Driving CHANGE Annual Report 2014 The Annual Report for 2014 details the Colombo Stock Exchange’s performance during the year under review. The Market has achieved a number of benchmarks and the organisation has made significant strides in the areas of technological innovation and operational efficiency.

Contents

About The CSE 2 Vision, Mission and Values 3 Member Firms 4 Market Highlights 6 Financial Highlights 8 Award 9 Operational Highlights 10 Executive Reports 12 Chief Executive Officer’s Review 21 Board Of Directors 28 Board Committees 32 Management Team 34 Innovation and Technology 36 Management Discussion and Analysis 40 Corporate Governance Framework 54 People 56 Corporate Sustainability Statement 60 Branch Network 63

Financial Statements Annual Report of The Board of Directors on The Affairs of The Company 66 Directors’ Responsibility for Financial Reporting 69 Risk and Audit Committee Report 70 Independent Auditors’ Report 72 Statement of Profit or Read online Loss and Other Comprehensive Income 73 Statement of Financial Position 74 Statement of Changes In Equity 75 Statement of Cash Flows 77 Notes to The Financial Statements 78 Notice of Meeting 109 Annual Report 2014 Corporate Representation 111 Driving CHANGE

For 30 exciting years, the Colombo Stock Exchange has travelled a steady trajectory of growth, bringing the Exchange to the respected position it occupies today; a regional benchmark that continues to achieve new industry landmarks with every passing year.

Yet while we have grown as an institution, we have also been a powerful agent of change in raising the nation’s profile both regionally and globally, while making a significant contribution to the wave of overseas investment and economic development that is transforming .

The Colombo Stock Exchange Driving Change about THE CSE

The CSE is a company limited by guarantee, At present the CSE functions as a market stakeholders which include issuers (such established under the Companies Act No. operator and through its fully owned as companies, corporations and unit 17 of 1982 and is licensed by the Securities subsidiary, Central Depository Systems trusts), custodian banks, investment banks, and Exchange Commission of Sri Lanka (Pvt) Limited (CDS), acts as a clearing fund managers, stockbrokers, financial (SEC). The CSE is a mutual exchange and settlement system facilitator. The advisers, market data vendors, investors, and has 15 full members and 13 trading CSE oversees compliance of Member and the media. members licensed to trade both equity Firms through a set of rules and promotes and debt securities, while six members are standards of corporate governance among licensed to trade in debt securities only. Listed Companies and is actively involved All members are licensed by the SEC to in educating investors. In the course of its operate as stockbrokers. All members operations, the CSE interacts with many are corporate entities and some are subsidiaries of large financial institutions.

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www.cse.lk/aboutus.do

2 Colombo Stock Exchange Vision, Mission and Values

Vision

To be the Preferred Choice for Creation of Wealth and Value

Mission Integrity

Encourage issuers to raise capital Care through the CSE Passion

Increase the number of active Professionalism investors Teamwork Values Provide facilities for diversified products

Ensure balanced regulation to maintain market integrity and investor confidence

Annual Report 2014 3 Member Firms

Members Bartleet Religare Securities (Pvt) Ltd. Acuity Stockbrokers (Pvt) Ltd. John Keells Stock Brokers (Pvt) Ltd. Level “G”,“Bartleet House”, No.53, Dharmapala Mawatha, 186, Vauxall Street, Colombo 02. 65 Braybrooke Place, Colombo 02. Colombo 03. Tel : 2 342066-7 Tel : 5 220 200 Tel : 2 206 206 Fax : 2 342068 Fax : 2 434 985 Fax : 2 206 298 / 9 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Mr. Tivanka Ratnayake Mr. R. Muralitharan Mr. Prashan Fernando Chief Executive Officer Managing Director Director / Chief Executive Officer

Asha Phillip Securities Limited Assetline Securities (Pvt) Ltd. Somerville Stockbrokers (Pvt) Ltd. 2nd Floor, Lakshmans Building, No. 321, No.120, 120 A, Pannipitiya Road, 137, Vauxhall Street, Colombo 02. Galle Road, Colombo 03. Battaramulla. Tel : 2 329 201/ 5 - 0112338292/ 3 Tel : 2 429 100 Tel : 4 700 111 0112332827 Fax : 2 429 199 Fax : 4 700 112, 4700101 Fax : 112430829 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Mr. Dimuthu Abeysekera Mr. Deepta Ekanayake Ms. Shalini Dias Director / Chief Executive Officer Managing Director Chief Executive Officer/Director

J B Securities (Pvt) Ltd. Lanka Securities (Pvt) Ltd. Asia Securities (Pvt) Ltd. 150, St. Joseph’s Street, 228/1, Galle Road, Colombo 04. 2nd Floor, No 176/1 - 2/1, Colombo 14. Tel : 4 706 757, 2 554 942 Thimbirigasyaya Road, Colombo 05. Tel : 2 490 900 Fax : 4 706 767 Tel : 7 722 000 Fax : 2 446 085, 2 447 875 E-mail : [email protected] Fax : 2 584 864 E-mail : [email protected] Mr. Kosala Gamage E-mail : [email protected] Mr. Murtaza Jafferjee Managing Director / CEO Mr. Sabri Marikar Chief Executive Officer Chief Executive Officer

Nation Lanka Equities (Pvt) Ltd. Capital Trust Securities (Pvt) Ltd. S C Securities (Pvt) Ltd. 44, Guildford Crescent, Colombo 07. 42, Sir Mohammed 2nd Floor, 55 D R Wijewardena Mawatha, Tel : 4 889 061-3, 11 2 684 483 Macan Markar Mawatha, Colombo 03. Colombo 10. Fax : 2 688 899 Tel : 2 174 174, 2 174 175 Tel : 47 11 001,4 711 000 E-mail : [email protected] Fax : 2 174 173 Fax : 2 394 405 Ajahn Punchihewa E-mail : [email protected] E-mail : [email protected] Director / Chief Executive Officer Mr. Tushan Wickramasinghe Mr. Harsha Fernando Managing Director Director / Chief Executive Officer

CT CLSA Securities (Pvt) Ltd. First Capital Equities (Pvt) Ltd. N D B Securities (Pvt) Ltd. 4 -14, Majestic City, 10 Station Road, No:01, Level 02, Lake Crescent, 5th Floor, NDB Building, 40 Nawam Colombo 04. Colombo 02. Mawatha, Colombo 02. Tel : 2 552 290-4 Tel : 2 145 000 Tel : 2 314 170 to 2 314 178, Fax : 2 552 289 Fax : 5 736 264 2 131 000 [email protected] E-mail : [email protected] Fax : 2 314 181 Mr. Kanishka Hewage Mr. Jaliya Wijerathne E-mail : [email protected] Chief Executive Officer Chief Executive Officer Ms. Prasansani Mendis Chief Executive Officer

Trading Members Capital Alliance Securities (Pvt) Ltd. SMB Securities (Pvt) Ltd. First Guardian Equities (Pvt) Ltd. Level 5, “Millenium House”, 46/58, Nawam No. 102/1, Dr. N. M. Perera Mawatha, Level 32, East Tower, World Trade Centre, Mawatha, Colombo 02. Colombo 08. Colombo 01. Tel : 2 317 777 Tel : 4 388 138 Tel : 5 884 400 Fax : 2 3177 88 Fax : 2670294 Fax : 5 884 401 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Mr. Harinlal Aturupane Mr. R. S. W. Senanayake Mr. Rohan Goonewardena Director / Chief Executive Officer Chief Executive Officer Managing Director / Chief Executive Officer

