests are taken care of. showcased the hidden talents of in December, the CSE also organised employees beautifully choreographed a special breakfast ceremony for 4. Internal communications as a memorable event by the the whole staff, while engaging the The launch of a newly developed employees themselves. branches through an online streaming intranet platform has helped us bridge of the live event. the physical distance between our branch staff and our head office. Internal communications have been made much more effective and efficient by technology, gaining a much deeper integration of the branch staff.
59 Colombo Stock Exchange Annual Report 2015
Operational Review
Collaborating to develop and execute organisation strategy Weekly management meetings have enhanced the engagement of the top level employees and has helped in progressing strategies towards the growth of the organisation. All staff meetings that are held quarterly, assist in keeping the staff informed and reminded of the organisation’s direction. In order to gain the most out of a strategy we also ensure that we receive the input of staff from all levels when developing annual plans and budgets. Updates on Strategic Goals are done on a quarterly basis with each HoD and will be reported to the Board . CSE Star Performers night – Value Champions Transparency In maintaining integrity as a core value of the organisation, the CSE has established clear policies with regards to the benefits provided to its staff. As we believe in recruiting and developing talent, we also believe in retaining them by catering to their needs. This has helped render confidence in employees and helped engage employees within the organisation more meaningfully.
Focus on sustainability In line with becoming an effective and efficient function that supports the organisational vision in the present and in time to come, our efforts have been focused on setting clear processes that will assist in developing a world CSE Sports Day class organisation. Having produced a comprehensive employee handbook
60 Operational Review
which details the procedures of the Human Impact through best practices in Resources function, we have been able to HR solidify the critical processes that will ensure In positioning the CSE as an employer of progress in managing the workforce in the choice, we envision the CSE in a position future and ensure sustainability. that attracts the best talent in the market. In efforts towards achieving this: planned Our efforts were also directed towards and structured internship programmes have enhancing the efficiency of the attracted undergraduates who seek to gain administration role of the Human Resources work experience. Through this programme, process. By upgrading our current talented personnel have been absorbed technology to an industry recognised to the organisation, filling the cadre with Human Resource Information System we young, dynamic and talented individuals. have been able to engage employees in a transparent and more convenient operation. We secured the award for the best HR quiz team in a special category at the Institute of Maintaining staff morale Personnel Management Sri Lanka’s Great “Care”, elaborated as “Doing the best for HR Quiz helping the CSE in branding the them”, is one of our core organisational HR function’s prowess within the industry. values at the CSE. We believe in providing the best possible support for our team At the time of publication of this report, we in order to maintain their confidence, have been fêted for “The Most Innovative enthusiasm and passion towards what Use of Training and Development” at the they do. Focus groups with the employees World Human Resources Development have helped us gain input on how we can Congress in Mumbai, India, our inaugural improve our support to the team in the international HR award, exemplifying the context of Human Resources Management. distinction of the CSE HR function. This bottom up approach has been key in our aim to deliver excellence in service for the staff.
61 Colombo Stock Exchange Annual Report 2015
Corporate Governance Framework of CSE
The policy making body of the CSE is the Board of Directors. The Chief Executive Officer is responsible for the operations of the CSE. The following Governance model has been established by the CSE to discharge the responsibilities of the Board effectively.
Colombo Stock Exchange (CSE)
Central Depository Systems (Pvt) Limited
External Auditors Board of Directors of CSE Internal Auditors
Governance Committees Regulatory Committees Other Committees • Risk and Audit Committee • Consultative Committee of Market • Market Development • HR Committee Stakeholders Committee • Rules Committee • Arbitration and Disciplinary Committee • Dispute Resolution Committee • Member Evaluation Committee
Chief Executive Officer
Management Governance Framework • Management Committee • Information Technology Steering Committee • Investment Committee • Information Technology Procurement Committee
62 Operational Review
Board of Directors & its The strategic direction to the development The role of the Company Secretary has responsibilities of short, medium and long-term strategy been outsourced to Corporate Services The CSE’s Board of Directors is composed has been provided by the Board. During the (Private) Limited who has appointed of nine members. Five Directors are year the Board has reviewed the Strategic permanent representative to the CSE elected by the fifteen Members, while Plan developed by the Management to whom all Directors have access. The the Minister of Finance nominates four. for 2015-2017 and the monitoring of Company Secretary is an Attorney-at-Law The Board of Directors represents the performance against agreed goals and KPIs by profession. The role of the Company fields of Accounting, Banking, Investment was executed on a quarterly basis by the Secretary includes; ensure to follow up on Banking, Law, Management, Economics, Board. In the process of corporate decision Board procedures; compliance with rules Engineering, Marketing and Public & making, the views of public, Securities and and regulations, directions and statutes; Business Administration. Exchange Commission (SEC) and Member keeping and maintaining minutes and firms have been obtained. The Board HR relevant records of the Exchange. Refer the ‘Board of Directors’ section Committee ensures that the Management on page 30 for key information on the team led by the CEO possess the required In terms of Article 50 of the Articles of directors. skills, experience and knowledge necessary Association of the CSE require each to implement the business strategy. Director to retire by rotation once in every The CSE Secretariat, headed by the Chief three years and they are required to stand Executive Officer is responsible for the The Board of Directors recognises its for re-election by the members at the operations of the CSE, and is accountable responsibility for the CSE’s system of Annual General Meeting. to the Board of Directors. The roles of the internal control and for reviewing its Chairman and Chief Executive are separate. effectiveness on a continuous basis. The Board meets on monthly intervals, Directors’ Responsibility Statement for while special Board meetings are convened The Board has appointed Sub Committees Financial Reporting is given on pages 71. as the need arises. Details of Board to assist in the discharge of their collective meetings, Sub Committee meetings and duties and the delegation of authority to The Board has taken the appropriate attendance are given below. provide effective operation of the CSE. measurement to ensure to fulfil their The minutes of the Board Sub-Committee responsibilities as in line with the law, meetings have been tabled at Board regulations and good governance practices meetings. adopted by the CSE.
Refer the ‘Board Committees’ section on page 34 for key information.
Name of the Directors Board Rules HR Risk & AGM Dispute Arbitration Meeting Consultative Market Other meeting Committee Committee Audit Resolution & with Committee Development meeting Committee Committee Disciplinary SEC of Market Committee Committee Stakeholders me
Mr. C.V.Kulatilaka 16/16 4/4 1/1 - 1/1 3/11 5/6 4/4 2/3 1/1 2/2 Mr. M.R.Prelis 15/16 4/4 1/1 8/10 7/10 - 3/4 3/3 - - Mr. Ray Abeywardene 12/16 4/4 - 8/10 1/1 - - 1/2 - - 1/1 Mr. Asanga Seneviratne 8/16 1/4 - - - - - 2/2 1/3 - - Mr. Aravinda Perera 11/16 - - 7/10 1/1 - - 1/2 1/3 - - Mr. Dakshitha 15/16 - 1/1 10/10 1/1 11/11 5/6 1/2 3/3 1/1 - Thalgodapitiya Ms. Jeeva Niriella 16/16 4/4 - 9/10 1/1 11/11 5/6 2/2 2/3 - 1/1 Mr. Lal Nanayakkara 7/8 - - 4/4 1/1 - 3/6 - - - 1/1 Mr. Anton Godfrey 13/14 - - - 1/1 11/11 2/6 - 2/3 1/1 -
63 Colombo Stock Exchange Annual Report 2015
Corporate Sustainability Statement
Sustainability at CSE is a partnership among the UN, UN-supported organisations, stock exchanges, investors, CSE has always been a believer of the companies, regulators and governments around the world. virtues of sustainability and we strive to make sustainability a part of our culture and a way of life. Our approach to achieving sustainable development in the Sri Lankan capital market and beyond focuses on economic, social and environmental value creation through our policies and initiatives.
Sustainability Pillars
Economic CSE joins United Nations Sustainable Stock Exchanges Initiative
Social Environmental Economic Value Creation Our unique position at the intersection between investors, companies, and regulators give the CSE a unique opportunity to foster economic value creation through providing resourceful market access. 2015 saw CSE leverage on technology to provide continuous market access, creating the opportunity for investment and capital raising for investors and listed companies. Economic Perspective of In this regard, we managed to provide uninterrupted access by maintaining 100% up-time Sustainability during the year in focus. Joining the Sustainable Stock Exchanges Initiative However, our commitment to our market participants extends beyond providing efficient 2015 saw the CSE expand on our market access. 2015 saw the CSE take a preventive approach to IT security, where we were commitment to adopt best practices in successful in providing a secure trading environment for our market participants. Identifying, promoting corporate sustainability by joining prioritising and mitigating the risks associated with our operations play a crucial role in the Sustainable Stock Exchanges (SSE) establishing confidence amongst our stakeholders, and enables their attempts to use the initiative of the United Nations (UN). exchange as an instrument for economic value creation.
Over the years, SSE has contributed In terms of leveraging on our access to international investors in creating value for the to enhance corporate transparency on Sri Lankan economy, a first ever investment forum in Switzerland and a forum in the UK environmental, social, and corporate conducted by the CSE in 2015 helped attract significant foreign interest in the Sri Lankan governance issues and encourage capital market and the national economy. Initiatives such as these forums, we believe, played responsible long-term approaches to a crucial role in paving the way for an inflow of foreign investment into the national economy. investment. Through joining SSE, we endeavour to engage with our stakeholders, Facilitating Growth through Capital Raising CSE plays a vital role in creating a funding environment for Sri Lankan enterprises as they and collectively work towards sustainable develop their businesses. 2015 recorded a total of Rs. 107.84 Bn in capital raised across policy initiatives which will help us create debt and equity markets at the CSE, sourced through IPOs and additional financing. better corporate citizens. Capital raised through the CSE paves the way for companies to fund their development The initiative paves the way for CSE to and pursue growth ambitions, which could potentially create significant economic value that work together with other exchanges, would be of benefit to issuers, investors, respective industries and society at large. investors, regulators and companies to promote sustainability and growth. SSE
64 Operational Review
We therefore remain focused on offering Social Perspective of Sustainability issuers the opportunity to raise capital in At CSE, we are dedicated to supporting the communities that we live in. We strive to one of the fastest growing economies in promote and provide opportunities through collaborations and initiatives that support and Asia, through an Exchange that on average deliver innovative programs and charitable activities. performed better than most major global indices and some of the best performing Improving Financial Literacy regional indices in recent years. For regulated markets, financial literacy and investor education is a core mission and goes hand-in-hand with efforts to promote transparency and trust in markets.
In 2015 the CSE continued to roll-out investor education and awareness programs to Amounts Raised (Rs. Mn) expand on our previous initiatives on educating the public on investments and financial literacy. Our branch network was pivotal in reaching out to communities around the country, offering knowledge and key learning opportunities to diverse segments including school children, pensioners, entrepreneurs and more. These programs conducted over the years have attracted an overwhelming interest amongst the public and play a vital role in paving the way for better informed financial activity in society. 81,41 4
Recent moves by the government to embed financial literacy in the national curriculum and education policies illustrate the importance of the cause and its key impact on sustainable development in the country.
Please refer pages 42 to 43 for specific details on the programs conducted and their reach. 7,973 505 330 16,10 5 1,518 Personal and Professional Growth of our Employees We continuously strive to drive exceptional business outcomes through innovative
Funds Private
warrants IPO-Debt and sustainable HR practices. We are committed to creating a work environment that IPO-Equity
of Placements
Conversion Closed End
Rights Issues empowers creativity, rewards contribution, embraces diversity, and fully utilises the abilities of our employees – which are all focused on developing our employees personally and professionally. Such growth achieved through CSE, we believe offers our employees the opportunity to contribute and excel in the communities they represent.
We fully understand our role as an employer and work towards creating job opportunities by growing the exchange and its operation around the country, which demonstrates our enthusiasm to help our communities to grow with the exchange.
Please refer pages 56 to 61 for an overview of our HR practices and initiatives in 2015.
Regional Investor Forum in Matara Seminars focused on improving financial literacy amongst students
65 Colombo Stock Exchange Annual Report 2015
Corporate Sustainability Statement
Promoting Transparency, Environmental Perspective of Sustainability Accountability and Governance Our modest environmental footprint given the nature of our business does not stop the CSE The CSE continued its commitment to from promoting sound environmental practices driven through sustainability. Embedding promote transparency, accountability sustainability in our corporate culture and thereby passing on sustainable practices to our and governance in financial reporting employees remains to be a key strategy in our bid to make a positive difference to our by renewing its strategic partnership for environment. the Annual Report Awards competition organised by the Institute of Chartered At CSE, we understand the scarcity of resources and engage in a committed effort to manage Accountants (CA Sri Lanka). In another key strategic partnership, the CSE partnered such scarce resources in a responsible and thoughtful manner. This we believe is vital to the with the CFA Institute of Sri Lanka for its preservation of our planet as we prepare to face the business opportunities of tomorrow. Research Challenge, a program promoting best practices in equity research among Embracing the “Paperless Office” Concept analysts. 2015 saw the CSE embracing the “Paperless Office” concept, where we have implemented a number of initiatives to reduce the use of paper in our operations. While we are still working Blood Donation Campaign towards achieving an entirely paperless operation, efficient use of technology has helped us The Blood Donation Campaign organised make noteworthy progress towards significantly reducing paper usage during the past year. as part of our 30th Anniversary celebrations in 2015 attracted interest and participation A look at “Paperless Office” initiatives implemented in 2015 amongst employees and investors alike. The campaign was used as a means for Area Initiative Description raising awareness on the importance Operations Automation of Purchase Automation of purchasing work flow process of blood donation and the difference Requisition Process has streamlined the process and reduced paper these donations make in the treatment consumption. of patients. Employee engagement was crucial to the success of this program. Launching of new A new Human Resource Information System was Human Resource implemented thus automating a large portion of Information System routine HR tasks. This has helped increase efficiency and facilitated in creating an E-learning culture.
Launching of SMS The SMS based Trade Verification Service enables based Trade Verification investors to verify trades executed in their account Service on daily basis and would enhance the transparency in the order executions by the exchange brokers.
E-statements The newly launched E-statement service has helped reduce paper consumption and trimmed down costs related to postage.
Settlement Schedule The CDS launched DS3 in 2015, enabling the Digitisation Solution digitising of settlement schedules. It provides a mechanism to digitally sign the settlement schedules CSE Blood Donation Campaign using digital signatures embedded in a USB Crypto token which can be downloaded by the settlement banks through a web portal. The CDS settlement approval process has since been entirely paperless.
Governance E-Board Papers We successfully implemented a digital, paperless solution that is secure and effective, enabling the Board of Directors to access Board and Committee Papers and supplementary information directly through iPad devices, thereby eliminating the use of paper for the task.
66
Financial Information
Annual Report of the Board of Directors on the Affairs of the Company 68 Directors’ Responsibility for Financial Reporting 71 Risk and Audit Committee Report 72 Independent Auditors’ Report 74 Statement of Profit or Loss and other Comprehensive Income 75 Statement of Financial Position 76 Statement of Changes in Equity 77 Statement of Cash Flows 79 Notes to the Financial Statements 80 Colombo Stock Exchange Annual Report 2015
Annual Report of the Board of Directors on the Affairs of the Company
The Board of Directors of the Colombo The CSE Secretariat, headed by the Chief The Financial Statement of the Company Stock Exchange has pleasure in presenting Executive Officer is responsible for the and its subsidiary for the year ended 31st their Annual Report to the Members, operations of the CSE, and is accountable December 2015, duly signed by the Head together with the audited consolidated to the Board of Directors. of Finance & Administration and two of Financial Statements and Auditors’ Report the Directors of the Company are given on those Financial Statements for the Vision, Mission and Corporate on pages 75 to 114 and form an integral financial year ended 31st December 2015. Conduct part of the annual report of the Board of The Vision and Mission statements are Directors. This Annual Report on the affairs of the given on page 3 of the Annual Report. Company contains the information required The business activities of the group are Auditor’s Report in terms of the Companies Act No. 7 of conducted in keeping with the highest level Messrs. KPMG, the Auditors of the 2007. of ethical standards in achieving its Vision Company carried out the audit on the and Mission. Consolidated Financial Statements for the The Financial Statements were reviewed year ended 31st December 2015 and their and approved by the Board of Directors on Principal Activities report on those statements which forms 27th April 2016. The principal activity of the Company is an integral part of the Annual Report of the the operation of a Stock Exchange. The Board of Directors, is given on page 74 of General fully-owned subsidiary, Central Depository this Annual Report. The Colombo Stock Exchange (CSE) Systems (Pvt) Ltd (CDS) acts as a is a company limited by guarantee, depository for listed securities. Board Sub-Committees incorporated in Sri Lanka on 2nd December The composition of the Board sub- 1985, under the Companies Act No.17 of There were no significant changes in the committees, comprising of Non-Executive 1982 and is licensed by the Securities and nature of principal activities of the Company Directors is provided on pages 34 to 35. Exchange Commission (SEC). The CSE and its subsidiary during the financial year was re-registered as per the Companies under review. The Report of the Board Risk and Audit Act No.7 of 2007 on 13th May 2008 with Committee is given on pages 72 and 73. GL 12 as the new number assigned to the Review of Operation and Future Company. Developments Significant Accounting Policies A review of the activities of the CSE during The significant accounting policies adopted The CSE is a mutual exchange and has the year is contained in the Chairman’s in preparation of the Financial Statements fifteen Members & twenty one Trading Statement on Pages 20 to 23 and the Chief are given on pages 80 to 87. There have Members, of which twenty eight Members Executive Officer’s Review on Pages 24 to been no changes in the accounting operate as stockbrokers for both equity 29 and the Operational Review on pages policies adopted by the Company and its & debt and eight members are appointed 38 to 61 of the Annual Report 2015. These subsidiary, during the year under review. by the CSE as Trading Members only for reports form an integral part of the Annual debt. All Members are corporate entities. Report. Going Concern The CSE became the first South Asian The Board is satisfied that the Company member of the World Federation of Financial Statements has adequate resources to continue Exchanges (WFE) in 1998. CSE is also a The Financial Statement of the Company its operations in the foreseeable future. member of the South Asian Federation of and its subsidiary have been prepared in Therefore, we continue to adopt the “going- Exchanges (SAFE) and currently holds the accordance with Sri Lanka Accounting concern” basis in preparing these Financial chairmanship. Standard (SLFRS) laid down by the Institute Statements. The policy-making body of the CSE is of Chartered Accountants of Sri Lanka and the Board of Directors composed of nine complying with the requirements of the Income members. Five Directors are elected by Companies Act No. 7 of 2007. The income of the Group for 2015 was Rs. the fifteen Members, while the Minister of 833.59 Mn (2014: Rs. 960.82 Mn) while Finance nominates four. the Company’s income was Rs. 705.55 Mn (2014: Rs. 760.00 Mn). An analysis of the income is given in Note 04 to the financial statements.