4 Colombo Stock Exchange Taprobane Securities (Pvt) Ltd. Candor Equities Limited Entrust Capital Markets (Pvt) Ltd. 2nd Floor, No.10, Gothami Road, Level 8, South Wing, Millennium House, Level 15, East Tower, World Trade Centre, Colombo 08. 46/58, Nawam Mawatha, Colombo 02. Echelon Square, Colombo 01. Tel : 5 3281 00/5 328 200 Tel : 2 359 100 Tel : 550 0600/ 550 0698 Fax : 5 32 82 77 Fax : 2 305 522 Fax : 550 0699 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Mr. Niranjan Niles Mr. Ravi Abeysuriya Mr. Naushervan Beg Chief Executive Officer Director / Chief Executive Officer Director / Chief Executive Officer

Enterprise Ceylon Capital (Pvt) Ltd. TKS Securities (Pvt) Ltd. Richard Pieris Securities (Pvt) Ltd. 27th Floor, East Tower, World Trade Centre, 4th Floor, No. 245, Dharmapala Mawatha, No. 55/20, Vauxhall Lane, Colombo 02. Echelon Square, Colombo 01. Colombo 07. Tel : 7 448 900/+94 11 5 900 800 Tel : 2 147 147/2 333 000 Tel : 7 857 799 Fax : 2 330 711 Fax : 2 333 383 Fax : 7 857 857 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Mr. Dilruk A. Fernando Ms. Priyani Ratna-Gopal Mr. Ralph Wijesinghe Acting Chief Executive Officer Chief Executive Officer / Managing Director Acting Chief Executive Officer

Claridge Stockbrokers (Pvt) Ltd. Navara Securities (Pvt) Ltd. Softlogic Stockbrokers (Pvt) Ltd. No.10, Gnanartha Pradeepa Mawatha, No.25-2/1, Milepost Avenue, Colombo 03. No.06, 37th Lane, Queens Road, Colombo 08. Tel : 2 358 700 Colombo 03. Tel : 2689248-49/+94 11 2 697 974 Fax : 5 005 551 Tel : 7 277 000 Fax : 2 689 250 E-mail : [email protected] Fax : 7 277 099 E-mail : [email protected] Mr. Nadun Jayatilake E-mail : [email protected] Mr. P. N. A. Epa Chief Executive Officer Mr. Dihan Dedigama Chief Executive Officer Chief Executive Officer

LOLC Securities Limited Level 18, West Tower, World Trade Center, Echelon Square, Colombo 01. Tel : 7 880 880 Fax : 2 434 771 E-mail : [email protected] Mr.Sriyan Gurusinghe Chief Executive Officer/ Managing Director

Trading Members - Debt First Capital Markets Limited Capital Alliance Limited Wealthtrust Securities Limited No. 2, Deal Place, Colombo 03. Level 5, “Millenium House”, 46/58, Nawam No.32, Castle Street, Colombo 08. Tel : 2 639 898, 2 681 888 Mawatha, Colombo 02. Tel : 2675091-4 Fax : 2 639 899/2 576 866 Tel : 231 7777 Fax : 2689605 E-mail : [email protected] Fax : 231 7788 E-mail : [email protected] Mr. Dilshan Wirasekara E-mail : [email protected] Mr. D. H. B. Ranawana Deputy Chief Executive Officer Mr. Gihan Hemachandra Managing Director / Chief Executive Officer Chief Executive Officer

Perpetual Treasuries Limited NSB Fund Management Company Limited Acuity Securities Limited Level 03, Prince Alfred Tower , No. 10, No. 255, 1st Floor, NSB Head Office, Galle Level 4, Acuity House, 53 Dharmapala Alfred House Gardens, Colombo 03. Road, Colombo 03. Mawatha, Colombo 03. Tel : 2206123 Tel : 2564601 Tel : 2206297 Fax : 2206110 Fax : 2574387 Fax : 2206290 E-mail : [email protected] E-mail : [email protected] E-mail : [email protected] Mr. Kasun Palisena Mr. N. K. Dahanayake Mr. Amal Fernando Chief Executive Officer Chief Executive Officer Director / Chief Executive Officer

Annual Report 2014 5 Market Highlights

Equity 2014 Debt Turnover (Rs. Mn) 340,917.1 Corporate Debt Domestic (Rs. Mn) 246,796.8 Turnover (Rs. 000) 7,139,730.4 Foreign (Rs. Mn) 94,120.3 Trades (No.) 401 Shares Traded (No. Mn) 16,721.5 Debentures Traded (No. 000) 56,909 Domestic (No. Mn) 14,726.2 Corporate Debt Market Capitalisation 230.3 Foreign (No. Mn) 1,995.4 (Rs. Bn) Trades (No.) 1,982,709 Government Debt Domestic (No.) 1,899,569 Turnover (Rs. 000) - Foreign (No.) 83,140 Trades (No.) - Daily Average Turnover (Rs. Mn) 1,414.6 Debentures Traded (No. 000) - Market Capitalisation (Rs. Bn) 3,104.9 Turnover to Market Capitalisation (%) 12.3% Close Ended Funds Market Capitalisation as a % of GDP* 31.9% Turnover (Rs. 000) 131,872.5 Trades (No.) 940 Contribution to Total Market Turnover (%) Units Traded (No. 000) 1,680 Foreign Companies 26.0% Funds Listed (as at 31st December, No.) 1 Foreign Individuals 1.6% Total Foreign Investor Contribution (%) 27.6% Warrants Local Companies 34.7% Turnover (Rs. Mn) 6,090.9 Local Individuals 37.7% Trades (No.) 73,235 Total Local Investor Contribution (%) 72.4% Warrants Traded (No. Mn) 677.5 No of Warrants Traded 7 Foreign Trading Activities (as per type of warrant) Secondary Market New Warrants Listed (Types) - Purchases (Rs. Mn) 104,689.8 Sales (Rs. Mn) 83,550.8 Additional Data Net Foreign Flow (Rs. Mn) 21,139.0 Companies Listed (No.) 294 Companies Traded (No.) 284 Returns, Yields and Valuation Multiples Delistings (No.) 3 7,298.95 Market Days (No.) 241 Change % 23.4% S&P SL 20 4,089.14 New Listings/ Issues Change % 25.3% Equity IPOs (No.) 5 Market PER (Times) 19.66 Equity Introductions (No.) 1 Price to Book Value (Times) 2.20 Debt IPOs (No.) 20 Dividend Yield (%) 2.09 Debt Introductions (No.) -

Capital Raised Equity IPOs (Rs.Mn) 2,693.8 Debt IPOs (Rs.Mn) 54,234.9 Rights Issues (Rs.Mn) 8,099.0 Conversion of Warrants (Rs.Mn) 0.03 Private Placement (Rs.Mn) 12, 755.2

*Based on 2014 GDP Data (Provisional)

6 Colombo Stock Exchange Market Capitalisation & No. of Trades – Equity Market Capitalisation & No. Trades - Corporate Debt

Rs. Bn No. ‘000 Rs. Bn No. ‘000 3,500 5,000 250 500 3,000 200 400 2,500 4,000 2,000 150 300 3,000 1,500 100 200 1,000 2,000 50 100 500 0 1,000 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014  Equity Market Capitalisation (Rs.Bn)  Debt Market Capitalisation (Rs.Bn) Equity Trades (No.) Debt Trades (No.)

Composition of Annual Turnover Annual Turnover and Turnover Velocity-Equity

% Rs. Bn % 100 600 35

80 500 30 400 25 60 300 20 40 200 15

20 100 10

0 0 5 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Domestic (%) Annual Turnover-Equity (Rs.Mn)  Foreign (%) Turnover Velocity-Equity (%)

Top10 Companies Market Capitalisation As at 31-Dec-2014 Net Foreign Flow-Equity

Rs. Bn Rs. Bn 250 40 30 200 20 150 10

100 0 -10 50 -20 0 -30 2010 2011 2012 2013 2014 JKH SLTL CTC BUKI DIST DIAL NEST CARS HDEV

COMB Net Foreign Flow (Rs. Mn) Annual Turnover-Equity (Rs.Mn)

Annual Report 2014 7 Financial highlights

2014 2013 % change Financial Results Rs. Mn Rs. Mn

Operating Revenue 732.88 456.19 60.65 Other Income 227.95 314.80 -27.59 Total Revenue 960.83 770.99 24.62 Operating Expenses (885.77) (744.06) 19.05 Profit before Tax 75.06 26.93 178.72 Income Tax Expenses (18.85) (22.07) (14.59) Profit after Tax 56.21 4.86 1056.58 Other Comprehensive Expenses Net of Tax (26.07) (3.07) 749.19 Total Comprehensive Income 30.14 1.79 1583.80

Financial Ratios Cost to Income ratio 95% 97%

Operating Revenue Other Income

2014 2014

2013 2013

0 100 200 300 400 500 600 700 800 0 50 100 150 200 250 300 350

 Securities Trading Revenue  Dividend Income  Listing and Issuer Services  Other Miscellaneous Income  Depository Services  Interest Income  Member Services and Connectivity

Operating Expenses Increase in Turnover Based Fees 2014 Owing to the growth in Average Daily Turnover from Rs.828 Mn in 2013 to Rs. 1,414 Mn in 2014. 2013 75%

0 200 400 600 800 1000 Total Revenue Increase The total revenue of the Group   Other Expenses Depreciation increased by Rs. 961 Mn in 2014  Professional Charges  Maintenance Cost from Rs. 771 Mn in 2013, mainly  Publication and Website  Administration Expenses due to increases seen in CSE and  Investor Education and  Rent CDS fee income, charges for sale 25% Foreign Investor Forums  Staff Cost of information income and listed company fee income.

8 Colombo Stock Exchange Award for Most Sustainable Growth Exchange

We are very pleased with this international recognition and believe that it will be a further impetus to our efforts in attracting foreign investors to the market.

As a Frontier Market we are making great strides forward and this is being observed by prominent institutional investors

Vajira Kulatilaka Chairman

Annual Report 2014 9 Operational highlights

ASPI Index Reaches 7,500 S&P SL 20 Index surpasses 4000 Mark, for the first time since its launch 3,959 Subscriptions for SMS alerts and e-statements Invest Sri Lanka Investor Forums CDS Statements made available through In Singapore, London and New York Email and SMS

Issuer Relations Forums Held for SLASSCOM Members and entrepreneurs in and

Launch of iOS Application And Twitter Handle @CSE_Media

10 Colombo Stock Exchange Rs.3TnMarket Capitalisation reaches Rs. 3 Tn

Educational and Awareness Programmes conducted in association with University Grants Commission

Capital Market Conference 2014, held in Colombo

Launch of new Central Depository Rs.104.7Bn Highest Foreign Purchases System in history Upgrade of Automated CSE named Most Sustainable Growth Trading System (ATS) Exchange in Asia by UK based Capital Finance International

Annual Report 2014 11 EXECUTIVE REPORTS

The Colombo Stock Exchange holds steadily to its commitment of creating a robust market which provides vibrant investment opportunities for a gamut of investors. Fostering a trading platform of transparency and stability through innovative technological upgrades and improvements, in line with maintaining a knowledge based workforce, the CSE drives towards change while transforming itself into a world class organisation. Annual Report 2014 13 14 Colombo Stock Exchange Chairman’s statement

The CSE in its role as an agent for change, has planned strategies to grow the current Market Capitalisation to USD 50 Bn. With this strategic vision in mind, the CSE has made a concerted effort to ensure a secure environment through the proposed introduction of a Central Counterparty (CCP) System with the setting up of a Clearing House, thereby setting the stage for new and innovative financial products to be introduced.

Vajira Kulatilaka - Chairman

Annual Report 2014 15 Chairman’s statement

A Catalyst for Driving Change

Global and Regional Exchange Landscape Equity markets showed sound performance, during 2014, with a strong increase in Equity Trading values of 17.4 %, to 81 Tn USD, in comparison to the previous year. Global Market Capitalisation rose 4.3% to 68 Tn USD from 2013. USD 894Bn Global trends across Equity Markets indicated improved performance in terms of IPO Global IPO Market markets and investment flows, with the number of IPOs rising 24.3% from 2013 and Number of IPOs rising 24.3% from 2013. investment flows increasing from 2013 by 22.6% to 894 Bn USD.

The Asia Pacific region saw an 18.9% increase in equity trading values, despite overall volatility in equity markets, driven mainly by an increase of value of share trading in China Capitalisation surpassed the Rs. 3 Tn range during the last quarter of the year. In the rest of the Asia Pacific region, value of share trading closing the year on Rs. 3.1 Tn and the decreased by 5.4% in 2014, according to a report by the World Federation of Exchanges Daily Average Turnover increased by 71 % (WFE). over the previous year from Rs. 828 Mn in 2013 to Rs. 1.4 Bn in 2014. Most notably Sri Lanka however performed exceptionally well in comparison to regional markets and its the Exchange recorded the highest ever South Asian peers; with the Colombo Stock Exchange (CSE) positioning itself within the inflow of foreign investment into the equity best performing markets in the region. secondary market, a record Rs. 104.7 Bn as at 31st December 2014 The growth of the All Share Price Index (ASPI) of 23.4 %, has demonstrated the increasing value proposition of listed entities. 2014 has been a year of surpassing stakeholder The CSE’s three year Strategic Plan looks expectations with the ASPI crossing the 7500 mark during the year and the S&P towards a series of initiatives which will SL20 crossing the 4000 mark for the first time since its launch. Furthermore, Market see the groundwork being laid in 2015 for a market offering multi-asset classes, fully fledged market makers in operation, an increase in turnover velocity, a goal Global trends across Equity Markets of reclassifying the CSE as an emerging market and converting the CSE into a indicated improved performance in demutualised Exchange. terms of IPO markets and investment flows, with the number of IPOs rising 24.3% from 2013.

16 Colombo Stock Exchange As the CSE completes its 30 years of operations during 2015, the Exchange steps into an era of innovation. CSE has plans to create a vibrant Exchange with strong equity alternatives, derivatives and a stable debt market; offering investors a range of options to diversify their USD 894Bn portfolios.

A Catalyst for Driving Change As the CSE completes its 30 years of operations during 2015, the Exchange steps into an era of innovation. CSE has plans to create a vibrant Exchange with strong equity alternatives, derivatives and a stable debt market; offering investors a range of options to diversify their portfolios.