68 Financial Information
Financial Results and Reserves In terms of Section 211 (2) of the Companies Act No.7 of 2007, the Board of Appropriations The Group Accumulated fund and other Directors have given notice to the Company The Group has recorded a loss before tax reserves as at 31st December 2015 that Mr. M.R. Prelis, aged 79 years be of Rs. 26.88 Mn (profit before tax of amounted to Rs. 3,117,996,443 (Rs. elected as a Director and that the age limit Rs. 75.06 Mn in 2014) and loss after tax of 3,125,653,054 in 2014). The break-up and of 70 years referred to in Section 210 of the Rs. 29.04 Mn (profit after tax of Rs. 56.21 movement are shown in the Statement Companies Act shall not apply to Mr. M.R. Mn in 2014) for the year 2015. of Changes in Equity in the Financial Prelis. Statements. The Group’s total other comprehensive The details of the Directors’ meetings income for the year was Rs. 21.38 Mn Outstanding Litigation which comprise Board meetings, Risk and (total other comprehensive expense of Rs. In the opinion of the Directors and the Audit Committee meetings, HR Committee 26.07 Mn in 2014) while the Company Company’s Lawyers, pending litigation meetings and Rules Committee meetings has recorded a total other comprehensive against the Company disclosed in Note 25 and the attendance of Directors at these income of Rs. 18.06 Mn for the year (total of the Financial Statements will not have a meetings are given on page 63 of the other comprehensive expense of Rs. 22.28 material impact on the financial position of Annual Report. Mn in 2014) 2015 the Company or its future operations.
Directors’ Interest Register Donations Events after the Reporting Date The CSE maintains a Directors’ Interests During the year the Company made Events after the Reporting Date has been Register conforming to the provision of donations amounting to Rs. 449,739.00. disclosed in Note 29 of the Financial the Companies Act No. 7 of 2007. The Statements. Directors of the CSE have disclosed Taxation their interests in other companies to the The income tax rate applicable on the Board of Directors Board and those interests are recorded in Company and the subsidiary company is The following Directors held office as at the the Interests Register conforming to the 28% (2014 –28%). Statement of Financial Position date. provisions of the Companies Act No.7 of 2007. The particulars of those entries Statutory Payments Name of the Director are set out on Note 28 to the Financial The Directors, to the best of their Mr. C.V. Kulatilaka (Chairman) Statements and form an integral part of the knowledge and belief, are satisfied that Mr. M.R. Prelis Annual Report of the Board of Directors. all statutory payments in relation to the Mr. D.T.W. Thalgodapitiya Government and the employees have been Mr. Ray Abeywardena Related Party Transactions made up to date. Mr. A.C. Seneviratne The Directors have also disclosed Ms. M.A.D.S. Jeeva Shirajanie Niriella transactions if any, that could be classified Capital Expenditure as related party transactions in terms Mr. M.Y. Aravinda Perera The total capital expenditure on acquisition of LKAS 24 “Related Party Disclosures” of property, plant and equipment and Mr. A.C.J. Godfrey (Appointed to the Board which is adopted in the preparation of the intangible assets of the Group amounted to on 20th March 2015) Financial Statements. Those transactions Rs. 27 Mn (2014: Rs. 174 Mn). Details of disclosed by the Directors are given in Note property & equipment are given in Mr. V.L.C. Nanayakkara was appointed 28 to the Financial Statements forming Note 9 to the Financial Statements. to the Board on 20th March 2015 and part of the Annual Report of the Board of The capital expenditure approved and resigned from the Board of Directors on Directors. contracted for and not contracted for as at 1st September 2015. Balance Sheet date is given in Note 26 to Directors’ Remuneration the Financial Statements. Mr. Ray Abeywardena & Mr. M.Y. Aravinda In compliance with the provisions of the Perera retire by rotation at the conclusion Articles of Association, the CSE has of the Annual General Meeting in terms of Property & Equipment not made any payments on account of Article 50 of the Articles of Association, Details of property, plant and equipment are Directors’ remuneration other than payment and being eligible, offer themselves for given in Note 9 to the Financial Statements. pertaining to meet out-of-pocket expenses re-election. for attending Board Meeting as given in Note 28 to the Financial Statements.
69 Colombo Stock Exchange Annual Report 2015
Annual Report of the Board of Directors on the Affairs of the Company
Directors’ Responsibility for Auditors Financial Reporting The Company’s Auditor’s during the period under review were Messrs. KPMG, Chartered The Statement of Directors’ Responsibility Accountants. Audit fee and reimbursement of expenses paid to KPMG during the year under for the Financial Reporting given on page review by the Company and its subsidiary amounted to Rs. 899,550 (Rs. 838,096 in 2014). 71 forms an integral part of the Annual Further Rs. 512,583 (Rs. 384,000 in 2014) was paid on account of tax related services. The Report of the Board of Directors. detail of their remuneration is given in Note 7 to the Financial Statements.
Environmental Protection As far as the Directors are aware, the Auditors do not have any interest with the CSE or its To the best of the knowledge of the subsidiary other than those disclosed above. Board, the Company has complied with the relevant environmental laws and The Auditors have expressed their willingness to continue in office. A resolution to re-appoint regulations. The Company has not engaged the Auditors and authorise the Directors to determine their remuneration will be proposed at in any activity that is harmful or hazardous the Annual General Meeting. to the environment. Notice of Meeting Risk Management and Internal The 31st Annual General Meeting of the CSE will be held on 27th May 2016 at 5.00 p.m. Control at the Colombo Stock Exchange Auditorium, # 04-01, West Block, World Trade Center, Echelon Square, Colombo 1. Risk Management The Company has an ongoing process in Acknowledgement of the Contents of the Report place to identify, evaluate and manage the As required by Section 168 (1) (k) of the Companies Act No. 7 of 2007, the Board of risks faced by the Company. Directors hereby acknowledge the contents of this Annual Report.
Internal Control For and on behalf of the Board of Directors. The strong internal controls are integral to the sound management of the Company, hence the Board committed to maintain strict financial, operational and risk management controls over all its activities C. V. Kulatilaka D. T. W. Thalgodapitiya including the safeguard of the assets of the Chairman Director Company and prevention and detection of frauds.
There is an ongoing process for identifying, Corporate Services (Private) Limited recording, evaluating and managing the Secretaries risks faced by the Company, and the Directors have reviewed this process, 27 April 2016 through the Board Audit & Risk Committee Colombo including internal reviews, internal audits and system audits.
Corporate Governance The Directors and Management of the CSE have placed emphasis on conforming to the best corporate governance practices and procedures. A separate report on Corporate Governance is given on pages 62 to 63.
70 Financial Information
Directors’ Responsibility for Financial Reporting
The responsibility of the Directors, in relation with the Sri Lanka Accounting Standards its subsidiary CDS as at the Statement of to the Financial Statements, is set out in (SLFRS), Companies Act No. 7 of 2007, Financial Position date have been paid or the following statement. The responsibility and Sri Lanka Accounting and Auditing where relevant provided for. of the Auditors, in relation to Financial Standards Act No. 15 of 1995. Statements, is set out in the Report of the The Directors are of the view that they have Auditors’ on the Annual Report. The Directors have adopted the going discharged their responsibilities as set out concern basis in preparing the Financial in this Statement. As per the provisions of the Companies Act Statements. The Directors are of the No. 7 of 2007, the Directors are required view that the CSE & CDS have adequate By order of the Board to prepare Financial Statements for each resources to continue in operation. financial year and place them before a General Meeting. The Financial Statements The Directors have taken reasonable steps comprise the Statement of Financial to safeguard the assets of the CSE and its Corporate Services (Private) Limited Position as at 31st December 2015, the subsidiary CDS and in this regard to give Secretaries Statement of Comprehensive Income, proper consideration to the establishment Statement of Changes in Equity and Cash of appropriate internal control systems 27 April 2016 Flows for the year then ended and Notes with a view of preventing and detecting Colombo thereto. fraud and other irregularities. Further, the Directors have a responsibility to ensure The Financial Statements of the Company that the Company maintains sufficient and its Subsidiary give a true and fair view accounting records to disclose with of: reasonable accuracy. the state of affairs of the Company and its Directors are required to prepare the
Subsidiary as at the Statement of Financial Financial Statements and to provide the Position date and the Profit or Loss of the Company’s External Auditors, Messrs. Company and its Subsidiary for the financial KPMG, with every opportunity to carry out year ended on the Statement of Financial any reviews and tests that were considered Position date. appropriate and necessary for expressing their independent audit opinion on the The Directors have ensured that, in Financial Statements. preparing these Financial Statements: The Financial Statements of the Company 1. The appropriate accounting policies and its Subsidiary have been certified have been selected and applied in a by the Company’s Head of Finance & consistent manner. Material departures, Administration, the officer responsible if any, have been disclosed and for their preparation, as required by the explained; Sections 150 (1) (b) and 152 (1) (b) of the Companies Act No.7 of 2007. Also the 2. All applicable accounting standards as Financial Statements of the Company and relevant have been followed; its Subsidiary have been signed by two Directors on 27th April 2016 as required by 3. Judgments and estimates have been Sections 150 (1) (c) and 152 (1) (c) of the made which are reasonable and Companies Act No.7 of 2007. prudent. The Directors to the best of their knowledge The Directors confirm that the Consolidated and belief, are satisfied that all statutory Financial Statements of the CSE and its payments in relation to all relevant Subsidiary CDS for the year ended 31st regulatory and statutory authorities which December 2015 presented in this Annual were due and payable by the CSE and Report have been prepared in accordance
71 Colombo Stock Exchange Annual Report 2015
Risk and Audit Committee Report
Composition of the Committee • To advise the Board on the risk profile Risk Management and appetite of the Company and as The Risk and Audit Committee of the The Committee was instrumental in the part of this process, to oversee the risk Colombo Stock Exchange (CSE) comprises implementation of the Enterprise Risk assurance within the CSE. of three elected Directors and two Management (ERM) Policy and Framework appointed Directors. for the CSE. The Board delegated the • To act on behalf of the Board of overall monitoring of ERM framework to the The members of the Risk and Audit Directors to ensure that appropriate Risk and Audit Committee, which is tasked Committee appointed by the Board are; mechanisms are in place with respect to with monitoring the effectiveness of risk risk identification, risk assessment, risk management activities across the CSE. Mr. D.T.W. Thalgodapitiya - Chairman assurance and overall risk management. The Committee also discussed the Mr. M.R. Prelis • To review significant accounting and proposed amendments to the Rules of the Ms. M.A.D.S. Jeeva Shirajanie Niriella reporting issues, including complex or Central Depositary System (CDS Rules) to unusual transactions, recent professional facilitate interim measures recommended Mr. Ray Abeywardena and regulatory pronouncements, and to be introduced to mitigate settlement Mr. Aravinda Perera understand their impact on Financial risk prior to the implementation of a Statements of the Company. central counterparty (CCP) during the year. Mr. Lal Nanayakkara (Resigned w.e.f. 1st Reports on broker performance analysis September 2015) • To review the effectiveness of the were discussed during the year in order to Company’s internal control systems. identify any rule violations, financial status All five members of the Risk and Audit and net capital adequacy. The Committee Committee are Non-Executive Directors. • To monitor and review the effectiveness is continuously monitoring broker stability of the Company’s internal audit function, and has recommended the introduction of The Chief Executive Officer, Chief Operating in the context of the overall financial the risk based capital (CAR) as adopted in Officer, Chief Information Officer, AGM- control and risk management system of other exchanges. Risk, Head of Finance & Administration, the Company. Head of Internal Audit, other relevant Senior Management members and External Integrity of Financial Statements • To assess independence and objectivity Auditors & Internal Auditors attend the The Committee reviewed the of the External Auditor. meetings of the Risk and Audit Committee appropriateness of the accounting policies on invitation. used and the Financial Statements of • To make recommendations to the Board the group to assess their integrity and of Directors on the appointment, re- compliance with Accounting Standards. Responsibilities and Duties of the appointment and removal of the CSE’s The Committee reviewed and discussed Committee external auditor. with the management, the quarterly The responsibilities and duties of the Financial Statements and recommended Committee were based on the Terms of the same for approval of the Board. In order Reference (TOR) adopted by the Company Meetings of the Committee to ensure effectiveness of the Financial in terms of best practices. The TOR as During the year, ten Risk and Audit Reporting Systems that are in place and approved by the Board of Directors, include Committee meetings were held to discuss reliability of the information provided, at the following functions: reports on risk management, budgets, investments, reports of the Internal and the request of the Committee, the Internal External Auditors and annual/quarterly Auditor performed a review on each • To ensure that adequate and efficient Accounts. The Company Secretary quarterly Financial Statement. processes are in place to identify, report functions as the Secretary to the Risk and monitor risks. and Audit Committee. Minutes of each Internal Controls committee meeting were recorded and The Committee reviewed the effectiveness • To benchmark risk management submitted for confirmation at the next of the Group’s internal control systems and exposure of the CSE against other committee meeting and subsequently suggested, where necessary, appropriate exchanges presented to the Board for ratification. remedial measures.
72 Financial Information
External Audit Internal Audit The independence of the External Auditor The internal audit function was outsourced was evaluated by the Committee and to Messrs. Ernst & Young Advisory the Committee also reviewed the non- Services (Pvt) Ltd. However, an in-house audit services provided by the Auditors to internal audit department was established ensure that the provision of such services w.e.f. 01st December 2015 to carry out does not impair the External Auditors’ the internal audit functions of the CSE. independence. The Committee met with the Accordingly, the services of Messrs. Ernst External Auditor during the year to discuss & Young Advisory Services (Pvt) Ltd was their audit approach and procedures, terminated w.e.f. 31st December 2015. The including matters relating to the scope of findings of the internal auditor together with the audit and Auditor’s independence. The management comments were reviewed by Risk and Audit Committee reviewed the the Committee during the year. Consolidated Financial Statements audited by Messrs. KPMG for the financial year The new internal audit charter and internal ended 31st December 2015 and approved audit plan for the year 2016 were also the Financial Statements for submission to reviewed and approved by the Committee. the Board. The Committee also reviewed and approved the Letter of Representation Other Activities to be given to the External Auditors for the The Committee reviewed the mid-year year 2015. The Management conducted revised budget for the year. Further, a review of the useful life of the assets as the Committee reviewed the status on at the end of the financial year and found investments and recommended the that the expectations of useful life differ investments to be made during the year, from previous estimates, mainly due to for approval of the Board. The revised previous experience of asset replacements. basis of expenses allocation to the Central Accordingly, the Committee reviewed Depository Systems (Pvt) Ltd was also the paper on change in the useful life of reviewed and approved by the Committee. assets prepared by the Management and recommended the same for the approval of On behalf of the Risk and Audit Committee; the Board.