The CSE in its role as an agent for change, has planned strategies to grow the current Rs.3.1 Market Capitalisation to USD 50 Bn. With this strategic vision in mind the CSE has made a concerted effort to ensure a secure environment through the proposed introduction of a Central Counterparty (CCP) System with the setting up of a Clearing House, thereby setting the stage for new and innovative financial products to be introduced. Furthermore, the CSE in its ambition to be a world-class organisation is building its human capital, by Trillion developing a knowledge based workforce. In order to ensure a vibrant market, steps are being taken to develop the operational capabilities of market intermediaries to edify and Market Capitalisation empower investors to make prudent investment decisions. Daily Average Turnover increased by 71% The Exchange infrastructure has been upgraded to facilitate the trading of multi-asset over the previous year from Rs. 828 Mn in 2013 to Rs. 1.4 Bn in 2014. classes, with upgrades to the Automated Trading System (ATS) and the launch of the new Central Depository System (CDS).

The groundwork laid to introduce the CCP system, which is a joint initiative between the Central Bank of Sri Lanka (CBSL), the Securities and Exchange Commission of Sri Lanka (SEC) and the CSE is ongoing with a significant portion of the project to be completed during 2015. Under this project all financial instruments currently in issue and those that would be introduced in the future would be cleared through the proposed Clearing House and the trading would be through the CSE’s trading platform. A centralised trading platform for the secondary trading of Government Securities would be beneficial to establish a long term yield curve and to eliminate an opaque market.

A Clearing House as a CCP is essential to guarantee settlement of both funds and securities for trades concluded in a Capital Market. The current three day risk exposure for fund settlement is mitigated by the introduction of a Delivery Vs. Payment mechanism that will be fostered through the CCP. It is an effort to improve liquidity of the market and ensure finality of trades.

It is also envisaged that setting up a CCP would facilitate trading and settlement of derivative products such as Futures and Options. These products will provide investors a wide range of opportunities to hedge their risks in the cash market.

Annual Report 2014 17 Chairman’s statement

Furthermore, following the Global Financial Performances of Indices Crisis of 2008, financial market observers have noted that centrally cleared derivatives escaped the major share of the fall-out. 8000 4500 Therefore if the CSE is to enter into trading 7000 in diversified products it is thought best 4000 6000 to ensure, a clear set of safeguards are put in place to fortify the Capital Market and 5000 3500 protect investors. ASPI 4000 3000 3000 S&P SL 20 2000 It is envisaged that 2015 will also see a 2500 complete revision to the CSE Listing Rules 1000 to ensure a more effective and efficient 0 2000 listing process that serves the needs of Jul14 - Jul13 - Jul12 - Jul11 - all stakeholders. In order to encourage Jul10 - Jan 14 - Jan 13 - Jan 12 - Jan 11 - Jan 10 - Sep 14 - Sep 13 - Sep 12 - Sep 11 - Sep 10 - May 14 - May May 13 - May May 12 - May May 11 - May May 10 - May Nov 14 - Nov Nov 13 - Nov Nov 12 - Nov Nov 11 - Nov Nov 10 - Nov Matr 14 - Matr 13 - Matr 12 - Matr 11 - Foreign Direct Investment (FDI), the year Matr 10 - will see the launch of a new trading board S&P SL 20 ASPI in the form of a BOI (Board of Investment) ASPI crosses 7500 mark and S&P SL20 crosses 4000 mark Board. The proposed board will encourage the listing of Public Limited Companies incorporated in Sri Lanka, which bring Furthermore, in order to create a robust market and improve investor confidence the in substantial FDI approved by the BOI. CSE is undertaking the revision of its regulatory framework to introduce more safeguards Similarly, the CSE has undertaken the benefiting investors and Listed Companies. The CSE also hopes to bring in additional introduction of a Book Building Process monitoring mechanisms to ensure that any attempts made to create a false market are for IPOs and Public Subscriptions; which identified and reported. will act as a price discovery mechanism for shares and thereby also ease the process World Class Organisation for institutional investors to participate The CSE is working towards demutualisation of the Exchange. The demutualisation will actively in an IPO or Public Subscription. subsequently result in a separation of trading rights and ownership. This would bring about an improved governance structure that is able to better respond to changing market Additionally the upgrade of the ATS and dynamics. Furthermore, as a demutualised Exchange, the CSE will be empowered to pursue CDS systems will facilitate the introduction new business strategies; by attracting investment, expanding its current technology platforms of secondary trading of Government and broadening the product and service offerings. Finally, the demutualisation and conversion Securities, which will take place in 2015. of membership into shares will create value in terms of strategic partnerships in the future.

It is envisaged that 2015 will also see a complete revision to the CSE Listing Rules to ensure a more effective and efficient listing process that serves the needs of all stakeholders. In order to encourage Foreign Direct Investment (FDI), the year will see the launch of a new trading board in the form of a BOI Board.

18 Colombo Stock Exchange The CSE would seek to implement a risk- Acknowledgements We have built and nurtured a strong based Capital Adequacy Ratio (CAR), which relationship with the SEC, the CBSL, would ensure that Member Firms retain an Member Firms, Listed Companies and other market intermediaries who we appropriate level of liquid capital in relation identify as vital elements of our market. to the total risks faced by them when trading We have also maintained a dialogue with institutional and retail investors in order to in securities. The CAR will replace the present address their needs. net capital requirement. I would also like to extend my appreciation to the Members of the Board for supporting me and offering timely advice in Furthermore, in order to mitigate internal and external business risks, the CSE has many matters. introduced a Risk Policy and developed a Risk Framework which will continuously monitor risk exposure and improve procedures and processes in the Organisation. The Framework Mr. Krishan Balendra stepped down as was formulated after an in-depth analysis of divisional and market intermediaries’ business Chairman in June 2014 after serving on the processes and their impact on the Organisation in the event of failures. CSE Board for five years. I thank him for his valuable contribution both as a Director In our efforts to build a world class organisation within the confines of the Sri Lankan and Chairman of the CSE. Capital Market, the CSE is conscious of the need to consistently analyse and improve the current partnerships and approaches to training of market intermediaries. Identifying the Mr. Hiran De Alwis stepped down from specific aspects of the intermediaries which need to be addressed in order to attract the Board in 2014 and I wish to thank him investors from a wider base, new approaches to enhance and build on the skills, experience for his services to the CSE. I would like to and creative potential of such intermediaries. welcome Mr. Aravinda Perera who was elected to the Board in 2014 and Capacity Building of Stakeholders; Market Participants Mr. Lal Nanayakkara and Mr. Anton Godfrey In order for the Sri Lankan Capital Market to thrive, there is an imperative need for investors who were appointed to the Board in 2015. and intermediaries to be well educated on the new opportunities within the Capital Market and learn to operate within the confines of such. Therefore, educating investors and training I would like to acknowledge the efforts intermediaries is seen as a vital element in nurturing a vibrant Capital Market. of the Chief Executive Officer, the CSE management and staff who have worked The mitigation of risks for stakeholders is of key importance to the Exchange. While the tirelessly for the development of the CCP system will safeguard market intermediaries from the settlement risk, the CSE also Exchange. seeks to ensure that Member Firms maintain sufficient capital, adequate to protect their clients and counterparties from settlement risks. In this regard the CSE would seek to We look forward to a productive 2015, implement a risk-based Capital Adequacy Ratio (CAR), which would ensure that Member strengthening our relationships with our Firms retain an appropriate level of liquid capital in relation to the total risks faced by them stakeholders and acting as a driver of when trading in securities. The CAR will replace the present net capital requirement. change for the Sri Lankan economy.

Awareness and educational programmes are an integral part of the market development activities carried out by the Exchange. The CSE, sees as its societal responsibility - the education of the next generation and plays an integral role in this respect; conducting Vajira Kulatilaka workshops and educational seminars for students, teachers and undergraduates. Chairman

Annual Report 2014 19 20 Colombo Stock Exchange CHIEF EXECUTIVE OFFICER’s Review

The year 2015 marks an important milestone in the CSE’s history, with the completion of 30 years of operation. Over the past three decades, the CSE in its role as an agent of change, has been instrumental in reshaping Sri Lanka’s Capital Market.

Similarly, in the years ahead, the CSE is ready to play an even greater role in boosting the country’s Capital Market. Accordingly, a number of strategic market development initiatives have been earmarked for the next few years; including measures to improve market infrastructure, mitigate risk, initiate new product development, improve governance and strengthen market surveillance in addition to developing internal capabilities and improving financial performance.

Rajeeva Bandaranaike - Chief Executive Officer

Annual Report 2014 21 CHIEF EXECUTIVE OFFICER’s Review

An Agent of Change

Globally Competitive Performance Market Opening Ceremonies Demonstrating a significant upturn in performance in 2014, the Colombo Stock Exchange (CSE) outperformed a number of major global and regional markets; positioning itself amongst the best performing markets both regionally and globally.

Notably, both key indices demonstrated outstanding results for the year, signalling the progressive stability and growth potential associated with Sri Lanka’s equity markets. Crossing the 7500 mark in November, the All Share Price Index (ASPI) ended the year with a growth of 23.4% YoY, a significant increase comparative to the 4.8% recorded in the previous year. Meanwhile, the S&P SL 20 Index grew by 25.3% YoY, an increase over the 5.8% growth seen in 2013. Moreover, the S&P SL20 also achieved a key milestone by crossing the 4000 mark for the first time since its launch. The year also saw the inauguration of the Bell Ringing Ceremony, from the purpose Market capitalisation surpassed Rs. 3 Tn, closing the year at Rs. 3.1 Tn. The Daily Average built platform on the trading floor, at the Turnover increased by 71% over the previous year from Rs. 828 Mn in 2013 to Rs. 1.4 CSE’s World Trade Center offices. The Bn in 2014. Most importantly, the Exchange recorded the highest-ever inflow of foreign CSE in keeping with the tradition followed investment into the secondary equity market amounting to Rs. 104.7 Billion as at 31st by many of its peer exchanges globally will December 2014 open trading with the formal bell ringing ceremony on the first day of trading for Value Creation through Capital Raising all new companies listing on the CSE and at other special events. The CSE has The CSE continues to gear itself to support the multi-faceted needs of both new now made the bell ringing ceremony a entrepreneurs and businesses in capital raising. The primary market remained active regular feature by inviting the S&P SL20 throughout the year with over Rs. 77.8 Bn being raised through equity and debt IPO’s, rights companies to ring the opening bell on the issues and private placements. During the course of 2014 there were five Equity IPO’s, one first day of trading each month. Equity Introduction and 20 Debt IPO’s. The five equity IPO’s raised a total of Rs. 2.7 Bn, the highest recorded since 2011.

In response to the country’s changing economic landscape, the CSE stepped up efforts to present potential listees with the superior value proposition that advocated raising of capital through a listing on the Exchange. As in the past, one-on-one meetings with potential issuers were followed by interactive business forums and awareness sessions to promote listing on the CSE.

In keeping with tradition from the pre-automation era, a Bell Ringing Ceremony to open trading on special occasions was inaugurated akin to many exchanges globally. The ringing of the opening bell is symbolic of new listings and special milestones associated with the CSE and the ceremony is performed on a purpose built platform on the trading floor.

Investor Engagement Initiatives A key focus for the year was to attract new investors and rebuild confidence within the local retail investor community, to ensure that they seek out the Capital Market as a viable investment opportunity.

Ongoing efforts to reach out to institutional investors through investor forums culminated in organising the “Capital Market Conference 2014” in October. Bringing together over 80 foreign fund managers and a host of local industry participants, this highly successful event was organised after a lapse of over 16 years by the CSE.

Notably, in 2014 the investor mix was subject to a degree of change with institutional investors accounting for 60.7% of the market in terms of value and retail investors contributing 39.3% of total market turnover, an increase of 33.4% YoY. Over 21% of turnover

22 Colombo Stock Exchange Capital Market Conference generated by retail investors during 2014 were from regions outside Colombo. Given the growth potential evident in this provincial investor market, a large number of awareness programmes were conducted to promote the risk and return concept associated with capital markets, together with the prospective benefits of long term investments. The growth in the numbers for the year indicate that these platforms have been effective in increasing retail participation in the market, directly and through Unit Trusts.

During the year, the CSE also took a series of measures to encourage a vibrant Corporate Debt Market and provide companies with an opportunity to raise debt capital, while on the other hand allowing investors a range of potent investment options. Furthermore, the 2013 move to allow Primary Dealers as Trading Members is expected to play a pivotal role in The CSE in collaboration with the creating the desired robustness needed for an active secondary market for corporate debt Securities and Exchange Commission of securities. Sri Lanka (SEC) hosted a Capital Market Conference in Colombo on October 9, In 2014 the CSE also engaged in a focused effort to reach out to the international 2014. investment community to encourage them to invest in Sri Lanka. A concentrated Public Relations strategy was launched to create greater awareness and spotlight the CSE as a The conference brought together Institutional Investors and other destination of choice for overseas investors. As part of the promotional agenda, a series Capital Market industry participants. It of highly focused public relations and branding activities were initiated in key international provided an opportunity for investors to markets including Singapore, London and New York. These Forums proved to be successful understand the potential of Sri Lanka’s in delivering tangible results in both equity and debt investments, as evidenced by the growth Capital Market. in foreign purchases, where as much as 60% of foreign purchases were from locations where these Investor Forums were hosted. Participants met with Government Officials, Regulators, Issuers and market With the CSE receiving increasing attention internationally as a result of the ongoing intermediaries and held one-on-one promotional efforts conducted each year, the CSE has been invited to speak at many high meetings with companies listed on the profile international Capital Market conferences. These forums have provided a platform to CSE. promote both the CSE and the Sri Lankan stock market among the international community looking for new and emerging investment opportunities. Institutional Fund Managers from Asia, the Middle East, the United Kingdom, Europe and the United States attended the event. Investor Confidence Efforts to reinforce greater investor confidence prompted the CSE to deploy more stringent measures to safeguard the integrity of the market by effectively identifying and reporting market malpractices. Steps taken to further enhance the efficiency of Market Surveillance, saw the CSE strengthening the Trading Division during the year, with the recruitment of a new Head of Trading and Market Surveillance. A new internal policy and procedure for market surveillance was formalised during the year. The CSE also initiated a project to commence upgrading the existing surveillance system. The investor complaints procedure is also being revamped in order that complaints could be remedied more speedily.

Technology and systems Meeting stakeholder expectations is a key priority and the CSE has always kept abreast of evolving technological advances vis-à-continuous software and regular systems upgrades.

As the CSE embraces international standards, the first phase in the post-trade Clearing and Settlement project was commissioned in November 2014 with the installation of a state of the art new generation Central Depository System (CDS). Replacing the legacy CDS system which has been in operation for nearly two decades, the changeover to the new

Annual Report 2014 23 CHIEF EXECUTIVE OFFICER’s Review

Meeting stakeholder expectations is a key priority and the CSE has always kept abreast of evolving technological advances vis-à-continuous software and regular systems upgrades.