The Risk and Audit Committee has recommended for approval at the Annual General Meeting, the re-appointment of the D.T.W. Thalgodapitiya external Auditor, Messrs. KPMG and for Chairman – Risk and Audit Committee the Board of Directors to fix the Auditors’ remuneration. Colombo 27th April 2016
73 Colombo Stock Exchange Annual Report 2015
Independent Auditors’ Report
TO THE MEMBERS OF reasonable assurance about whether the Report on Other Legal and COLOMBO STOCK EXCHANGE financial statements are free from material Regulatory Requirements misstatement. Report on the Financial Statements As required by section 163 (2) of the Companies Act No. 07 of 2007, we state We have audited the accompanying An audit involves performing procedures the following: financial statements of Colombo Stock to obtain audit evidence about the Exchange, (“the Company”), and the amounts and disclosures in the financial a) The basis of opinion and scope and consolidated financial statements of the statements. The procedures selected limitations of the audit are as stated Company and its Subsidiaries (“the Group”), depend on the auditors’ judgment, above. which comprise the statement of financial including the assessment of the risks of position as at 31 December 2015, and material misstatement of the financial b) In our opinion: the statements of profit or loss and other statements, whether due to fraud or error. - we have obtained all the information comprehensive income, changes in equity In making those risk assessments, the and explanations that were required and, cash flows for the year then ended, auditor considers internal control relevant for the audit and, as far as appears and a summary of significant accounting to the entity’s preparation of the financial from our examination, proper policies and other explanatory information. statements that give a true and fair view in accounting records have been kept order to design audit procedures that are by the Company, Board’s Responsibility for the appropriate in the circumstances, but not Financial Statements for the purpose of expressing an opinion - The financial statements of the The Board of Directors (“Board”) is on the effectiveness of the entity’s internal Company, give a true and fair view of responsible for the preparation of these control. An audit also includes evaluating its financial position as at March 31, financial statements that give a true and the appropriateness of accounting policies 2015, and of its financial performance fair view in accordance with Sri Lanka used and the reasonableness of accounting and cash flows for the year then Accounting Standards, and for such internal estimates made by Board, as well as ended in accordance with Sri Lanka control as Board determines is necessary evaluating the overall presentation of the Accounting Standards. to enable the preparation of financial financial statements. statements that are free from material - The financial statements of the misstatement, whether due to fraud or We believe that the audit evidence we have Company, and the Group comply with error. obtained is sufficient and appropriate to the requirements of sections 151 and provide a basis for our audit opinion. 153 of the Companies Act No. 7 of Auditors’ Responsibility 2007. Our responsibility is to express an opinion Opinion on these financial statements based In our opinion, the consolidated financial on our audit. We conducted our audit statements give a true and fair view of in accordance with Sri Lanka Auditing the financial position of the Group as at Standards. Those standards require that 31 December 2015, and of its financial CHARTERED ACCOUNTANTS we comply with ethical requirements performance and cash flows for the year and plan and perform the audit to obtain then ended in accordance with Sri Lanka Colombo Accounting Standards. 27 April 2016
74 Financial Information
Statement of Profit or Loss and other Comprehensive Income
Group Company
2015 2014 2015 2014 For the Year Ended 31December Note Rs. Rs. Rs. Rs.
Revenue 4 641,617,077 732,878,407 491,519,914 559,655,316 Other Income 5 191,977,112 227,945,150 214,026,580 200,348,913 833,594,189 960,823,557 705,546,494 760,004,229
Staff Cost 6 (293,413,980) (272,068,503) (272,036,044) (250,926,882) Depreciation & Amortisation (98,433,969) (127,219,662) (98,420,179) (127,219,662) Other Operating Expenses 7 (468,631,005) (486,480,073) (369,875,143) (392,322,328) Profit / (Loss) before Taxation (26,884,765) 75,055,319 (34,784,872) (10,464,643) Income Tax Expense 8 (2,153,700) (18,847,780) (524,281) - Profit / (Loss) for the year (29,038,465) 56,207,539 (35,309,153) (10,464,643)
Other Comprehensive Income Items that will never be reclassified to Profit or Loss Actuarial Gains / (Losses) on defined benefit plans 2,212,502 (11,041,666) 2,232,151 (9,548,569)
Items that are or may be reclassified to Profit or Loss Net Change in Fair Value of Available-for- Sale Financial Assets 28,949,019 (9,935,496) 24,327,878 (7,634,869)
Net Change in Fair Value of Available-for- Sale Financial Assets (9,779,667) (5,094,554) (8,503,002) (5,094,554) Reclassified to Profit or Loss Other Comprehensive Income / (Expense) Net of Tax 21,381,854 (26,071,716) 18,057,027 (22,277,992) Total Comprehensive Income / (Expense) for the Year (7,656,611) 30,135,823 (17,252,126) (32,742,635)
The Notes annexed form an integral part of these Financial Statements.
Figures in brackets indicate deductions.
75 Colombo Stock Exchange Annual Report 2015
Statement of Financial Position
Group Company
2015 2014 2015 2014 As at 31 December Note Rs. Rs. Rs. Rs.
ASSETS Non Current Assets Property and Equipment 09 210,037,643 241,280,354 210,037,599 241,280,310 Intangible Assets 10 218,753,852 248,817,780 218,380,253 248,817,780 Capital Work in Progress 11 56,417,620 38,893,634 56,417,620 38,893,634 Investment in Subsidiary 12 - - 25,000 25,000 Financial Investment - Held For Maturity 13 183,500,000 - 183,500,000 - Financial Investments - Available-For-Sale 14 261,883,940 830,391,812 - 419,707,666 Investment in LFSB 15 1,000,000 1,000,000 - - Settlement Guarantee Fund 16 100,000,000 100,000,000 100,000,000 100,000,000 Total Non Current Assets 1,031,593,055 1,460,383,580 768,360,472 1,048,724,390
Current Assets Inventories 4,017,225 3,859,987 3,872,908 3,719,068 Trade and Other Receivables 18 276,255,545 250,804,719 241,885,766 213,597,336 Income Tax Receivable 24,170,792 18,963,038 20,338,030 18,963,038 Financial Assets -Available-for-Sale 14 1,890,227,224 1,555,833,280 1,736,805,877 1,555,833,280 Cash and Cash Equivalents 19 158,279,732 146,353,742 136,310,591 134,835,486 Total Current Assets 2,352,950,518 1,975,814,766 2,139,213,172 1,926,948,208 Total Assets 3,384,543,573 3,436,198,346 2,907,573,644 2,975,672,598
EQUITY AND LIABILITIES Accumulated Fund 2,973,915,575 3,000,741,538 2,517,392,735 2,550,469,737 Other Reserves 20 144,080,868 124,911,516 37,018,339 21,193,463 Total Equity 3,117,996,443 3,125,653,054 2,554,411,074 2,571,663,200
Non Current Liabilities Brokers’ Deposits in lieu of Bank Guarantee 21 939,970 84,439,970 939,970 84,439,970 Retirement Benefit Obligation 22 61,939,239 52,011,600 61,939,239 52,011,600 Total Non Current Liabilities 62,879,209 136,451,570 62,879,209 136,451,570
Current Liabilities Brokers’ Deposits in lieu of Bank Guarantee 21 114,080,000 21,542,127 81,750,000 - Income Tax Payable - 15,129,845 - - Other Payables 23 88,817,889 127,425,050 86,671,942 125,148,225 Amounts due to Related Company 24 - - 121,439,970 132,412,903 Bank Overdraft 19 770,032 9,996,700 421,449 9,996,700 Total Current Liabilities 203,667,921 174,093,722 290,283,361 267,557,828 Total Equity and Liabilities 3,384,543,573 3,436,198,346 2,907,573,644 2,975,672,598 The Notes annexed form an integral part of these Financial Statements. These Financial Statements have been prepared and presented in compliance with the requirements of the Companies Act No.07 of 2007.
N.A.K.K. Nissanka Head of Finance & Administration
The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Approved and signed on behalf of the Board;
C.V. Kulatilaka Dhakshitha T.W. Thalgodapitiya Chairman Director
27 April 2016 Colombo.
76 Financial Information
Statement of Changes in Equity
Accumulated Available-for- Capital Total Fund Sale Reserve Reserve Equity GROUP Rs. Rs. Rs. Rs.
Balance as at 01 January 2015 2,955,575,665 39,966,566 99,975,000 3,095,517,231 Total Comprehensive Income Profit for the Year 56,207,539 - - 56,207,539 Other Comprehensive Income Net Change in Fair Value of Available-for- Sale Financial Assets Reclassified - (5,094,554) - (5,094,554) to Profit or Loss Actuarial Losses on Retirement Benefit Obligations (11,041,666) - - (11,041,666) Net Change in Fair Value of Available-for- Sale Financial Assets - (9,935,496) - (9,935,496) Total Other Comprehensive Income / (Expenses) for the Year (11,041,666) (15,030,050) - (26,071,716) Total Comprehensive Income / (Expenses) for the Year 45,165,873 (15,030,050) - 30,135,823
Balance as at 31 December 2015 3,000,741,538 24,936,516 99,975,000 3,125,653,054
Balance as at 01 January 2016 3,000,741,538 24,936,516 99,975,000 3,125,653,054 Total Comprehensive Income Loss for the Year (29,038,465) - - (29,038,465) Other Comprehensive Income Net Change in Fair Value of Available-for- Sale Financial Assets Reclassified - (9,779,667) - (9,779,667) to Profit or Loss Actuarial Gain on Retirement Benefit Obligations 2,212,502 - - 2,212,502 Net Change in Fair Value of Available-for- Sale Financial Assets - 28,949,019 - 28,949,019 Total Other Comprehensive Income for the Year 2,212,502 19,169,352 - 21,381,854 Total Comprehensive Income / (Expense) for the Year (26,825,963) 19,169,352 - (7,656,611) Balance as at 31 December 2016 2,973,915,575 44,105,868 99,975,000 3,117,996,443
77 Colombo Stock Exchange Annual Report 2015
Statement of Changes in Equity
Accumulated Available-for- Total Fund Sale Reserve Equity COMPANY Rs. Rs. Rs.
Balance as at 01 January 2014 2,570,482,949 33,922,886 2,604,405,835 Total Comprehensive Income Loss for the Year (10,464,643) - (10,464,643) Other Comprehensive Income Net Change in Fair Value of Available-for- Sale Financial Assets - (5,094,554) (5,094,554) Reclassified to Profit or Loss Actuarial Losses on Retirement Benefit Obligations (9,548,569) - (9,548,569) Net Change in Fair Value of Available-for- Sale Financial Assets - (7,634,869) (7,634,869) Total Other Comprehensive Income / (Expenses) for the Year (9,548,569) (12,729,423) (22,277,992) Total Comprehensive Income / (Expenses) for the Year (20,013,212) (12,729,423) (32,742,635) Balance as at 31 December 2014 2,550,469,737 21,193,463 2,571,663,200
Balance as at 01 January 2015 2,550,469,737 21,193,463 2,571,663,200 Total Comprehensive Income Loss for the Year (35,309,153) - (35,309,153) Other Comprehensive Income Net Change in Fair Value of Available-for- Sale Financial Assets - (8,503,002) (8,503,002) Reclassified to Profit or Loss Actuarial Gain on Retirement Benefit Obligations 2,232,151 - 2,232,151 Net Change in Fair Value of Available-for- Sale Financial Assets - 24,327,878 24,327,878 Total Other Comprehensive Income for the Year 2,232,151 15,824,876 18,057,027 Total Comprehensive Income / (Expenses) for the Year (33,077,002) 15,824,876 (17,252,126) Balance as at 31 December 2015 2,517,392,735 37,018,339 2,554,411,074
The Notes annexed form an integral part of these Financial Statements.
Figures in brackets indicate deductions.
78 Financial Information
Statement of Cash Flows
Group Company
2015 2014 2015 2014 For the Year Ended 31December Note Rs. Rs. Rs. Rs.
Cash Flows from Operating Activities Profit / (Loss) before Taxation (26,884,765) 75,055,319 (34,784,872) (10,464,643)
Adjustments For : Depreciation / Amortisation 09/10 98,433,969 127,219,662 98,420,179 127,219,662 Interest Income 05 (5,839,729) (3,469,380) (5,204,368) (2,763,633) Profit on Sale of Property & Equipment 05 1,186,971 (1,788,981) 1,186,971 (1,788,981) Dividend Income 05 (120,569,664) (181,573,518) (109,618,268) (158,340,560) Gratuity Provision 22 12,832,561 9,856,285 11,772,221 9,090,793 Gratuity Provision - Transfer to / (Reversal from) 22 - - 1,079,989 2,258,589 Subsidiary Provision / (Reversal) for Impairment of Trade receivables 1,336,196 2,565,440 1,021,657 171,731 Operating Profit / (Loss) before Working Capital Changes (39,504,461) 27,864,827 (36,126,491) (34,617,042)
(Increase) / Decrease in Inventories (157,238) 198,733 (153,840) 208,828 (Increase) / Decrease in Other Receivables (26,787,022) (49,207,541) (29,310,087) (32,209,295) Increase / (Decrease) in Other Payables (38,607,161) 37,278,663 (38,476,283) 36,875,844 Increase / (Decrease) in Amounts due to Related - - (10,972,933) 67,889,840 Company Increase / (Decrease) in Brokers’ Deposit 9,037,873 10,212,127 (1,750,000) - Cash Generated from / (Used in) Operating Activities (96,018,009) 26,346,809 (116,789,634) 38,148,175 Income Tax Paid (22,230,826) (13,541,747) (1,638,802) (12,541,699) Gratuity Paid 22 (692,420) (619,000) (692,420) (619,000) Net Cash Generated from / (Used in) Operating Activities (118,941,255) 12,186,062 (119,120,856) 24,987,476
Cash Flows from Investing Activities Interest Income 05 5,579,260 3,216,853 4,943,899 2,511,363 Purchase of Property & Equipment and Intangible Assets 09 (45,534,521) (19,425,155) (45,147,132) (19,425,155) Proceeds from Sale of Property & Equipment 7,220,219 4,796,049 7,220,219 4,796,049 Increase in Corporate Debenture Investments (183,500,000) - (183,500,000) - Dividend Income 05 120,569,664 181,573,518 109,618,268 158,340,560 (Increase) / Decrease in Investments in Unit Trusts 253,283,280 (117,782,727) 254,559,945 (117,782,727) Capital Work in Progress 11 (17,523,986) (43,370,574) (17,523,986) (43,370,574) Net Cash Generated from / (Used in) Investing Activities 140,093,916 9,007,964 130,171,213 (14,930,484)
Cash Flows from Financing Activities - - - -
Net Increase / (Decrease) in Cash and Cash Equivalents 21,152,658 21,194,026 11,050,356 10,056,992 Cash and Cash Equivalents at beginning of the Year 136,357,042 115,163,016 124,838,786 114,781,794 Net Cash and Cash Equivalents at End of the Year 19 157,509,700 136,357,042 135,889,142 124,838,786
Analysis of Cash and Cash Equivalents at End of the year Cash in Hand 230,050 230,050 225,050 225,050 Cash at Bank 5,114,670 20,981,845 4,219,971 16,739,344 RTGS Account 17,600 18,200 - - Short term investment - Overnight Repo 152,917,412 125,123,647 131,865,570 117,871,092 Cash & Cash Equivalents 158,279,732 146,353,742 136,310,591 134,835,486
Bank Overdraft (770,032) (9,996,700) (421,449) (9,996,700) Net Cash & Cash Equivalents at End of the Year 157,509,700 136,357,042 135,889,142 124,838,786
The Notes annexed form an integral part of these Financial Statements.
Figures in brackets indicate deductions.
79 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
1. Reporting Entity 2.2. Basis of Measurement reporting year as that of Colombo Stock Exchange, using consistent accounting 1.1.Domicile and Legal Form The Financial Statements have been policies. Colombo Stock Exchange is a Company prepared on the historical cost basis except Limited by Guarantee incorporated & for the Available-for-sale Financial Asset 3.1.1. Business Combinations domiciled in Sri Lanka. The registered office which is measured at Fair value. Business combinations are accounted of the Company is located at 4 - 01, West for using the acquisition method as Block, World Trade Center, Echelon Square, 2.3. Functional and Presentation at the acquisition date – i.e. when Colombo 01, and the principal place of Currency control is transferred to the Group. business is also situated at the same place. The Financial Statements are presented in The consideration transferred in the Sri Lanka Rupees, which is the Company’s acquisition is generally measured at fair The Consolidated Financial Statements functional currency. Financial information value, as are the identifiable net assets of the Company as at and for the year presented in Sri Lanka Rupees has been acquired. Any goodwill that arises is tested ended 31 December 2015 comprise the rounded to the nearest rupee. annually for impairment. Any gain on a Company and Central Depository Systems bargain purchase is recognised in profit (Private) Limited which was incorporated 2.4. Significant Accounting or loss immediately. Transaction costs on 02 September 1991 as a wholly Owned Judgments, Estimates and are expensed as incurred, except if they subsidiary of Colombo Stock Exchange. Assumptions are related to the issue of debt or equity The preparation of Financial Statements securities. 1.2. Principal Activities and Nature requires management to make judgments, of Operations estimates and assumptions that affect the The consideration transferred does not The principal activity of the Company application of accounting policies and the include amounts related to the settlement is the operation of a Stock Exchange. reported amounts of Assets, Liabilities, of pre-existing relationships. Such amounts The subsidiary operates a clearing and Income and Expenses. Actual results may are generally recognised in profit or loss. settlement of securities system for equities differ from these estimates. traded in the Colombo Stock Exchange and Any contingent consideration payable is Estimates and underlying assumptions are acts as a depository for such securities. measured at fair value at the acquisition reviewed on an ongoing basis. Revisions to date. If the contingent consideration accounting estimates are recognised in the 2. Basis of Preparation is classified as equity, then it is not period in which the estimate is revised and 2.1. Statement of Compliance remeasured and settlement is accounted in any future periods affected. The Consolidated Financial Statements for within equity. Otherwise, subsequent which comprise the Statement of Financial changes in the fair value of the contingent 3. Significant Accounting Policies Position, Statement of Profit or Loss and consideration are recognised in profit or The accounting policies set out below have Other Comprehensive Income, Statement loss. been applied consistently to all periods of Changes in Equity, Statement of presented in these consolidated financial Cash Flows and Notes to the Financial 3.1.2. Non-Controlling Interests (NCI) statements, and have been applied Statements thereto have been prepared in NCIs are measured at their proportionate consistently by Group entities, except for accordance with the Sri Lanka Accounting share of the acquiree’s identifiable net the new standards adopted from this year Standards (SLFRSs and LKASs) laid down assets at the acquisition date. Changes in (see Note 3.12) by the Institute of Chartered Accountants the Group’s interest in a subsidiary that do of Sri Lanka, and comply with the not result in a loss of control are accounted requirements of Companies Act No 07 of 3.1. Basis of Consolidation for as equity transactions. 2007. The Financial Statements of the Company and Group comprise the Financial 3.1.3. Subsidiaries Statements of the Company and its The Financial Statements of Colombo ‘Subsidiaries’ are investees controlled by Subsidiary for the year ended 31 December Stock Exchange for the year ended 31 the Group. The Group ‘controls’ an investee 2015. The Financial Statements of the December 2015 were authorised for issue if it is exposed to, or has rights to, variable Company’s Subsidiary for the purpose of in accordance with a resolution of the Board returns from its involvement with the consolidation is prepared for the same of Directors on 27th April 2016. investee and has the ability to affect those
80 Financial Information
returns through its power over the investee. 3.3. Financial Instruments Attributable transaction costs are The financial statements of subsidiaries recognised in profit or loss as incurred. 3.3.1 Non Derivative Financial Assets are included in the consolidated financial Financial assets at fair value through profit The Group initially recognises loans statements from the date on which control or loss are measured at fair value and and receivables on the date that they commences until the date when control changes therein, which takes into account are originated. All other financial assets ceases. any dividend income, are recognised in (including assets designated as at fair value profit or loss. through profit or loss) are recognised initially 3.1.4. Loss of control on the trade date, which is the date that the When the Group loses control over a • Loans and Receivables Group becomes a party to the contractual subsidiary, it derecognises the assets and Loans and receivables are financial assets provisions of the instrument. liabilities of the subsidiary, and any related with fixed or determinable payments that NCIs and other components of equity. Any are not quoted in an active market. Such The Group derecognises a financial asset resulting gain or loss is recognised in profit assets are recognised initially at fair value when the contractual rights to the cash or loss. Any interest retained in the former plus any directly attributable transaction flows from the asset expire, or it transfers subsidiary is measured at fair value when costs. Subsequent to initial recognition, the rights to receive the contractual cash control is lost. loans and receivables are measured at flows in a transaction in which substantially amortised cost using the effective interest all the risks and rewards of ownership of method, less any impairment losses. 3.1.5. Transactions eliminated on the financial assets are transferred. Any The losses arising from impairment are consolidation interest in such transferred financial assets recognised in profit or loss. Intra-group balances and transactions, that is created or retained by the Group is and any unrealised income and expenses recognised as a separate asset or liability. (except for foreign currency transaction • Held to Maturity Financial Assets gains or losses) arising from intra-group Financial assets and liabilities are offset and If the Group has the positive intent and transactions, are eliminated in preparing the net amount presented in the statement ability to hold securities to maturity, then the consolidated financial statements. of financial position when, and only when, such financial assets are classified as held- Unrealised gains and losses resulting from the Group has a legal right to offset the to-maturity. Held-to-maturity financial assets transactions between the Group and its amounts and intends either to settle them are recognised initially at fair value plus Associates are also eliminated in preparing on a net basis or to realise the asset and any directly attributable transaction costs. the consolidated financial statements to settle the liability simultaneously. Subsequent to initial recognition, held-to- the extent of the Group’s interests in the maturity financial assets are measured at Associates. The Group classifies non-derivative financial amortised cost using the effective interest assets into the following categories: method, less any impairment losses. The Unrealised losses are eliminated in the financial assets at fair value through profit losses arising from impairment of such same way as unrealised gains, but only or loss, held-to-maturity financial assets, investments are recognised in profit or loss. to the extent that there is no evidence of loans and receivables and available-for-sale impairment. financial assets. 3.3.1 Non Derivative Financial Assets (Ctd.) 3.2. Foreign Currency Transactions • Financial Assets at Fair Value through • Cash and Cash Equivalents Profit or Loss Transactions in foreign currencies are Cash and cash equivalents comprise cash translated to Sri Lankan Rupees at the A financial asset is classified as at fair value balances and call deposits with maturities foreign exchange rate ruling at the date through profit or loss if it is classified as of three months or less from the acquisition of the transaction. Monetary assets and held-for-trading or is designated as such date that are subject to an insignificant risk liabilities denominated in foreign currencies on initial recognition. Financial assets of changes in their fair value, and are used at the Reporting Date are translated to Sri are designated as at fair value through by the Group in the management of its Lankan Rupees at the foreign exchange profit or loss if the Group manages such short-term commitments. rates ruling at that date. Foreign exchange investments and makes purchase and differences arising on translation are sale decisions based on their fair value in • Available for Sale Financial Assets recognised in the profit or loss. accordance with the Group’s documented Available-for-sale financial assets are risk management or investment strategy. non-derivative financial assets that are
81 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
designated as available-for-sale or are not Cost includes expenditure that is directly The estimated useful lives of the Property, classified in any of the above categories of attributable to the acquisition of the asset. Plant & Equipment of the Company as at financial assets. Available-for-sale financial The cost of self – constructed assets 31st December 2015 are as follows: assets are recognised initially at fair value includes the costs of materials and direct plus any directly attributable transaction labour, any other costs directly attributable Current Previous Rate Rate costs. to bringing the asset to a working condition for its intended use, and the cost of Furniture & Fittings 10 years 6-7 years Subsequent to initial recognition, they are dismantling and removing the items and Hardware & Software 5 - 10 5 years years measured at fair value and changes therein, restoring the site on which they are located. Office Equipment 5 years 5 years other than impairment losses and foreign Purchased software that is integral to the Motor Vehicles 5 years 5 years currency differences on available-for-sale functionality of the related equipment is Telephones 4 years 4 years debt instruments, are recognised in other capitalised as part of that equipment. comprehensive income. The above rates are also comparable with Where parts of an item of property and the rates applied in the previous years, When an investment is derecognised, equipment have different useful lives, they except in the case of Furniture & Fittings & the gain or loss accumulated in equity is are accounted for as separate items (major Computers which carried depreciation at reclassified to profit or loss. components) of property and equipment. the rate of 6-7 years & 5 years respectively until 31st December 2014. 3.3.2 Non Derivative Financial Gains and losses on disposal of an item of Liabilities property and equipment are determined The depreciation rates are determined All financial liabilities are recognised initially by comparing the proceeds from disposal separately for each significant part of an on the trade date, which is the date that the with the carrying amount of property and item of Property, Plant & Equipment and Group becomes a party to the contractual equipment, and are recognised net within commence to depreciate when it is available provisions of the instrument. The Group the “other income” in profit or loss. for use, i.e. when it is in the location and derecognises a financial liability when its condition necessary for it to be capable of contractual obligations are discharged, 3.4.2. Subsequent Costs operating in the manner intended by the cancelled or expire. The cost of replacing part of an item of management. Depreciation of an asset property and equipment is recognised in the ceases at the earlier of the date that the The Group classifies non-derivative financial carrying amount of the item, if it is probable asset is classified as held for sale or the liabilities into the other financial liabilities that the future economic benefits embodied date that the asset is derecognised. category. Such financial liabilities are within the part will flow to the Group and its Useful lives of Furniture & Fittings and recognised initially at fair value less any cost can be measured reliably. The costs of Computers are reassessed at the reporting directly attributable transaction costs. the day - to – day servicing of property and date and adjusted, if appropriate. As a equipment are recognised in the profit or result, the depreciation rate applicable for Subsequent to initial recognition, these loss as incurred. financial liabilities are measured at Furniture & Fittings was changed to 10% per annum from 15% per annum and the amortised cost using the effective interest 3.4.3. Depreciation depreciation rate applicable for selected method. Depreciation is charged to the profit or loss Hardware was changed to 10% per annum on a straight-line basis over the estimated Other financial liabilities comprise of bank from 20% per annum with effect from useful lives of each part of an item of overdrafts, trade and other payables and 01st January 2015. These are considered property and equipment. Items of property, brokers’ liquidity deposits payables. as changes in accounting estimates and plant and equipment are depreciated from hence applied prospectively. As a result, the date they are available for use or, in the depreciation expenses of the Company 3.4. Property and Equipment respect of self-constructed assets, from the for the year ended 31st December 2015 3.4.1. Recognition and Measurement date that the asset is completed and ready decreased by Rs.13.38Mn. Property and equipment are stated at cost for use. less accumulated depreciation and any impairment losses.
82 Financial Information
3.4.4. Capital Work-in-Progress 3.5.4. Research and Development 3.7. Impairment of Assets Capital work-in-progress is stated at cost. Costs 3.7.1 Non-derivative Financial Assets These are expenses of a capital nature Expenditure on research activities, A financial asset not classified as at fair directly incurred for system development. undertaken with the prospect of gaining value through profit or loss is assessed new scientific or technical knowledge and at each reporting date to determine 3.5. Intangible Assets understanding, is recognised in profit or whether there is objective evidence that it Intangible Assets consist of application loss as incurred. Development activities is impaired. A financial asset is impaired if software used in trading, clearing, involve a plan or design for the production there is objective evidence of impairment as settlement, surveillance, accounting, mail of new or substantially improved products a result of one or more events that occurred systems and the web site of the Colombo and processes. Development expenditure after the initial recognition of the asset, and Stock Exchange. is capitalised only if development costs that loss event(s) had an impact on the can be measured reliably, the product or estimated future cash flows of that asset 3.5.1. Basis of Recognition process is technically and commercially that can be estimated reliably. feasible, future economic benefits are An Intangible Asset is recognised if it is probable, and the Group intends to and probable that future economic benefits that Objective evidence that financial assets are has sufficient resources to complete are attributable to the asset will flow to the impaired includes default or delinquency development and to use or sell the asset. enterprise and the cost of the asset can be by a debtor, restructuring of an amount The expenditure capitalised includes the measured reliably in accordance with the due to the Group on terms that the Group cost of materials, direct labour, overhead LKAS 38, Intangible Assets. would not consider otherwise, indications costs that are directly attributable to that a debtor or issuer will enter bankruptcy, preparing the asset for its intended use, 3.5.2. Subsequent Expenditure adverse changes in the payment status and capitalised borrowing costs. Other of borrowers or issuers, economic Subsequent expenditure on intangible development expenditure is recognised in conditions that correlate with defaults or assets is capitalised only when it increases profit or loss as incurred. the disappearance of an active market for the future economic benefits embodied in a security. In addition, for an investment in the specific assets to which it relates. All Capitalised development expenditure an equity security, a significant or prolonged other expenditure is expensed as incurred. is measured at cost less accumulated decline in its fair value below its cost is amortisation and any accumulated objective evidence of impairment. 3.5.3. Amortisation impairment losses. Intangible Assets are amortised on a • Financial Assets Measured at straight-line basis to profit or loss, from 3.5.5. Derecognition of Intangible Amortised Cost the date when the asset is available for Assets The Group considers evidence of use, over the best estimate of its useful Intangible assets are derecognised on impairment for financial assets measured economic life. disposal or when no future economic at amortised cost (loans and receivables benefits are expected from their use. Useful lives of Intangible Assets are and held-to-maturity financial assets) at Gain or losses arising from de recognition reassessed at the Reporting date and both a specific asset and collective level. All of an intangible asset are measured as adjusted, if appropriate. As a result, the individually significant assets are assessed the difference between the net disposals depreciation rate applicable for ATS & for specific impairment. Those found not to proceed and the carrying amount of the CDS System Software was changed to be specifically impaired are then collectively asset and are recognised in profit or loss. 10% per annum from 20% per annum assessed for any impairment that has been with effect from 01st January 2015. incurred but not yet identified. 3.6. Inventories These are considered as changes in Inventories include stationeries, stamps and Assets that are not individually significant accounting estimates and hence applied data wall spares and measured at the lower are collectively assessed for impairment by prospectively. As a result, the depreciation of cost and net realisable value. grouping together assets with similar risk expenses of the Company for the year characteristics. ended 31st December 2015 decreased by Rs.38.03Mn.
83 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
current market assessments of the time • Available-for-Sale Financial Assets 3.8.3. Defined Benefits Plan – Gratuity value of money and the risks specific to Impairment losses on available-for- As required by LKAS -19 “Employee the asset or CGU. For impairment testing, sale financial assets are recognised by Benefits”, which the Company has provided assets are grouped together into the reclassifying the losses accumulated in for gratuity liability based on the gratuity smallest group of assets that generates the fair value reserve in equity to profit or formula method. loss. The cumulative loss that is reclassified cash inflows from continuing use that are largely independent of the cash inflows of from equity to profit or loss is the difference However under the Payment of Gratuity Act other assets or CGUs. between the acquisition cost, net of any No.12 of 1983, the liability to an employee principal repayment and amortisation, and arises only on completion of five years of the current fair value, less any impairment 3.8. Employee Benefits continued service. loss recognised previously in profit or 3.8.1. Short – Term Employee Benefits loss. Changes in cumulative impairment Short-term employee benefit obligations The Group recognises all Actuarial Gains losses attributable to application of the are measured on an undiscounted basis / (Losses) arising from Defined Benefit effective interest method are reflected as and are expensed as the related service plans immediately in Other Comprehensive a component of interest income. If, in a is provided. A liability is recognised for the Income and Expenses related to Defined subsequent period, the fair value of an amount expected to be paid under short- Benefit in employee benefits in profit or loss. impaired available-for-sale debt security term cash bonus plans if the Group has increases and the increase can be related a present legal or constructive obligation The liability is not externally funded. objectively to an event occurring after the to pay this amount as a result of past impairment loss was recognised, then service provided by the employee, and the 3.9. Provisions the impairment loss is reversed, with the obligation can be estimated reliably. A provision is recognised if the Group has amount of the reversal recognised in profit a present legal or constructive obligation as or loss. However, any subsequent recovery 3.8.2. Defined Contribution Plan a result of a past event, and it is probable in the fair value of an impaired available-for- – Employees’ Provident Fund and that an outflow of economic benefits will be sale equity security is recognised in other Employees’ Trust Fund required to settle the obligation. comprehensive income. A defined contribution plan is a post employment benefit plan under which an 3.10. Revenue 3.7.2. Non-Financial Assets entity pays fixed contribution into separate Revenue is recognised to the extent that it The carrying amounts of the Group’s entity and will have no legal or constructive is probable that the economic benefits will non-financial assets, other than inventories obligation to pay further amounts. flow to the group and the revenue can be and deferred tax assets, are reviewed at reliably measured. each reporting date to determine whether All employees who are eligible for there is any indication of impairment. If Employees’ Provident Fund and 3.10.1. CSE & CDS Fees any such indication exists, then the asset’s Employees’ Trust Fund are covered by CSE & CDS fees on securities traded on recoverable amount is estimated. Goodwill relevant contributions to the defined the stock exchange are recognised on a and indefinite-lived intangible assets contribution plans and are recognised as an trade date basis. are tested annually for impairment. An expense in profit or loss when incurred. impairment loss is recognised if the carrying 3.10.2. Listing Fees amount of an asset or cash-generating unit (a) Employees’ Provident Fund Annual listing fees are recognised on an (CGU) exceeds its recoverable amount. The Company and employee contribute accrual basis and charged annually from 12% and 8% respectively on the basic listed companies a fee of Rs.100,000/- or The recoverable amount of an asset or salary of each employee to the employees’ 0.003% of the market capitalisation of the CGU is the greater of its value in use and approved provident fund. Listed Entity as at 31st December of the its fair value less costs to sell. In assessing year immediately preceding, whichever value in use, the estimated future cash (b) Employees’ Trust Fund is higher, subject to a maximum of flows are discounted to their present value The Company contributes 3% of the basic Rs..2,000,000/- using a pre-tax discount rate that reflects salary of each employee to the employee’s trust fund.