Millennium CDS provided by the Group was completed smoothly International Speaking Engagements and could be termed a successful transition by any standards. A simultaneous upgrade of the trading system was also done to complement the changeover process. Despite being quite a complex systems deployment, this process too was managed efficiently with the collaborative efforts of the CSE and CDS project teams and the Millennium IT teams assigned to the project.

The CDS has already commenced launching new services following the technology upgrade.

Settlement Risk The CSE in association with the Securities and Exchange Commission of Sri Lanka (SEC) and the Central Bank of Sri Lanka (CBSL) launched an initiative to address the settlement Mr. Renuke Wijayawardhane, Chief risks prevalent for the equity and debt market. The proposed process which guarantees Operating Officer, was a speaker and the simultaneous exchange of securities in return for funds, operates through a Central panellist during the session on “Asia’s Counterparty (CCP) guarantee given by a Clearing House which is to be established Exchanges Commentary- Regulatory under this initiative. The ground breaking move would enable the CSE to ultimately migrate Round-table: Asia’s Market Updates” at towards a Delivery Vs. Payment (DVP) settlement system, thereby significantly lowering the the 9th Clearing, Settlement & Custody settlement risk. The project is estimated to span a two year period and is jointly funded by ASIA Forum held at PARKROYAL, the CSE, the SEC and the CBSL together with the active participation and contributory Singapore on March 11, 2015. efforts of the CSE’s Member Firms and Primary Dealers. A UK based consulting firm, BTA This event is a major post-trade event Consulting (BTA), has been retained as consultants for the project and have been mandated in Asia, where key officials from the to set up a Clearing House which will act as a CCP for settlement of securities, including securities industry in Asia and other shares, corporate debt, Government securities and any other Financial Market instrument parts of the world exchange their views transacted in Sri Lanka. The aforementioned launch of the new CDS in November 2014, is a on international and regional macro and key part that forms the first phase of the preliminary stage of the CCP – DVP project. micro market related issues, leverage experiences to address transparency, The second phase consists of the commissioning of new Broker Back Office (BBO) efficiency and risk management issues mechanism and Order Management Systems (OMS) for stock brokers. The OMS is a and benchmark against best practices for comprehensive risk management system, which is an essential pre-requisite meant to regulatory compliance. support the broker transition to the CCP-DVP system. At present the CSE is pro-actively engaged in assisting member firms for the procurement of the BBO and OMS. With many Member Firms having made significant headway in the commissioning process, it is expected that all systems will be fully operational during the course of 2015.

In tandem with the goal to facilitate secondary trading of Government Securities, the CSE continues to work alongside key stakeholders. Presently the modalities and systems modifications in this regard are being worked out and it is expected that the CSE would facilitate and provide a centralised market for the secondary trading of Government Securities.

24 Colombo Stock Exchange Rebranding of the Central Depository System The Central Depository Systems (Pvt) Ltd (CDS), a fully owned subsidiary of the CSE, is undergoing a transformation through a rebranding process in a bid to realign the corporate vision of the Company to reflect the strategic direction of the CSE. The first major change in the 23 year history of the Company, the rebranding exercise is seen as a timely move that re -examines the depository’s readiness to face emerging market challenges.

The rebranding process would see the CDS evolving into a commercially focused information repository. A series of key steps have already been taken to modernise the operational framework of (L – R): Chairman of the CSE Mr. Vajira Kulatilaka with representatives from BTA Consulting, UK the CDS. The commissioning of the new Mr. Brian Taylor and Mr. Sin-Keat Cheah. CDS platform in November 2014 allowed for a number of other support services, implemented during 2014. Based on a An action plan to implement the audit such as monthly statements via email, a more pragmatic framework formulated on recommendations for improvement has SMS service for CDS account holders and the McKinsey Report recommendations, already been initiated. fee based Corporate Action Services for the new structure underpins the Listed Companies and company registrars, CSE values of integrity, teamwork, A project to completely update the to be launched during the course of the professionalism, passion and customer care, procedure manuals of all divisions following year; in an effort to improve the service while the primary focus continues to be on a comprehensive review and gap analysis offering by the CDS to both Listed building a work environment that promotes performed by an external auditor was also Companies and Account holders. Among mutual trust and respect for one another. completed successfully during the year. the planned developments is internet based access to account holders, decentralisation Risk and Audit Financial Performance of CDS services to participants, providing The internal audit function was further Operating Revenue enhanced information and value added strengthened during the year with a revised services for Listed and unlisted companies Overall performance of the Group audit plan and moving to a more risk and company registrars and the increased in 2014, bolstered by the based approach. internationalisation of the CDS. heightened levels of market activity seen throughout the year. The total revenue of Driving Organisational During the year, a ground breaking initiative the Group increased by 25% to Rs. 961 was the completion of a risk management Development Mn in 2014 from Rs. 771 Mn in 2013, due framework for the organisation with the mainly to increases seen in CSE and CDS The vision to transform the CSE into a assistance of M/S Ernest and Young. The fee income, sale of information income and world class organisation in preparation for Risk Management Framework measures the listed company fee income. the planned demutualisation of the CSE key risks of the organisation and the market remains a high priority area on the long and provides regular risk measurement and The CSE and CDS fees registered an term development agenda. This can only reporting to the Board, based on a risk increase of 75% owing to the growth in be achieved by systematic interventions matrix. Daily Average Turnover from Rs.828 Mn that result in a new level of operational in 2013 to Rs. 1,414 Mn in 2014. The efficiency across all aspects of the business. A comprehensive Audit on the IT systems growth in daily trades per day rose by As a first step towards achieving this goal, of the CSE, to assess and review the 40% resulting in a 41% increase in the a new organisational structure to facilitate robustness of the CSE IT systems by fee income from Listed Companies. The the strategic direction of the CSE was KPMG was also completed during the year. increase in charges for sale of information

Annual Report 2014 25 CHIEF EXECUTIVE OFFICER’s Review

The vision to transform the CSE into a world class organisation remains a high priority area on the long term development agenda. This can only be achieved by systematic interventions that result in a new level of operational efficiency across all aspects of the business. also grew and can be attributed to the fee revision which came into effect on October 1, The group expense for market promotion 2014. grew by 29% and significant resources were allocated for local Investor Education Group Profit after Tax crossed Rs. 30 Mn during the year recording a strong growth over the and promoting the market to Foreign previous year. Institutional Investors . Operating Expenses Total operating expenses increased by 19% from Rs. 744 Mn in 2013 to Rs. 886 Mn in 2014. Among the key components, the staff cost increased by 24% as a result of the expansion of the CSE and investment in skills development and training. The increase in Rs.75 Mn maintenance expenses by 41% reflected the commencement of new maintenance expenses pertaining to ATS upgrade in 2012 and new IT support services. The Group expense for Group Profit Before Tax market promotion grew by 29% and significant resources were allocated for local Investor Education and promoting the market to Foreign Institutional Investors.