84 Financial Information
3.10.3. Quotation Fees 3.11. Taxation temporary differences when they reverse, using tax rates enacted or substantively The initial listing fee payable when the As per Sri Lanka Accounting Standard enacted at the reporting date. ordinary voting shares of an Entity are listed (LKAS 12) – “Income taxes”, tax expense on the Exchange and recognised upon the is the aggregate amount included in Deferred tax assets and liabilities are offset listing of an applicant. determination of profit or loss for the period if there is a legally enforceable right to in respect of current and deferred taxes. offset current tax liabilities and assets, and Additional listing fees are recognised for a Income tax expense is recognised in the they relate to taxes levied by the same tax further issue of Securities by way of rights income statement. authority on the same taxable entity, or issue of shares, issues of shares credited on different tax entities, but they intend to as fully paid-up by way of capitalisation of 3.11.1. Current Taxation settle current tax liabilities and assets on a reserves, issues of shares through private Current tax is the expected tax payable on net basis or their tax assets and liabilities placements, scrip dividend, share swaps & the taxable income for the year, using tax will be realised simultaneously. ESOP as per listing rules. rates enacted or substantively enacted on the Reporting Date, and any adjustment to A deferred tax asset is recognised for 3.10.4. Brokers’ Fees tax payable in respect of previous years. unused tax losses, tax credits and Monthly subscription fees from brokers are Provision for taxation is based on the profit deductible temporary differences to the recognised on an accrual basis. for the year adjusted for taxation purposes extent that it is probable that future taxable in accordance with the provision of the profits will be available against which they 3.10.5. Charges for Computer Inland Revenue Act No. 10 of 2006 and can be utilised. Deferred tax assets are Information subsequent amendments thereto. reviewed at each reporting date and are The CDS charge a fee on a pre-determined reduced to the extent that it is no longer The Company is Liable for income tax at basis from listed companies for the service probable that the related tax benefit will be the rate of 28% on the taxable profit. rendered pertaining to providing information realised. and fees are recognised on an accrual 3.11.2. Deferred Taxation basis. 3.11.3. Other Tax Exposures Deferred tax assets are reviewed at each In determining the amount of current reporting date and are reduced to the 3.10.6. Listed Company Fees and deferred tax, the Group takes into extent that it is no longer probable that the Listed Company Fee is charged based on account the impact of uncertain tax related tax benefit will be realised. Deferred the number of trades and Rs.15/- will be positions and whether additional taxes tax is recognised in respect of temporary charged per trade, subject to a minimum and interest may be due. This assessment differences between the carrying amounts charge of Rs.25,000/- and a maximum relies on estimates and assumptions of assets and liabilities for financial reporting charge of Rs.750,000/- per annum. and may involve a series of judgments purposes and the amounts used for about future events. New information taxation purposes. 3.10.7. Other Income may become available that causes the • Dividend from unit trust is recognised in Company to change its judgment regarding The measurement of deferred tax reflects profit or loss on an accrual basis when the adequacy of existing tax liabilities; the tax consequences that would follow the Company’s right to receive the such changes to tax liabilities will impact the manner in which the Group expects, at dividend is established. tax expense in the period that such a the end of the reporting period, to recover determination is made. or settle the carrying amount of its assets • Interest income is recognised in profit and liabilities. For investment property that or loss as it accrues, using the effective 3.11.3.1 Withholding Tax on Dividends is measured at fair value, the presumption interest method. Distributed by Subsidiary that the carrying amount of the investment Dividend distributed out of profit of the property will be recovered through sale has • Gain on disposal of property, plant and Subsidiary attracts 10% deduction at not been rebutted. equipment have been accounted for in source and is not available for set off profit or loss, after deducting from the Deferred tax is measured at the tax against the tax liability of the Colombo net sales proceeds on disposal of the rates that are expected to be applied to Stock Exchange. Thus the withholding carrying amount of such assets. tax deducted at source is added to the expense of the Subsidiary Company in
85 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
the Group Financial Statements as a SLFRS 9 is effective for annual period techniques that maximise the use of consolidation adjustment. beginning on or after 1st January 2018 with relevant observable inputs and minimise the early adoption permitted. use of unobservable inputs. The chosen 3.11.3.2 Economic Service Charge (ESC) valuation technique incorporates all of the As per the provisions of Economic Service The Group is assessing the potential impact factors that market participants would take Charge Act No. 13 of 2006 and subsequent on its Consolidated Financial Statements into account in pricing a transaction. amendments thereto, ESC is payable on resulting from the of SLFRS 9. Given the the liable turnover at specified rates. ESC is nature of the Group’s operations, this The best evidence of the fair value of a deductible from the income tax liability. Any standard is expected to have a pervasive financial instrument at initial recognition is unclaimed amount can be carried forward. impact on the Group’s financial statements. normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value at 3.11.3.3 Value Added Tax (VAT) 3.13.2. SLFRS 15 – Revenue Recognition initial recognition differs from the transaction Value Added Tax is calculated in from Customer Contracts price and the fair value is evidenced neither accordance with Value Added Tax Act No SLFRS 15 – “Revenue from Contracts with by a quoted price in an active market for 14 of 2002 and subsequent amendments Customers” establishes a comprehensive an identical asset or liability nor based thereto. VAT is payable at 11%. framework for determining whether, how much and when revenue is recognised. on a valuation technique that uses only It replaces existing revenue recognition data from observable markets, then the 3.11.3.4 Nation Building Tax (NBT) guidance LKAS 18 Revenue, LKAS 11 financial instrument is initially measured at As per the provisions of the Nation Building Construction Contracts. fair value, adjusted to defer the difference Tax Act, No. 9 of 2009 and the subsequent between the fair value at initial recognition amendments thereto, Nation Building Tax SLFRS 15 is effective for annual reporting and the transaction price. Subsequently, should be payable at the rate of 2% with period beginning on or after 1st January that difference is recognised in profit or effect from 1 January 2011 on the liable 2017, with early adoption permitted. loss on an appropriate basis over the life of turnover as per the relevant provisions of the instrument but no later than when the the Act. 3.14. Determination of fair values valuation is wholly supported by observable Policy applicable from 1 January 2014 market data or the transaction is closed 3.13. New Accounting Standards out. Issued but not Effective ‘Fair value’ is the price that would be received to sell an asset or paid to transfer The Institute of Chartered Accountants of If an asset or a liability measured at fair a liability in an orderly transaction between Sri Lanka has issued the following new value has a bid price and an ask price, market participants at the measurement Sri Lanka Accounting Standard which will then the Group measures assets and long date in the principal or, in its absence, become applicable for financial periods positions at a bid price and liabilities and the most advantageous market to which beginning on or after 1st January 2015. short positions at an ask price. Portfolios the Group has access at that date. The Accordingly, the Group has not applied the of financial assets and financial liabilities fair value of a liability reflects its non following new standards in preparing these that are exposed to market risk and credit performance risk. consolidated financial statements. risk that are managed by the Group on the basis of the net exposure to either When available, the Group measures 3.13.1 SLFRS 9-Financial Instruments market or credit risk are measured on the the fair value of an instrument using the SLFRS 9 – “Financial Instruments” basis of a price that would be received to quoted price in an active market for that replaces the existing guidance in LKAS sell a net long position (or paid to transfer instrument. A market is regarded as active 39 – Financial Instruments: Recognition a net short position) for a particular risk if transactions for the asset or liability and Measurement. SLFRS 9 includes exposure. Those portfolio-level adjustments take place with sufficient frequency and revised guidance on the classification and are allocated to the individual assets volume to provide pricing information on an measurement of financial instruments and liabilities on the basis of the relative ongoing basis. including a new expected credit loss model risk adjustment of each of the individual for calculating impairment on financial instruments in the portfolio. If there is no quoted price in an active assets. market, then the Group uses valuation
86 Financial Information
The fair value of a demand deposit is not of the consideration given or received. less than the amount payable on demand, However, in some cases the initial estimate discounted from the first date on which the of fair value of a financial instrument on amount could be required to be paid. initial recognition may be different from its transaction price. If this estimated fair value The Group recognises transfers between is evidenced by comparison with other levels of the fair value hierarchy as of the observable current market transactions in end of the reporting period during which the the same instrument (without modification change has occurred. or repackaging) or based on a valuation technique whose variables include only ‘Fair value’ is the amount for which an data from observable markets, then the asset could be exchanged, or a liability difference is recognised in profit or loss on settled, between knowledgeable, willing initial recognition of the instrument. In other parties in an arm’s length transaction on the cases, the fair value at Initial recognition is measurement date. considered to be the transaction price and the difference is not recognised in profit When available, the Group measures or loss immediately but is recognised over the fair value of an instrument using the life of the instrument on an appropriate quoted prices in an active market for that basis or when the instrument is redeemed, instrument. A market is regarded as active transferred or sold, or the fair value if quoted prices are readily and regularly becomes observable. available and represent actual and regularly occurring market transactions on an arm’s If an asset or a liability measured at fair length basis. value has a bid price and an ask price, then the Group measures assets and long If a market for a financial instrument is positions at a bid price and liabilities and not active, then the Group establishes short positions at an ask price. Where the fair value using a valuation technique. Group has positions with offsetting risks, The chosen valuation technique makes mid-market prices are used to measure the maximum use of market inputs, relies as offsetting risk positions and a bid or ask little as possible on estimates specific to the price adjustment is applied only to the net Group, incorporates all factors that market open position as appropriate. participants would consider in setting a price and is consistent with accepted The fair value of a demand deposit is not economic methodologies for pricing less than the amount payable on demand, financial instruments. discounted from the first date on which the amount could be required to be paid. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price – i.e. the fair value
87 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
Group Company
2015 2014 2015 2014 For the Year Ended 31December Rs. Rs. Rs. Rs.
04 Revenue CSE & CDS Fees 469,454,776 614,234,692 364,003,048 476,293,321 Listing Fees 95,548,822 52,730,957 95,548,822 52,730,957 Quotation Fees 7,085,775 5,250,001 7,085,775 5,250,001 Brokers’ Fees 23,665,817 23,406,896 23,665,817 23,406,896 Charges for Remote Data Link 1,216,452 1,075,916 1,216,452 1,075,916 Charges for Computer Information 21,139,950 6,943,625 - 898,225 Listed Company Fees 23,505,485 29,236,320 - - 641,617,077 732,878,407 491,519,914 559,655,316
05 Other Income Interest Income 5,839,729 3,469,380 5,204,368 2,763,633 Dividend Income - Unit Trusts 120,569,664 181,573,518 100,618,268 149,340,560 Dividend Income - CDS - - 9,000,000 9,000,000 CDS Rental Income - - 45,134,652 - Management Fee - - 2,000,000 - Profit/(Loss) on Disposal of Property & Equipment (1,186,971) 1,788,981 (1,186,971) 1,788,981 Miscellaneous Income 56,975,023 36,018,717 44,753,261 32,361,185 Net Gain on Disposal of Available-For-Sale Financial 9,779,667 5,094,554 8,503,002 5,094,554 Assets 191,977,112 227,945,150 214,026,580 200,348,913
06 Staff Cost Salaries 241,641,827 215,406,920 225,498,899 199,796,953 Staff Bonus 20,445,232 31,444,636 18,983,612 28,915,016 Terminal Benefits (Gratuity) 12,832,562 9,931,797 11,772,222 9,090,793 Staff Welfare 10,840,441 7,878,493 9,237,854 6,625,546 Medical Expenses 4,415,170 3,308,031 3,845,544 2,919,206 Transport & Traveling 3,238,748 4,098,626 2,697,913 3,579,368 293,413,980 272,068,503 272,036,044 250,926,882
The Number of Employees at the end of the Year 2015 was 150 (146 in 2014).
88 Financial Information
Group Company
2015 2014 2015 2014 For the Year Ended 31 December Rs. Rs. Rs. Rs.
07 Other Operating Expenses Rent 118,629,570 118,451,343 108,961,308 100,405,447 Administration Expenses 45,013,816 47,781,593 34,954,370 30,762,614 Data Communication Charges 33,856,115 32,191,113 26,529,860 32,103,103 CDS Statement Expenses 12,391,512 13,199,694 - - Stationery Expenses 4,053,981 4,460,031 3,117,644 3,007,501 Maintenance Expenses 105,198,544 85,693,396 84,716,809 67,215,104 Issuer Marketing Expenses (1,665,647) 5,786,430 (2,042,629) 4,812,074 Donation 449,739 1,349,820 449,739 1,349,820 Training Expenses 9,304,518 4,051,480 8,297,928 3,385,687 Conference Expenses 6,563,814 3,292,088 6,062,012 2,749,902 Nation Building Tax & Disallowed VAT 32,459,082 12,537,710 20,780,864 9,722,562 Investor Education & Foreign Road Show Expenses 32,618,158 81,340,983 25,442,163 63,717,060 Publication & Website Expenses 22,044,212 26,083,427 17,110,660 26,055,190 Incentive Scheme for Brokers to open Branch - 1,153,717 - 1,153,717 Offices Directors’ Expenses 7,183,000 3,903,000 7,183,000 3,903,000 Auditors’ Remuneration 899,550 838,096 553,050 507,384 Fees Paid to Auditors for Non-Audit Services 512,583 384,000 341,913 198,000 Legal Fees 3,300,721 4,031,661 3,300,721 3,985,061 Professional Charges & Subscription 22,570,055 37,385,051 18,734,575 37,117,371 SAFE AGM & ACG Cross Training Program 11,911,486 - 4,359,499 - Provision for Bad Debts 1,336,196 2,565,440 1,021,657 171,731 468,631,005 486,480,073 369,875,143 392,322,328
08 Taxation
Group Company
2015 2014 2015 2014 For the Year Ended 31 December Rs. Rs. Rs. Rs.
Income tax Expense Current tax expense 1,153,700 17,847,780 524,281 - Under / (Over) Provision for taxes - - - - 1,153,700 17,847,780 524,281 - Deferred tax expense (Note 16) - - - Taxes on dividends 1,000,000 1,000,000 - - 2,153,700 18,847,780 524,281 -
89 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
08 Taxation (Contd.) 08.2 Reconciliation on Accounting Profit to Income Tax
Group Company
2015 2014 2015 2014 For the Year Ended 31 December Rs. Rs. Rs. Rs.
Accounting Profit/(Loss) before taxation (26,884,765) 75,055,319 (34,784,872) (10,464,643)
Adjustment on Disallowable Expenses 167,342,881 168,227,603 165,121,769 162,976,922 Adjustment on Allowable Expenses (155,648,230) (195,261,890) (155,401,506) (163,027,042) Exempt Income 96,914,797 (155,240,560) (116,866,193) (155,240,560) Income not form an part of total Statutory Income (9,000,000) (9,000,000) (9,000,000) (9,000,000) Statutory Income 72,724,683 (116,219,528) (150,930,802) (174,755,323)
Other Sources of Income 2,886,104 2,763,633 2,880,662 2,763,633 Royalty Paid - (9,898,250) - (9,898,250) Tax Loss Utilised - - (1,008,232) - Loss from other sources of Income 2,886,104 (7,134,617) 1,872,430 (7,134,617)
Income Tax at 28% (Note 8.3) 1,153,700 17,847,780 524,281 - Income Tax on Current year Profit 1,153,700 17,847,780 524,281 -
08.3 Tax has been provided at the rate of 28% in respect of CSE & CDS for the Financial Year 2015 (28% in 2014).
As per the Inland Revenue Act No.10 of 2006 any person who derived income from the secondary market transactions in Government securities issued after or outstanding at 01 April 2002 would be entitled to a notional credit in relation to tax payable by such person. Accordingly, the net interest earned by the CSE for the year, has been grossed up in the Financial Statements and the resulting notional credit is Rs.260,469/- ( Rs. 252,270/- in 2014).
90 Financial Information
09 Property & Equipment
Furniture & Office Motor As at 31 December Fittings Computers Equipment Vehicles Telephones Total Rs. Rs. Rs. Rs. Rs. Rs.
GROUP Cost As at 01 January 2015 158,475,635 407,897,093 48,540,969 13,249,487 17,501,438 645,664,622 Additions 4,891,551 5,012,409 883,188 11,916,500 834,350 23,537,998 Transfers from Capital Work in Progress 2,312,533 15,800,665 - - - 18,113,198 Disposals (840,404) (46,228,083) (368,479) (12,975,000) (3,920,906) (64,332,872) As at 31 December 2015 164,839,315 382,482,084 49,055,678 12,190,987 14,414,882 622,982,946
Accumulated Depreciation As at 01 January 2015 77,157,681 280,420,973 27,181,378 6,938,252 12,685,986 404,384,269 Charge for the year 10,004,150 43,366,468 6,434,496 2,464,007 2,217,595 64,486,716 Disposals (766,427) (43,733,645) (368,473) (7,136,250) (3,920,888) (55,925,682) As at 31 December 2015 86,395,404 280,053,796 33,247,401 2,266,009 10,982,693 412,945,303
Net Book Value As at 31 December 2015 78,443,911 102,428,288 15,808,277 9,924,978 3,432,189 210,037,643
As at 31 December 2014 81,317,954 127,476,120 21,359,591 6,311,235 4,815,452 241,280,354
Furniture & Office Motor As at 31 December Fittings Computers Equipment Vehicles Telephones Total Rs. Rs. Rs. Rs. Rs. Rs.