CSE’s Strategic Positioning The CSE strategically positioned itself regionally as a market that offers investors a stable environment with attractive returns. The CSE has been successful in positioning itself as a vibrant Frontier Market offering value to investors and issuers and intends to leverage on this position to aspire for inclusion in the MSCI Emerging Markets index. Rs.961Mn Strategic Direction Group Revenue

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26 Colombo Stock Exchange However it is recognised that many structural reforms and market expansion activities The CSE has taken a consultative and are required. I am happy to say that the CSE has already initiated the necessary market market driven approach in its market infrastructure reforms necessary, in compliance with IOSCO recommendations. What development activities and has been remains to be addressed is the aspect of market expansion through large cap listings and the working in close cooperation with Member CSE is hopeful of actively engaging the Government and the corporate sector in this regard. Firms, in this regard. The cooperation and support extended by Member Firms is Driving Change in 2015 and beyond much appreciated. The year 2015 marks an important milestone in the CSE’s history, with the completion of 30 years of operation. Over the past three decades, the CSE in its role as an agent of I would also like to sincerely thank Listed change, has been instrumental in reshaping Sri Lanka’s Capital Market. Similarly, in the years Companies, market intermediaries and ahead, the CSE is likely to play an even greater role in boosting the country’s Capital Market. investors; those who make the market-- Accordingly, a number of strategic market development initiatives have been earmarked for ours is a mutually dependent relationship. the next few years; including measures to improve market infrastructure, mitigate risk, initiate new product development, improve governance and strengthen market surveillance in The best of plans and strategy would be addition to developing internal capabilities and skills, and improving financial performance. fruitless without successful implementation. In this connection the role played by the Moreover, as the national economy embarks on a new journey of growth and expansion, management and staff of the CSE has been with a directional change; the CSE sees itself as a critical agent in driving change. In doing so, exemplary. I am truly fortunate to have a the CSE will pursue tangible enhancements that will lay the ground work to trigger a level of committed and loyal team who have risen growth previously unseen in the country’s Capital Market. As such, in the forthcoming year, to the occasion, every time, to achieve our the CSE would leverage on its core competencies to focus on developing Sri Lanka’s Capital plans. I wish to thank every one of them Market in a bid to accelerate the country’s projected growth trajectory. very sincerely for their untiring efforts during the year. Awards and Accolades In 2014 the CSE achieved yet another first, receiving international recognition for the first time in its 30 year history, as the “Most Sustainable Growth Exchange in Asia for 2014”, awarded by Capital Finance International, a leading publisher based in the UK. Rajeeva Bandaranaike Chief Executive Officer Acknowledgements As I recollect the CSE’s achievements for the year, I would like to gratefully acknowledge the advice, guidance and support provided by the Chairman and Board of Directors at all times.

I would also like to extend my sincere appreciation to Mr. Krishan Balendra who stepped down following a two year term as the CSE Chairman. His contribution and wise counsel over the last five years as a Member of the Board of the CSE has been invaluable. I would also like to thank Mr. Hiran De Alwis who stepped down from the Board in 2014 after serving on the Board for five years for his guidance and advice.

I would also like to welcome Mr. Vajira Kulatilaka who took over the reins of Chairmanship during the year to provide leadership and steer the CSE in its transformation to a world class exchange. I would also like to welcome Mr. Aravinda Perera who was elected to the Board during 2014 and Mr. Lal Nanayakkara and Mr. Anton Godfrey who join the Board from 2015.

On behalf of the CSE I wish to extend my gratitude to the SEC for the encouragement and support provided at all times. We thank the SEC for their continued assistance towards our endeavours and providing the necessary regulatory support for the market.

I would also like to acknowledge the support and guidance provided by the CBSL in capital market development activities.

Annual Report 2014 27 Board of Directors

1 Mr. Vajira Kulatilaka Chairman 9 7 5 1 3 2 6 4 8 2 Mr. Dakshitha Thalgodapitiya Appointed

3 Mr. M. R. Prelis Elected

28 Colombo Stock Exchange 4 Mrs. Jeeva Shirajanie Niriella 7 Mr. Aravinda Perera Appointed Elected

5 Mr. Ray Abeywardena 8 Mr. Lal Nanayakkara Elected Appointed in 2015 (w.e.f. March 11, 2015)

6 Mr. Asanga Seneviratne 9 Mr. Anton Godfrey Elected Appointed in 2015 (w.e.f. March 11, 2015)

Annual Report 2014 29 Board of Directors

Mr. Vajira Kulatilaka a member of the Board of Governors of in 1992, and is currently the Head of the Chairman the Sri Lanka Arbitration Centre, while Department of Public and International Mr. Kulatilaka is the Chairman of the he served the public sector as Chairman/ Law, Faculty of Law University of Colombo. Colombo Stock Exchange and has been a CEO of Sri Lanka Land Reclamation and She serves as a visiting resource person in Director of the Exchange since 2009. Development Corporation, River Valleys many Higher Educational Institutions locally Development Board, and Lanka Machine and internationally, as well as being part of Mr. Kulatilaka, is designated as Director/ Leasers Limited. Mr. Thalgodapitiya has Editorial and Reviewer Boards for several Chief Executive Officer - NDB Capital also carried out many assignments with International Journals. Holdings PLC and overlooks the operations international organisations. He holds of the Investment Banking Cluster of postgraduate qualifications in Management Mr. Ray Abeywardena the NDB Group, which comprises of from the George Washington University, Elected NDB Investment Bank Limited, NDB Washington D. C. Mr. Abeywardena is the Managing Director Securities Pvt Limited, NDB Wealth of Acuity Partners (Private) Limited. Management Limited and NDB Capital Mr. M. R. Prelis He has been associated with Sri Lanka’s Limited, Bangladesh. He carries over 30 Elected capital markets for over 28 years, initially years of experience in the Finance Sector Mr. Prelis counts a 27 year career in banking as a Stockbroker and since 2009 as an and Capital Market of Sri Lanka. Prior to with 21 years collectively as Chief Executive Investment Banker. Mr. Abeywardena is the joining NDB Investment Bank Limited, he Officer / Director of DFCC Bank and Chairman of Acuity Stockbrokers (Private) functioned as the Chief Executive Officer . He has held the posts Limited and Acuity Securities Limited. He at CKN Fund Management (Pvt) Limited. of Chairman-, is a Director of Guardian Acuity Asset Mr. Kulatilaka has been instrumental in National Institute of Business Management, Management Limited and serves as an managing some of the largest IPO’s in Association of Development Finance independent non-Executive Director on the Sri Lanka. Institutions of Asia & Pacific headquartered Board of Asian Alliance PLC and as a non in Manila, SME Bank, Executive Director -Executive Director of Lanka Ventures PLC. Mr. Kulatilaka is a Chartered Financial National Asset Management Co Ltd Mr. Abeywardena is a past Chairman of the Analyst and has obtained a B.Sc Degree in (NAMAL), Director BNP-Paribas South Colombo Stockbrokers Association. Civil Engineering with First Class Honours Asia Asset Management Ltd, Director HDF from the University of Moratuwa, and MEng Securities Ltd and Deputy General Manager He is a member of the Chartered Institute in Industrial Engineering & Management (Merchant Banking & Consultancy) Bank of Marketing (UK) and holds a Master’s from the Asian Institute of Technology. He of Ceylon. He is currently the Chairman of Degree in Business Administration from the also obtained qualifications as a Fellow the Capital Trust Securities Group and an University of Wales. Member of the Chartered Institute of Independent Director of . Management Accountants UK. Mr. Asanga Seneviratne An Honours graduate in Mechanical Elected Mr. Kulatilaka currently holds Directorships Engineering (University of Ceylon), he also Mr. Seneviratne was the Director / CEO at NDB Capital Holdings PLC, NDB holds a Master’s in Industrial Engineering of Asia Capital PLC the largest Investment Investment Bank Limited, NDB Securities and Management from Purdue University, Bank which quoted on the Colombo Stock Pvt Limited, NDB Wealth Management USA as a Fulbright Scholar and ISMP from Exchange. He was the Managing Director, Limited, NDB Capital Limited – Bangladesh, Harvard Business School. He is a Chartered Asia Securities (Pvt) Ltd., the number 1 NDB Zephyr Partners Limited – Mauritius, Engineer of UK, a Fellow of the Institution ranked stock broking Company in Sri Lanka. N D B Zephyr Partners Lanka (Private) of Engineers, Sri Lanka, a Member of the Limited and Emerald Sri Lanka Fund I Institute of Personnel Management and a He has over 25 years in finance, Limited - Mauritius. Fellow of the Institute of Bankers, Sri Lanka. investments, capital management and has He also functions currently as a member of invested in the hospitality and Property Mr. Dakshitha Thalgodapitiya the National Research Council of Sri Lanka. industry. Appointed Mr Thalgodapitiya is an accountant by Mrs. Jeeva Shirajanie Niriella Mr. Seneviratne pioneered on-line trading profession and now functions as the Appointed in Sri Lanka through his company Investor Senior Advisor on Funded Projects after Mrs. Niriella received an LLB Honours Access Asia (Pvt) Ltd with CDAX, the his retirement from the Chamber of Degree and M.Phil Degree in Law from Construction Industry of Sri Lanka. He is the University of Colombo. She joined the faculty of Law at Colombo University