COMPANY Cost As at 01 January 2015 158,084,318 405,025,656 48,415,250 13,249,487 17,440,588 642,215,299 Additions 4,891,551 5,012,409 883,188 11,916,500 834,350 23,537,998 Transfers from Capital Work in Progress 2,312,533 15,800,665 - - - 18,113,198 Disposals (840,404) (46,228,083) (368,479) (12,975,000) (3,920,906) (64,332,872) As at 31 December 2015 164,447,998 379,610,647 48,929,959 12,190,987 14,354,032 619,533,623
Accumulated Depreciation As at 01 January 2015 76,766,388 277,549,549 27,055,664 6,938,252 12,625,138 400,934,990 Charge for the year 10,004,150 43,366,468 6,434,496 2,464,007 2,217,595 64,486,716 Disposals (766,427) (43,733,645) (368,473) (7,136,250) (3,920,888) (55,925,682) As at 31 December 2015 86,004,111 277,182,372 33,121,687 2,266,009 10,921,845 409,496,024
Net Book Value As at 31 December 2015 78,443,887 102,428,275 15,808,272 9,924,978 3,432,187 210,037,599
As at 31 December 2014 81,317,930 127,476,108 21,359,587 6,311,235 4,815,450 241,280,310
91 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
10 Intangible Assets Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Cost Balance as at 01 January 488,741,543 340,210,230 488,741,543 340,210,230 Acquisition during the year 3,883,325 148,531,313 3,495,936 148,531,313 Balance as at 31 December 492,624,868 488,741,543 492,237,479 488,741,543
Accumulated Amortisation Balance as at 01 January 239,923,763 190,802,422 239,923,763 190,802,422 Charge for the year 33,947,253 49,121,341 33,933,463 49,121,341 Balance as at 31 December 273,871,016 239,923,763 273,857,226 239,923,763 Net Book Value 218,753,852 248,817,780 218,380,253 248,817,780
Intangible Assets consist of application software used in trading, clearing, settlement, surveillance, accounting, mail systems and the web site of the Colombo Stock Exchange.
11 Capital Work in Progress Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Balance as at 01 January 38,893,634 111,704,679 38,893,634 111,704,679 Incurred during the year 43,715,734 72,783,074 43,715,734 72,783,074 Transfers (26,191,748) (145,594,119) (26,191,748) (145,594,119) Balance as at 31 December 56,417,620 38,893,634 56,417,620 38,893,634
12 Investment in Subsidiary Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Central Depository Systems (Pvt) Ltd. (10,000,000 Ordinary Shares) - - 25,000 25,000 - - 25,000 25,000
92 Financial Information
13 Investment in Debentures Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Fixed Rate 9.60%, Listed, Rated, Senior, Unsecured, Redeemable Debentures (Matured on 13/11/2019) 183,500,000 - 183,500,000 - 183,500,000 - 183,500,000 -
14 Financial Investments - Available-for-Sale Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Long Term Investments NDB Wealth - Eagle Gilt Edged Fund 261,883,940 830,391,812 - 419,707,666 261,883,940 830,391,812 - 419,707,666
Current Investments CEYBANK - Savings Plus Money Market Fund 653,538,245 590,411,026 653,538,245 590,411,026 CEYBANK - Surakum Gilt Edged Fund 309,028,308 298,000,889 309,028,308 298,000,889 NDB Wealth - Eagle Gilt Edged Fund - 5,847,449 - 5,847,449 NDB Wealth - Eagle Money Plus Fund 367,946,279 406,656,193 367,946,279 406,656,193 NDB Wealth - Eagle Income Fund 252,871,698 254,917,723 252,871,698 254,917,723 JB Vantage - Money Market Fund 306,842,694 - 153,421,347 - 1,890,227,224 1,555,833,280 1,736,805,877 1,555,833,280 Total 2,152,111,164 2,386,225,092 1,736,805,877 1,975,540,946
14.1 Financial Investments - Available-for-Sale 2015 2014
As at 31 December No. of Units Rs. No. of Units Rs.
Group CSE CEYBANK - Savings Plus Money Market Fund 63,324,281 653,538,245 28,391,582 298,000,889 CEYBANK - Surakum Gilt Edged Fund 29,357,733 309,028,308 56,536,534 590,411,026 NDB Wealth - Eagle Gilt Edged Fund - - 41,750,151 425,555,115 NDB Wealth - Eagle Money Plus Fund 25,937,099 367,946,279 30,629,774 406,656,193 NDB Wealth - Eagle Income Fund 24,213,310 252,871,698 24,213,310 254,917,723 JB Vantage - Money Market Fund 9,769,696 153,421,347 - - 1,736,805,877 1,975,540,946
CDS NDB Aviva - Eagle Gilt Edged Fund 25,566,115 261,883,940 40,291,197 410,684,146 JB Vantage - Money Market Fund 9,769,696 153,421,347 - - 415,305,287 410,684,146 Total 2,152,111,164 2,386,225,092
93 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
15 Investment in LFSB Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Ordinary Shares 1,000,000 1,000,000 - - 1,000,000 1,000,000 - -
This represents the 100,000 Ordinary Shares purchased from Lanka Financial Services Bureau Ltd (LFSB) by the Central Depository Systems (Pvt) Ltd. LFSB is the SWIFT Service Bureau for Sri Lanka which facilitates inter-bank transactions.
16 Settlement Guarantee Fund Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Settlement Guarantee Fund 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000
This fund was established as a Trust on 22 May 1988 to guarantee the settlement of trades between clearing members of the Central Depository System of the Colombo Stock Exchange and to provide for matters connected therewith and incidental thereto. Current trustees of the fund are Securities and Exchange Commission of Sri Lanka (SEC) and Colombo Stock Exchange (CSE). The CSE has decided to transfer Rs. 100 Million to strengthen the Settlement Guarantee Fund subsequent to the fund meeting held on 20 December 2011 and transferred the funds on 18 January 2012.
17 Deferred Tax Assets Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Deferred Tax Liabilities (55,935,639) (48,943,112) (55,935,639) (48,943,112) Deferred Tax Assets 55,935,639 48,943,112 55,935,639 48,943,112 - - - -
Balance as at 01 January - (3,103,674) - (3,103,674) Recognised in the Income Statement - 3,103,674 - 3,103,674 Balance as at 31 December - - - -
Deferred tax assets and liabilities are attributable to the following originations of temporary differences;
Property, equipment & intangible assets 199,770,140 194,393,996 199,770,140 194,393,996 Retirement Benefit Obligation (55,365,883) (52,011,600) (55,365,883) (52,011,600) Brought Forward Tax Loss (144,404,257) (142,382,396) (144,404,257) (142,382,396) Total Taxable Temporary Difference - - - - Applicable Tax Rate 28% 28% 28% 28% Deferred Tax Assets - - - -
94 Financial Information
17 Deferred Tax Assets (Ctd.) Deferred Tax Assets arising from the unused tax losses has been recognised only to the extent of entity’s taxable temporary differences. Hence, the full amount of deferred tax asset arising from the unused tax loss has not been recognised in the Financial Statements in accordance with the LKAS 12 - “Income taxes” due to the unavailability of convincing other evidence that sufficient taxable profit will be available against which the unused tax losses can be utilised by the entity.
18 Trade & Other Receivables Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Trade Receivables 45,825,342 44,644,970 10,237,140 5,529,011 Provision for Impairment (5,643,074) (4,306,879) (2,400,735) (1,379,078) 40,182,268 40,338,091 7,836,405 4,149,933 CSE & CDS Fees Receivable 1,743,907 3,402,278 1,356,365 2,646,217 Prepayments 61,800,389 60,605,329 61,613,205 60,344,696 Advance Payments 4,386,578 689,949 4,386,578 689,949 Refundable Deposits 54,517,438 53,784,265 54,517,438 53,784,265 Sundry Debtors 37,873,872 28,676,141 36,792,934 28,674,901 Other Receivable 2,361,076 2,019,884 1,994,911 2,019,627 Interest Receivable 2,346,177 17,708 2,344,090 16,674 Staff Loans 53,226,167 43,605,188 53,226,167 43,605,188 Prepaid Staff Cost 17,817,673 17,665,886 17,817,673 17,665,886 276,255,545 250,804,719 241,885,766 213,597,336
19 Cash & Cash Equivalents Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Treasury Bill Overnight Repos 152,917,412 125,123,647 131,865,570 117,871,092 Cash at Bank 5,114,670 20,981,845 4,219,971 16,739,344 RTGS Account 17,600 18,200 - - Cash in Hand 230,050 230,050 225,050 225,050 Cash & Cash Equivalents 158,279,732 146,353,742 136,310,591 134,835,486 Bank Overdraft (770,032) (9,996,700) (421,449) (9,996,700) Cash & Cash Equivalents in the 157,509,700 136,357,042 135,889,142 124,838,786 Statement of Cash Flows
95 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
20 Other Reserves Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Capital Reserve (Note 20.1) 99,975,000 99,975,000 - - Available-for-Sale Reserve 44,105,868 24,936,516 37,018,339 21,193,463 144,080,868 124,911,516 37,018,339 21,193,463
20.1 Capital Reserve This represents 4,997,500 Ordinary Shares issued by CDS on capitalisation of its Revenue Reserves in Year 2004 and the transfer of its Capital Redemption Reserve in Year 2009.
21 Broker Deposits in Lieu of Bank Guarantee Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Non Current Assets Broker Deposits (Note 21.1) - 83,500,000 - 83,500,000 Deposits for Computer Facility 111,670 111,670 111,670 111,670 Entrance Deposits 640,000 640,000 640,000 640,000 Deposits for Telephones 188,300 188,300 188,300 188,300 939,970 84,439,970 939,970 84,439,970
Current Assets Broker Deposits (Note 21.1) 81,750,000 - 81,750,000 - Dex Liquidity Deposits (Note 21.2) 11,330,000 14,342,127 - - 15% Margin Deposit (Note 21.3) 21,000,000 7,200,000 - - 114,080,000 21,542,127 81,750,000 -
21.1 This is the cash deposit maintained by broker firms as part of their Liquidity Requirement in terms of Section 03 of Member Regulations of the Colombo Stock Exchange.
21.2 This is the cash deposit maintained by broker firms as part of their Liquidity Requirement in terms of Section 18 of CDS Regulations of the Colombo Stock Exchange.
21.3 This is the cash deposit maintained by broker firms as part of their Liquidity Requirement in terms of Section 5 of CDS Regulations of the Colombo Stock Exchange.
96 Financial Information
22 Retirement Benefit Obligations Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Balance as at 01 January 52,011,600 31,732,649 52,011,600 31,732,649 Charge for the year 7,900,058 7,373,401 7,376,315 6,887,143 Interest for the year 4,932,503 2,482,884 4,395,906 2,203,650 Actuarial Gains / (Losses) recognised in OCI (2,212,502) 11,041,666 (2,232,151) 9,548,569 Provision made for Subsidiary - - 1,079,989 2,258,589 Payments made during the year (692,420) (619,000) (692,420) (619,000) Balance as at 31 December 61,939,239 52,011,600 61,939,239 52,011,600
As required by the Sri Lanka Accounting Standard LKAS 19 - “Employee Benefits”, the company has provided gratuity liability based on the Projected Unit Credit Method.
The principal assumptions used to arrive above gratuity liability are as follows;
For the year ended 31 December 2015 2014
Expected Annual Average Salary Increment 11.00% 10.00% Discounting Rate / Interest Rate 9.79% 8.25% Staff Turnover Factor 9.60% 9.00%
22.1 Sensitivity of Assumptions Employed on arriving at gratuity liability Assumptions regarding discount rate and salary increment rate have a significant effect on the amounts recognised in profit or loss and statement of financial position.
Following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.
Discount Rate Salary Increases
-1% -1% -1% -1%
Effect on the Aggregate Service and Interest Cost 115,672 9,697 (497,086) 611,396 Effect on Defined Benefit Obligation 3,763,401 (4,041,341) (3,527,602) 3,183,139
97 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
23 Other Payables Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Interest Payable to Brokers 1,205,181 1,094,385 1,201,015 1,088,388 Payments Received in Advance 1,263,143 890,795 1,263,143 890,795 Sundry Creditors & Accrued Expenses 86,349,565 125,439,870 84,207,784 123,169,042 88,817,889 127,425,050 86,671,942 125,148,224
24 Amounts due to Related Company Group Company
2015 2014 2015 2014 As at 31 December Relationship Rs. Rs. Rs. Rs.
Central Depository Systems (Pvt) Ltd. Subsidiary - - 121,439,969 132,412,903 - - 121,439,969 132,412,903
25 Contingencies & Commitments
25.1 Litigation Against the CSE 1 The case bearing No. SC Appeal No. 180/2012 (SC SPL L.A. 199/2010) was filed in the Supreme Court of Colombo against the Colombo Stock Exchange (CSE) by Ms. Preeni Witharanage, who is a former employee of the CSE. This case is an appeal filed against the decision made by the High Court of Colombo on 30 September 2010 in case bearing No. HCALT 40/2008. Ms. Witharanage claims re-instatement of her services. The matter has been fixed for Argument for 25th May 2016.
2 The case bearing No. 58365/MR was filed in the District Court of Colombo against the CSE by an investor, namely, Mr. Iqbal Bin Issac, regarding his shareholding in Touchwood Investment PLC. and claiming a sum of Rs.10 Million as consequential damages. The parties have closed the case and matter will be called on 27th June 2016 to predecessor judge to pronounce the judgment.
Based on the legal advice, the directors do not expect outcome of the pending litigations to have material effect on the Statement of Financial position.
25.2 Tax Assessments against CSE The Department of Inland Revenue has issued assessment notices for income tax amounting to Rs. 16.1 million for the Year of Assessment 2005/2006, Rs.17.6 million for the Year of Assessment 2006/2007, Rs. 0.3 million for the Year of Assessment 2007/2008 and Rs.0.4 million for the Year of Assessment 2009/2010. In addition to the above the Department of Inland Revenue has issued taxes in default notice for income tax amounting to Rs. 2.84 million, Rs.0.04 million, Rs. 0.027 million & Rs. 4.5 million for the Year of Assessment 1997/1998, 1999/2000, 2003/2004, 2008/2009 respectively. The CSE has appealed to quash the income tax assessments issued by the Department of Inland Revenue. Based on the consultant opinion, Board of Directors of the Company is of the view that, no liability would arise to the Company since the said assessments are outside the scope of chargeability of taxation.
25.3 Tax Assessments Against CDS The Department of Inland Revenue has issued assessment notices for income tax amounting to Rs. 3.94 million for the Year of Assessment 2008/2009 and Rs.3.03 million for the Year of Assessment 2009/2010 respectively. The CDS has appealed to quash the income tax assessment issued by the Department of Inland Revenue. Based on the consultant opinion, Board of Directors of the company is of the view that, no liability would arise to the company since the said assessments are outside the scope of chargeability of taxation.
98 Financial Information
26 Capital Commitments The Group and the Company has following purchase commitments in the ordinary course of business as at 31 December 2015 as follows:
Group Company
2015 2014 2015 2014 As at 31 December Rs. Rs. Rs. Rs.
Property and Equipment - approved & contracted 13,388,763 218,767,164 13,388,763 218,767,164 13,388,763 218,767,164 13,388,763 218,767,164
27 Financial Instruments
27.1 Financial Risk Management Overview The Group has exposure to the following risks from financial instruments: a) Credit Risk b) Liquidity Risk c) Market Risk d) Operational Risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.
Risk Management Framework The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. In discharging its governance responsibility it operates through Risk & Audit Committee. The primary function of the Committee is to ensure the establishment of appropriate risk management framework within the Group. The Risk & Audit Committee is assisted in these functions by Internal Audit and the results are reported to the Risk & Audit Committee. The Risk & Audit Committee provides its assessment on the effectiveness of internal audit and external disclosure of accounting policies and financial reporting to the Board. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group has developed an Enterprise Risk Management framework & policy and currently in the process of reviewing the framework.
(a) Credit Risk Credit risk is the risk of financial loss to the Group if counterparty to a financial instruments fails to meet its contractual obligations. The Group is exposed to credit risk primarily from investment in unit trust, investments in corporate debentures, staff loans receivable, trade & other receivables which are financial assets and cash and bank balances with financial institutions. Majority of the investments in unit trusts as at the reporting date are invested in Gilt Edged unit trusts where 100% of its funds are invested in Government securities. Fixed deposit investments are in financial institutions which are having good credit ratings. Receivables are monitored to ensure that exposure to bad debts are minimised. Staff loans are given to permanent confirmed employees and are deducted from the salaries as per the terms of granting loans.
99 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
27 Financial Risk Management (Contd.) (b) Liquidity Risk Liquidity risk is the risk that the Group will not be able to honour its financial obligations as they fall due.
Finance division monitors the cash flow forecasts of the Group to ensure sufficient cash is available to meet operational needs. The Group is able to meet all working capital requirements with its short term investments in Overnight Repo and money market unit trusts. Brokers’ Deposits in lieu of Bank Guarantee is the cash deposit maintained by broker firms as part of their liquidity Requirement, have been invested in Overnight Repo investments in order to meet liquidity as and when required.
Surplus cash held over and above balance required for working capital management is invested in Overnight Repos and money market unit trusts.
The following are the remaining contractual maturities at the end of the reporting period of financial assets and liabilities, including estimated interest payments.
Carrying 03 Months Non -Derivative Financial Assets Amount Total or Less 03-12 Months Over 01 Year
GROUP As at 31 December 2015 Cash & Cash Equivalents 230,050 230,050 230,050 - - Balances with Banks & Financial Institutions 158,049,682 158,049,682 158,049,682 - - Financial Investments - Available-for-Sale 2,152,111,164 2,152,111,164 1,637,355,526 252,871,698 261,883,940 Investments in Corporate Debentures 183,500,000 183,500,000 - - 183,500,000 Investments in LFSB 1,000,000 1,000,000 - - 1,000,000 Trade & Other Receivables 215,711,651 215,711,651 215,711,651 - - 2,710,602,547 2,710,602,547 2,011,346,909 252,871,698 446,383,940
Brokers' Deposits in lieu of Bank Guarantee 115,019,970 115,019,970 32,330,000 - 82,689,970 Other Payables 88,817,889 88,817,889 88,817,889 - - Bank Overdraft 770,032 770,032 770,032 - - 204,607,891 204,607,891 121,917,921 - 82,689,970
As at 31 December 2014 Cash & Cash Equivalents 230,050 230,050 230,050 - - Balances with Banks & Financial Institutions 146,123,692 146,123,692 146,123,692 - - Financial Investments - Available-for-Sale 2,386,225,092 2,386,225,092 1,300,915,557 254,917,723 830,391,812 Investments in LFSB 1,000,000 1,000,000 - - 1,000,000 Trade & Other Receivables 181,902,720 181,902,720 181,902,720 - - 2,715,481,554 2,715,481,554 1,629,172,019 254,917,723 831,391,812
Brokers' Deposits in lieu of Bank Guarantee 105,982,097 105,982,097 11,330,000 - 94,652,097 Trade Payables 127,425,050 127,425,050 127,425,050 - - Bank Overdraft 9,996,700 9,996,700 9,996,700 - - 243,403,847 243,403,847 148,751,750 - 94,652,097
100 Financial Information
Carrying 03 Months Non -Derivative Financial Assets Amount Total or Less 03-12 Months Over 01 Year
COMPANY As at 31 December 2015 Cash in Hand 225,050 225,050 225,050 - - Balances with Banks & Financial Institutions 136,085,541 136,085,541 136,085,541 - - Financial Investments - Available-for-Sale 1,736,805,877 1,736,805,877 1,483,934,179 252,871,698 - Investments in Corporate Debentures 183,500,000 183,500,000 - - - Trade & Other Receivables 178,286,717 178,286,717 - - - 2,234,903,185 2,234,903,185 1,620,244,770 252,871,698 -
Brokers' Deposits in lieu of Bank Guarantee 82,689,970 82,689,970 - - 82,689,970 Other Payable 86,671,942 86,671,942 86,671,942 - - Bank Overdraft 421,449 421,449 421,449 - - 169,783,361 169,783,361 87,093,391 - 82,689,970
As at 31 December 2014 Cash in Hand 225,050 225,050 225,050 - - Balances with Banks & Financial Institutions 134,610,436 134,610,436 134,610,436 - - Financial Investments - Available-for-Sale 1,975,540,946 1,975,540,946 - - - Trade & Other Receivables 144,957,467 144,957,467 144,957,467 - - 2,255,333,899 2,255,333,899 279,792,953 - -
Brokers' Deposits in lieu of Bank Guarantee 84,439,970 105,982,097 21,542,127 - 84,439,970 Other Payables 125,148,225 127,425,050 127,425,050 - - Bank Overdraft 9,996,700 9,996,700 9,996,700 - - 219,584,895 243,403,847 158,963,877 - 84,439,970
(c) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income. The objective of the market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The CSE has placed a special emphasis on the effect of market risk on fixed income securities and investments. Further, a board approved investment policy and an investment procedure manual are in place at the Company to mitigate the market risk. The Group has set up a risk management division.
Currency Risk The Group is exposed to currency risk on purchasing of assets and obtaining of services that are denominated in a currency other than the respective functional currency of the Group. The currency in which transactions primarily are denominated U.S. Dollars. The currency risk is limited by the short term nature of the period between the dates of the purchase and the settlement of the related liability.
However, the Group is not exposed to a significant currency risk due to the reason that there are no foreign currency exposures as at the reporting date.
101 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
27 Financial Risk Management (Contd.) Interest Rate Risk Interest rate risk arises due to fluctuations in the interest rates resulting in adverse impact to future cash flows or the fair values of financial instruments of the Group
The Group’s approach in managing interest rate risk is to continuously monitor positions on a daily basis to a level that are viable and prudent. When analysing impacts of interest rate movements on profitability, Management carries out sensitivity analysis on Group financial assets and liabilities, taking into account various interest rate scenarios.
Given below is a sensitivity analysis carried out as at 31 December 2015 that demonstrates possible impact to Group Income Statement due to a given change in interest rates, keeping all other variables constant.
Market Rates up Market Rates drop by 1% Effect to the by 1% Effect to the Interest Income Interest Income
Effect on Profit or Loss 53,633 (53,633)
(d) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s involvement with financial instruments, including processes, personnel, technology, infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Group is in the process of developing the procedure manuals in order to strengthen the systems, processes and internal controls.
102 Financial Information
27.2 Accounting Classification and Fair Values Other Held to Loans and Available for Financial Total Carrying Maturity Receivables Sale Liabilities Amount Fair Value
Note Rs. Rs. Rs. Rs. Rs. Rs.
Group As at 31 December 2015 Assets Cash in Hand 19 - 230,050 - - 230,050 230,050 Balances with Banks & Financial 19 - 158,049,682 - - 158,049,682 158,049,682 Institutions Financial Investments - Available- 14 - - 2,152,111,164 - 2,152,111,164 2,152,111,164 for-Sale Investments in Corporate 13 183,500,000 - - - 183,500,000 183,500,000 Debentures Investments in LFSB 15 - - 1,000,000 - 1,000,000 1,000,000 Trade & Other Receivables 18 - 215,711,651 - - 215,711,651 215,711,651 Total Financial Assets 183,500,000 373,991,383 2,153,111,164 - 2,710,602,547 2,710,602,547
Liabilities Due to Customers - - - 17,226,700 17,226,700 17,226,700 Due to Brokers - - - 116,225,151 116,225,151 116,225,151 Due to Banks - - - 770,032 770,032 770,032 Other Financial Liabilities - - - 70,386,008 70,386,008 70,386,008 Total Financial Liabilities - - - 204,607,891 204,607,891 204,607,891
Other Held to Loans and Available for Financial Total Carrying Maturity Receivables Sale Liabilities Amount Fair Value
Note Rs. Rs. Rs. Rs. Rs. Rs.
As at 31 December 2014 Assets Cash in Hand 19 - 230,050 - - 230,050 230,050 Balances with Banks & Financial 19 - 146,123,692 - - 146,123,692 146,123,692 Institutions Financial Investments - Available- 14 - - 2,386,225,092 - 2,386,225,092 2,386,225,092 for-Sale Investments in LFSB 15 - - 1,000,000 - 1,000,000 1,000,000 Trade & Other Receivables 18 - 181,902,720 - - 181,902,720 181,902,720 Total Financial Assets - 328,256,462 2,387,225,092 - 2,715,481,554 2,715,481,554
Liabilities Due to Customers - - - 3,615,405 3,615,405 3,615,405 Due to Brokers - - - 107,070,485 107,070,485 107,070,485 Due to Banks - - - 9,996,700 9,996,700 9,996,700 Other Financial Liabilities - - - 122,721,257 122,721,257 122,721,257 Total Financial Liabilities - - - 243,403,847 243,403,847 243,403,847
103 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
27 Financial Risk Management (Contd.) 27.2 Accounting Classification and Fair Values Other Held to Loans and Available for Financial Total Carrying Maturity Receivables Sale Liabilities Amount Fair Value
Note Rs. Rs. Rs. Rs. Rs. Rs.
COMPANY As at 31 December 2015 Assets Cash in Hand 19 - 225,050 - - 225,050 225,050 Balances with Banks & Financial 19 - 136,085,541 - - 136,085,541 136,085,541 Institutions Financial Investments - Available- 14 - 1,736,805,877 - - 1,736,805,877 1,736,805,877 for-Sale Investments in Corporate 13 183,500,000 - - - 183,500,000 183,500,000 Debentures Trade & Other Receivables 18 - 178,286,717 - - 178,286,717 178,286,717 Total Financial Assets 183,500,000 2,051,403,185 - - 2,234,903,185 2,234,903,185
Liabilities Due to Customers - - - 17,226,700 17,226,700 17,226,700 Due to Brokers - - - 83,890,985 83,890,985 83,890,985 Due to Banks - - - 421,449 421,449 421,449 Due to Related Parties - - - 121,439,970 121,439,970 121,439,970 Other Financial Liabilities - - - 68,244,227 68,244,227 68,244,227 Total Financial Liabilities - - - 291,223,331 291,223,331 291,223,331
Other Held to Loans and Available for Financial Total Carrying Maturity Receivables Sale Liabilities Amount Fair Value
Note Rs. Rs. Rs. Rs. Rs. Rs.
As at 31 December 2014 Assets Cash in Hand 19 - 225,050 - - 225,050 225,050 Balances with Banks & Financial 19 - 134,610,436 - - 134,610,436 134,610,436 Institutions Financial Investments - Available- 14 - - 1,975,540,946 - 1,975,540,946 1,975,540,946 for-Sale Other Receivables 18 - 144,957,467 - - 144,957,467 144,957,467 Total Financial Assets - 279,792,953 1,975,540,946 - 2,255,333,899 2,255,333,899
Liabilities Due to Customers - - - 3,615,405 3,615,405 3,615,405 Due to Brokers - - - 85,528,358 85,528,358 85,528,358 Due to Banks - - - 9,996,700 9,996,700 9,996,700 Due to Related Parties - - - 132,412,903 132,412,903 132,412,903 Other Financial Liabilities - - - 120,444,432 120,444,432 120,444,432 Total Financial Liabilities - - - 351,997,798 351,997,798 351,997,798
104 Financial Information
27.3 Fair Values of Financial Instruments 27.3.1 Valuation Models The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.
• Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.
• Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs that have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
27.3.2 Financial instruments Measured at Fair Value – Fair Value Hierarchy The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position.
Level 1 Level 2 Level 3 Total
GROUP Rs. Rs. Rs. Rs.
31 December 2015 Assets Financial Investments - Available-for-Sale - 2,152,111,164 - 2,152,111,164 Total Financial Assets - 2,152,111,164 - 2,152,111,164 Liabilities - - - -
31 December 2014 Assets Financial Investments - Available-for-Sale - 2,387,225,092 - 2,387,225,092 Total Financial Assets - 2,387,225,092 - 2,387,225,092 Liabilities - - - -
105 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
27 Financial Risk Management (Contd.)
Financial instruments Measured at Fair Value – Fair Value Hierarchy
Level 1 Level 2 Level 3 Total
COMPANY Rs. Rs. Rs. Rs.
31 December 2015 Assets Financial Investments - Available-for-Sale - 1,736,805,877 - 1,736,805,877 Total Financial Assets - 1,736,805,877 - 1,736,805,877 Liabilities - - - -
31 December 2014 Assets Financial Investments - Available-for-Sale - 1,975,540,946 - 1,975,540,946 Total Financial Assets - 1,975,540,946 - 1,975,540,946 Liabilities - - - -
Level 3 fair value measurements
27.3.3.1 Reconciliation The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy.
Unit Trust Available for Sale
Group Company Rs. Rs.
Balance at 01 January 2015 2,386,225,092 1,975,540,946 Total gains or losses: - in profit or loss 9,779,667 8,503,002 - in OCI 19,169,352 15,824,876 Purchases 379,937,053 229,937,053 Redemption (643,000,000) (493,000,000) Balance at 31 December 2015 2,152,111,164 1,736,805,877
Total gains or losses for the year in the above table are presented in the statement of profit or loss and OCI as follows.
Unit Trust Available for Sale
Group Company Rs. Rs.
Total gains and losses recognised in profit or loss: Net trading income 9,779,667 8,503,002
Total gains and losses recognised in OCI: Net change in fair value of available-for-sale financial assets 19,169,352 15,824,876
106 Financial Information
27.3.3.2 Unobservable Inputs Used in Measuring Fair Value The fair value of Unit Trust investments are determined by the relevant Unit Trust Fund Management Company. The Unit Trust Fund Management Company provides the fair value of the Group’s investment portfolio monthly.
Financial Instruments Not Measured at Fair Value This table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.
GROUP Level 01 Level 02 Level 03 Total Fair Total Carrying Values Amount
31 December 2015 Rs. Rs. Rs. Rs. Rs.
Assets Cash & Cash Equivalents - - 230,050 230,050 230,050 Balances with Banks & Financial Institutions - - 158,049,682 158,049,682 158,049,682 Investments in LFSB - - 1,000,000 1,000,000 1,000,000 Other Receivables - - 300,426,337 300,426,337 300,426,337 Total Financial Assets - - 459,706,069 459,706,069 459,706,069
Liabilities Due to Customers - - 17,226,700 17,226,700 17,226,700 Due to Brokers - - 116,225,151 116,225,151 116,225,151 Due to Banks - - 770,032 421,449 421,449 Other Financial Liabilities - - 70,386,008 70,386,008 70,386,008 Total Financial Liabilities - - 204,607,891 204,259,308 204,259,308
Level 01 Level 02 Level 03 Total Fair Total Carrying Values Amount
31 December 2014 Rs. Rs. Rs. Rs. Rs.
Assets Cash & Cash Equivalents - - 230,050 230,050 230,050 Balances with Banks & Financial Institutions - - 146,123,692 146,123,692 146,123,692 Investments in LFSB - - 1,000,000 1,000,000 1,000,000 Other Receivables - - 269,767,757 269,767,757 269,767,757 Total Financial Assets - - 417,121,499 417,121,499 417,121,499
Liabilities Due to Customers - - 3,615,405 3,615,405 3,615,405 Due to Brokers - - 107,070,485 107,070,485 107,070,485 Due to Banks - - 9,996,700 9,996,700 9,996,700 Other Financial Liabilities - - 14,875,484 14,875,484 14,875,484 Total Financial Liabilities - - 135,558,074 135,558,074 135,558,074
107 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
27 Financial Risk Management (Contd.) 27.3.3.3 Financial Instruments Not Measured at Fair Value This table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.
COMPANY Level 01 Level 02 Level 03 Total Fair Total Carrying Values Amount
31 December 2015 Rs. Rs. Rs. Rs. Rs.
Assets Cash & Cash Equivalents - - 225,050 225,050 225,050 Balances with Banks & Financial Institutions - - 136,085,541 136,085,541 136,085,541 Other Receivables - - 262,223,796 262,223,796 262,223,796 Total Financial Assets - - 398,534,387 398,534,387 398,534,387
Liabilities Due to Customers - - 17,226,700 17,226,700 17,226,700 Due to Brokers - - 83,890,985 83,890,985 83,890,985 Due to Banks - - 421,449 421,449 421,449 Other Financial Liabilities - - 68,244,227 68,244,227 68,244,227 Total Financial Liabilities - - 169,783,361 169,783,361 169,783,361
Level 01 Level 02 Level 03 Total Fair Total Carrying Values Amount
31 December 2014 Rs. Rs. Rs. Rs. Rs.
Assets Cash & Cash Equivalents - - 225,050 225,050 225,050 Balances with Banks & Financial Institutions - - 134,610,436 134,610,436 134,610,436 Other Receivables - - 232,560,374 232,560,374 232,560,374 Total Financial Assets - - 367,395,860 367,395,860 367,395,860
Liabilities Due to Customers - - 3,615,405 3,615,405 3,615,405 Due to Brokers - - 85,528,358 85,528,358 85,528,358 Due to Banks - - 9,996,700 9,996,700 9,996,700 Other Financial Liabilities - - 127,709,110 127,709,110 127,709,110 Total Financial Liabilities - - 226,849,573 226,849,573 226,849,573
Assets for which Fair Value approximates Carrying Value For Financial assets and Financial Liabilities that have a short term maturity (original maturity less than a year), it is assumed that the carrying amount approximate their values.
108 Financial Information
28 Related Party Disclosures 28.1 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard (LKAS 24) “Related Party Disclosures”, Key Management Personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including Executive and Non-Executive Directors) who can influence the planning & decision making process have been classified as Key Management Personnel of the Group.
CSE paid Rs.7,183,000 during the year as Directors’ Expenses. (Rs. 3,903,000/- in 2014)
The Company has incurred following costs for the CEO, COO, CIO, AGMs, Senior Managers and Managers during the year.
Company
2015 2014 Amount Rs. Amount Rs.
Short Term Employee Benefits 87,123,049 72,203,457 Long Term Employee Benefits 8,418,206 6,924,953
28.2 Transactions with Group Companies and Director Related Entities
Company Relationship Nature of Transaction 2015 2014 Amount Rs. Amount Rs.
a) Mr. Vajira Kulatilaka NDB Securities (Pvt) Ltd. Director CSE Member fees, data communication charges & other charges received 977,794 947,582 Payment on incentive scheme for brokers to open branch offices - 1,153,717 Receipt on Sponsorship Income for Foreign Fund Managers Forum - 250,000 Interest paid for Member Firms' liquidity deposit 200,660 184,060 Member Firms' liquidity deposit & entrance deposit as at year end 2,290,000 2,290,000 Interest payable for Member Firms' liquidity deposit as at year end 33,056 29,327 Member fees and data communication charges receivable as at year end 197,936 65,598
CDS Sale of CDS Forms 14,238 23,837 Amount receivable for sale of CDS Forms 3,398 3,750 Interest paid for Member Firms' margin deposit 53,064 148,185
109 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
28 Related Party Disclosures (Contd.)
Company Relationship Nature of Transaction 2015 2014 Amount Rs. Amount Rs.
NDB Wealth Management Director CSE Receipt on Sponsorship Income for Foreign Ltd. Fund Managers Forum - 250,000 Investment made during the year - 650,000,000 Redemptions during the year 493,000,000 450,000,000 Investment in Unit Trusts as at year end 620,817,978 1,087,129,031 Dividends received from Unit Trusts 32,799,834 62,126,440
CDS Investment in Unit Trusts as at year end 261,883,940 410,684,146 Redemptions during the year 150,000,000 - Dividends received from Unit Trusts 19,951,396 32,232,958
NDB Capital Holdings PLC Director CSE Annual Listing fees received for year - 552,803 Receipt on Sponsorship Income for Foreign Fund Managers Forum - 250,000 Receipt for computer information provided - 2,663 Computer Information Charges Receivable as at year end - -
CDS Computer Information Charges Receivable as at year end - 1,785 Listed Company fee receivable as at year end - 10,204
Resus Energy PLC Director CSE Annual listing fee & Subscription for CSE Ticker data received 227,765 -
CDS Listed Company fee receivable as at year end 73,913 - Receipt for computer information provided 135,639 - Computer Information Charges Receivable as at year end 6,807 -
NDB Investment Bank Ltd. Director CSE Receipt on Sponsorship Income for Foreign Fund Managers Forum - 250,000 Receipt for MY CSE Subscription 24,000 - Receipt on Sponsorship Income for SAFE Conference 671,250 - c) Mr. M. R. Prelis Capital Trust Securities Director CSE Member fee, data communication charges (Pvt) Ltd. & other charges received 2,038,895 1,970,179 Member fee, data communication & other charges receivable 313,332 313,955 Interest paid for Member Firms' liquidity deposit 45,735 202,882 Member Firms' liquidity deposits & entrance deposit as at year end - 3,540,000 Interest payable for Member Firms' liquidity deposit as at year end - 45,621
110 Financial Information
28.2 Transactions with Group Companies and Director Related Entities (Ctd.)
Company Relationship Nature of Transaction 2015 2014 Amount Rs. Amount Rs.
CDS Sale of CDS Forms & reimbursement for packeting & posting expenses 1,529 2,448 Interest paid for Member Firms' margin deposit 32,440 686 Amount receivable for sale of CDS Forms - 18,658
Dialog Axiata PLC Director CSE Annual listing fee & fee for high speed data signal received 2,831,633 1,571,428 Amount receivable for high speed data signal Income - 142,857 Payment made during the year for E1 link charges, mobile phone charges & broad band charges 2,422,848 2,174,872 Amount payable for mobile phone charges as at year end 125,793 97,891
CDS Listed Company fee receivable as at year end 205,959 170,434 Receipts for computer information provided & SMS alert revenue share 298,969 - Amount receivable for Computer Information Income & SMS alert revenue share 821,059 42,877 d) Mr. Ray Abeywardena Acuity Stockbrokers (Pvt) Director CSE Member fee, data communication charges Ltd & other charges received 1,117,152 1,186,706 Member fee, data communication & other charges receivable 131,080 160,918 Interest paid for Member Firms' liquidity deposit 143,352 304,581 Member Firms' liquidity deposit & entrance deposit as at year end 3,540,000 3,540,000 Interest payable for Member Firms' liquidity deposit as at year end 51,420 45,621
CDS Receipt from Sale of CDS forms & Other CDS Charges 11,768 13,331 Amount receivable on sale of CDS forms as at year end 765 2,143 Interest paid for Member Firms' margin deposit 30,727 68,588
Lanka Ventures PLC Director CSE Annual listing fee received 113,265 70,286
CDS Listed company fees receivable as at year end 25,510 12,276 Receipts for computer information & Other CDS Charges 12,235 - Amount receivable for computer information provided as at year end 4,531 4,082
111 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
28 Related Party Disclosures (Contd.)
Company Relationship Nature of Transaction 2015 2014 Amount Rs. Amount Rs.
Asian Alliance Insurance Director CSE Receipts for computer information provided PLC - 9,714 Annual listing fee received 182,216 - Amount receivable for computer information provided as at year end - 109,930
CDS Listed Company fee receivable as at year end 129,597 29,679 Amount receivable for computer information provided as at year end - 5,612 Receipts for computer information & Other CDS Charges 23,245 -
Acuity Securities Ltd Director CSE Member fee, data communication charges & other charges received 619,228 - Member fee receivable as at year end 82,348 27,871 e) Mr. A. C. Seneviratne Nation Lanka Equities (Pvt) Chairman CSE Member fee, data communication charges Ltd & other charges received 1,084,610 1,192,901 Member fees and other charges receivable as at year end 249,930 178,745 Interest paid for Member Firms' liquidity deposit 143,352 165,055 Member Firms' liquidity deposit & entrance deposit as at year end 3,540,000 3,540,000 Interest payable for Member Firms' liquidity deposit as at year end 51,420 45,621
CDS Interest Payment on Margin Deposit Balances 27,277 10,454 Receipt from Sale of CDS forms & Other CDS Charges 12,529 - Computer Information Charges Receivable as at year end 3,511 -
Nation Lanka Finance PLC Non CSE Annual listing fee received Executive Director 113,265 61,702 Quotation fees received for initial listing of shares 200,000 -
CDS Listed Company fee receivable as at year end 203,571 334,393 Computer Information Charges Received 10,965 - Computer Information Charges Receivable as at year end 5,663 4,082
Anilana Hotels & Properties Managing CSE Annual listing fees received Ltd Director 132,423 101,304
112 Financial Information
28.2 Transactions with Group Companies and Director Related Entities (Ctd.)
Company Relationship Nature of Transaction 2015 2014 Amount Rs. Amount Rs.
CDS Listed Company fees receivable as at year end 154,898 74,051 Computer Information Charges Received 17,671 - Computer Information Charges Receivable as at year end 6,853 37,970
f) Mr.Dhakshitha Thalgodapitiya Sri Lanka National Member CSE Arbitration Centre Charges paid during the Arbitration Centre of the year Board of Governors 209,500
g) Mr. A. Perera S C Securities (Pvt) Ltd Director CSE Member fee & other charges received 1,296,730 273,083 Member fees and other charges receivable as at year end 193,794 377,783 Interest paid for Member Firms' liquidity deposit 136,600 28,634 Member Firms' liquidity deposit & entrance deposit as at year end 1,790,000 1,790,000 Interest payable for Member Firms' liquidity deposit as at year end 51,420 22,811
CDS Sale of CDS Forms 8,297 5,485 Amount Receivable for Sale of CDS Forms 765 - Interest paid for Member Firms' margin deposit 17,636 61,530
Siyapatha Finance Ltd. Director CSE Annual listing fee received 226,531 51,020
CDS Listed Company fee receivable as at year end 25,510 10,204 Receipts for computer information provided 3,398 - Computer Information Charges Receivable as at year end 1,133 1,020
Sampath Bank PLC Director CSE Annual listing fee & Subscription for CSE Ticker data received 1,768,531 988,892 Quotation fees received for initial listing of shares 150,000 Amount receivable for Sponsorship Income for Foreign Fund Managers Forum - 500,000 Computer Information Charges Receivable as at year end - 908 Investment in overnight Repo 5,561,920,000 3,254,281,000 Investment in overnight Repo as at year end 18,847,000 11,705,000 Interest received for investment in Overnight Repo 1,136,112 668,045
113 Colombo Stock Exchange Annual Report 2015
Notes to the Financial Statements
28 Related Party Disclosures (Contd.)
Company Relationship Nature of Transaction 2015 2014 Amount Rs. Amount Rs.
Interest receivable for investment in Overnight Repo as at year end 2,582 1,539
CDS Receipt for participants Fees 132,551 61,224 Receipt from Sale of CDS forms & Other CDS Charges 725,610 122 Listed Company fee receivable as at year end 221,663 - Amount Receivable for computer information & Other charges 181,054 493,336
Lanka Financial Services Director CDS Investment as at year end Bureau Ltd 1,000,000 1,000,000 Dividend received during the year - 1,890 Payment made as monthly SWIFT connectivity charges 1,320,726 1,292,211 Amount payable as monthly SWIFT connectivity charges 58,834 117,163
h) Central Depository Systems Fully Fund Transfer In (Pvt) Ltd owned Subsidiary (244,828,672) (246,705,499) Fund Transfer Out 78,609,372 76,046,774 Expenses transferred 121,425,629 94,734,415 Dividend Received 9,000,000 9,000,000 Cheque received on behalf of CDS (1,608,601) (296,039) Cheque received on behalf of CSE - 33,688 Interest Expense (632,948) (703,178) CDS Rental Income & Management Fee 49,008,154 -
29 Events Occurring after the Reporting Period There were no material events after the Reporting Period, which require adjustments to or disclosure in the Financial Statements other than the mentioned below.
CSE Clear (Pvt) Limited (CSE Clear) which is a fully owned subsidiary of CSE was incorporated on 28th March 2016. The CSE Clear is anticipated to carry out clearing and settlement functions as the Central Counter Party (CCP).
30 Directors' Responsibility Statement The Board of Directors of the Company is responsible for the preparation and fair presentation of these Financial Statements in accordance with LKASs and SLFRSs.
31 Comparative Figures To facilitate comparison, relevant balances pertaining to the previous year have been reclassified to confirm to current year classification and presentation.
114 Supplementary Information
Notice of Meeting
The 31st Annual General Meeting of the CSE will be held on 27th May 2016 at 5.00 p.m. to as ‘Elected Directors’ and not at the Colombo Stock Exchange Auditorium, # 04-01, West Block, World Trade Center, less than four (4) members who Echelon Square, Colombo 1. for the following purposes: - shall be appointed by the Minister as referred to in the Securities AGENDA Act and who shall hereinafter 1. To receive and consider the Annual Report of the Directors and Financial Statement sometimes be referred to as of the Company for the year ended 31st December 2015 together with the Report of “Appointed Directors” from among the Auditors thereon. persons recommended by the Commission. It being understood 2. Election / Re-election of Directors that the provisions of this Article shall always be in accordance with a) To re-elect Mr. Ray Abeywardena who retires in terms of Article 50 of the Articles the stipulations of the Securities Act of Association. (Mr. Abeywardena being eligible is offering himself for re-election). with regard thereto and accordingly subject to alteration or variation in b) To re-elect Mr. Aravinda Perera who retires in terms of Article 50 of the Articles of accordance with such stipulations Association. (Mr. Perera being eligible is offering himself for re-election). for the time being and from time to time. c) To elect Mr. M. R. Prelis as a Director in terms of Section 211 of the Companies Act No 7 of 2007 by passing the following resolution. 48. In the case of the first Elected Directors they shall continue “Resolved that Mr. M R Prelis of 3/3 Maitland Crescent, Colombo 7, who is 79 years in office until the conclusion of age is hereby elected a Director in terms of Section 211 of the Companies Act No of the Annual General Meeting 7 of 2007 and it is further specially declared that the age limit of 70 years referred to following the expiry of a period of in Section 210 of the Companies Act No 7 of 2007 shall not apply to the said Mr. M. three (3) years from the date of R. Prelis.” appointment. An Elected Director retiring at a meeting shall retain 3. To re-appoint the retiring Auditors Messrs. KPMG, Chartered Accountants, as the office until the close of the meeting Auditors of the Company, to hold office until the conclusion of the next Annual including any adjournment thereof. General Meeting of the Company, to audit the Financial Statements of the Company Likewise the first Appointed for the ensuing year and authorise the Directors to determine their remuneration. Directors shall continue in office until the conclusion of the Annual 4. To authorise the Directors to determine donations for the year ending 31st General Meeting following the December 2016 and up to the date of the next Annual General Meeting. expiry of a period of three (3) years from the date of appointment, but 5. To consider and if thought fit to pass the following resolution as a Special Resolution may be removed by the Minister at any time prior to such period IT IS HEREBY RESOLVED THAT the Articles of Association be and are hereby amended as whereupon the Minister as referred follows:- to in the Securities Act may appoint 1. THAT Articles 47, 48 and 51 be amended as set out below, by deleting the word another in place of the Appointed ‘Finance’ in the expression ‘Minister of Finance’ contained in the present Articles 47, Director so removed from office. 48 and 51 to be in line with the wording contained in the Schedule to the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987 (as amended), which 51. Any casual vacancy arising on the does not define the relevant subject Minister:- Board in the case of an Elected Director may be filled by the The revised Articles 47, 48 and 51 will thus read as follows:- Board provided such appointee shall have been approved by the 47. So long as the Securities Act so stipulates, the Board shall consist of nine Directors Commission and shall hold office approved by the Commission of whom not more than five (5) members shall be from until such time as the Director among individual stock brokers or stock dealers (or in the case of a body corporate in whose place he has been being the Stock Broker or Stock dealer as the case may be, a director nominated by appointed would have held office such body corporate for this purpose) who shall hereinafter sometimes be referred
115 Colombo Stock Exchange Annual Report 2015
Notice of Meeting
but shall be eligible for re-election Director/s’ to be in line with the and in the case of an appointed wording contained in the Schedule Director such casual vacancy to the Securities and Exchange shall be filled by the Minister Commission of Sri Lanka Act, No. as referred to in the Securities 36 of 1987 Act (as amended), which Act on the recommendation of does not define the relevant subject the Commission and shall hold Minister:- office until such time as the member in whose place he has ‘Appointed Director/s’ : been appointed would have held Director/s of the Board appointed by office but shall be eligible for re- the Minister under the Schedule in appointment. Part (1) of the Securities Act”.
A casual vacancy for the purpose By order of the Board of These Presents shall mean a vacancy howsoever arising except a vacancy created by an affluxion of the duration of the directorate. Director CORPORATE SERVICES (PRIVATE) 2. THAT the definition of ‘Appointed LIMITED Director/s’ be amended as set Secretaries out below, by deleting the word COLOMBO STOCK EXCHANGE ‘Finance’ in the expression ‘Minister At Colombo, on this 27th day of April 2016. of Finance’ contained in the present definition of ‘Appointed
Note: (1) Any member entitled to attend and vote is entitled to appoint a corporate representative instead (please see attached form of resolution).
116 Supplementary Information
Corporate Representation
COLOMBO STOCK EXCHANGE In terms of Article 46 of the Articles of Association of the Colombo Stock Exchange a body corporate, which is a member of the Exchange, may by resolution of its Board authorise any such person to act as its representative at a general meeting of the Exchange.
Specimen Resolution
A certified true copy of a Resolution passed by the Board of Directors of ………………………………..on………….…… day of ……………….. 2016.
IT IS HEREBY RESOLVED that pursuant to Article 46 of the Articles of Association of Colombo Stock Exchange to appoint ………………………………………….(holder of National Identity Card No …………………………………) of ……………….…………………………to act as our representative, to vote for us and to speak on our behalf and to exercise the same powers on our behalf which we would exercise if we were individual Members of the Colombo Stock Exchange, at the Annual General Meeting of the Colombo Stock Exchange to be held on …….. ……..2016, and at any adjournment thereof.
…………………… ………………………. Director Director/Secretary
NOTE: A copy of the Board Resolution as set out above, certified as specified by the Articles of the Member Firm should be deposited at the Office of the Colombo Stock Exchange, 04 – 01, West Block, World Trade Centre, Echelon Square, Colombo 1, either before or at the time of the meeting.
117
Notes
119 Colombo Stock Exchange Annual Report 2015
Notes
120 Corporate Information
Name Bankers/ Settlement Banks Colombo Stock Exchange Bank of Ceylon Commercial Bank of Ceylon PLC Legal Status Sampath Bank PLC A Company Incorporated in Sri Lanka and Limited by Guarantee The Hongkong and Shanghai Banking Corporation Limited
Company Registration Number Colombo Stock Exchange Contact GL12 Tel : +94 11 2356456 Fax Subsidiary Clearing and Settlement : +94 11 2440396 Central Depository Systems (Private) Limited. Finance : +94 11 2448921 Administration : +94 11 2325804 Registered Office Information Technology : +94 11 2440162 # 04-01, West Block, World Trade Center, Echelon Square, Colombo 1, Sri Lanka. Trading and Market Surveillance : +94 11 2448925 Market Development : +94 11 2445279 Secretaries Listing and Corporate Affairs : +94 11 2391128 Corporate Services (Private) Limited Human Resources : +94 11 2440163
Auditors Legal : +94 11 2440539 KPMG Email : [email protected] Website : www.cse.lk Lawyers M/s Julius & Creasy, Attorneys-at-Law M/s FJ and G de Saram, Attorneys-at-Law # 04-01, West Block, World Trade Center, Echelon Square, Colombo 1, Sri Lanka. Web: www.cse.lk