30 Colombo Stock Exchange first on-line trading system in Sri Lanka, Services Bureau Ltd and a Governing Board Mr. Anton Godfrey enabling direct access to the Colombo Director of the Institute of Bankers of Appointed in 2015 Stock Exchange from the clients’ personal Sri Lanka. Mr. Godfrey is the Chairman and CEO of computer. 30% of the total trades on the AGXA an AG International Company. Colombo Stock Exchange were executed Mr. Perera is the immediate past President of the Association of Professional Bankers via this system during that period. He is the Founder and CEO of AGXA- – Sri Lanka Global which focuses on resources trade, Mr. Seneviratne serves as Managing energy, pulp and paper, technology, futures Director of Asia Asset Management Mr. Lal Nanayakkara –sugar, global offshore and outsourcing and (Private) Limited, Anilana Hotels and Appointed in 2015 has a global presence with subsidiaries in Properties and Investor Access Equities Mr. Nanayakkara was Chairman of Australia, Singapore, India and Sri Lanka, (Private) Limited. the People’s Bank from 2001 to 2003. principal network span over Europe and He served as a Board Member of the North America. Presently Chairman of Nation Lanka Securities and Exchange Commission of Sri Equities Pvt Ltd, Director of Nation Lanka Lanka (SEC) from 1998 to 1999. He possesses over two decades of Finance PLC and also served as the extensive expertise on capital markets Chairman of the Stock Brokers Association He was elected President of the Institute derivatives, international trade-futures of Sri Lanka. of Chartered Accountants, Sri Lanka in and FDI initiative with global networking 1997. In 2014, he was inducted to the “Hall skills. Mr. Godfrey holds an MBA from the Mr. Seneviratne is also the President of the of Fame” of the Institute of Chartered University Of Leicester UK, Chartered Sri Lanka Rugby Football Union, Secretary Accountants of Sri Lanka, in recognition of Marketer and a Fellow of The Chartered General for Asian Rugby Football Union the exemplary services rendered to the Institute of Marketing UK and the Australian (ARFU) and also the Vice President of Sri accounting profession. Institute of Management. Lanka Cricket. Mr. Nanayakkara, was a member of the An Entrepreneur with demonstrated Mr. Aravinda Perera Company Law Advisory Committee (1997 business acumen, he is the recipient of the Elected – 2001), appointed by the Minister of Outstanding Asia Pacific Entrepreneurship Mr. Perera counts over 30 years in the Trade and Commerce. He served as the Award, APEA 2013. Mr. Godfrey also Banking sector and is presently the President of the South Asian Federation contributed to international trade councils Managing Director of Plc. of Accountants (SAFA) in the year 1999 as president including the Ceylon Chamber - 2000, and was the advisor to the same Of Commerce and is currently a board He is a Member of the Institute of the following year. He was appointed to member of the Western Australian Engineers (Sri Lanka) (MIESL) and a the International Accounting Education Chamber Of Commerce and industry’s Chartered Engineer (C.Eng.) Standards Board (IAESB) Consultative panel, focusing on global trade. Advisory Group (CAG) of the International He is also a Fellow Member of the Federation of Accountants (IFAC) in 2006 Resigned During 2014 Chartered Institute of Management to represented SAFA and continued Mr. K. Balendra Accountants (UK) (FCMA) and a Fellow to serve on the Committee until 2010. Resignation 20th June 2014 of the Institute of Bankers – Sri Lanka He was also a Member World Trade (FIB). He also holds an MBA from the Post Organisation (WTO) Committee of Mr. H.M.C. De Alwis Graduate Institute of Management. South Asian Federation of Accountants on Resignation 31st December 2014 Globalisation of Trade – in services. Presently, he is a Director of Siyapatha Finance Ltd & SC Securities (Pvt) Ltd; subsidiaries of Sampath Bank. He also represents Sampath Bank as a Director of LankaBangla Finance Ltd in Bangladesh.

He is also a Director of the Colombo Stock Exchange, Lanka Financial

Annual Report 2014 31 BOARD COMMITTEES

1. Rules Committee Ten meetings were held during the year. Ms. J. Niriella The Rules Committee of the CSE ensures The members of the Committee are: Mr. M. Prelis that the Rules of the CSE achieve the Mr. D. T. W. Thalgodapitiya (Chairman) Mr. Lal Nanayakkara** (appointed w.e.f. purpose of maintaining a market in Mr. C.V. Kulatilaka (ceased w.e.f. 19th June 20th March 2015) which securities are issued and traded 2014) *Mr. de Alwis ceased to be Chairman and in an organised and fair manner. The Mr. M.R. Prelis a member of this Committee upon his Committee approves or amends proposed resignation from the Board on 31st December Ms. J. Niriella amendments to Rules pertaining to Listed 2014 Companies and broker firms. All decisions Mr. R. Abeywardena **Mr. Lal Nanayakkara was appointed as the of the Committee will be submitted to Mr. A. Perera (appointed w.e.f. 11th July Chairman and to this Committee with effect the Board of Directors for approval, 2014) from 20th March 2015. modification or rejection as per the Terms Mr. Lal Nanayakkara * (appointed w.e.f. of Reference and the Articles of Association 20th March 2015) 4. Dispute Resolution Committee of the CSE. *Mr. Lal Nanayakkara was appointed to The Dispute Resolution Committee of the One meeting was held during the year. the Committee with effect from 20th March CSE adjudicates upon the decisions of the 2015. The members of the Committee were: Secretariat on disputes arising between investors and Members. The Committee Mr. K. Balendra (Chairman)* 3. Arbitration and Disciplinary may grant a hearing to the Member and/or Mr. M.R. Prelis Committee the complainant if required. The decisions Ms. J. Niriella The Arbitration and Disciplinary of the Committee shall be referred to Mr. C.V. Kulatilaka* Committee reviews any disputes or the Board of Directors for ratification and the decision of the Board will be Mr. A. Seneviratne disciplinary matters arising between the Members of the CSE as well as disputes conveyed to the relevant parties in dispute. Mr. R. Abeywardena (appointed w.e.f. 19th arising between investors and Members. The Committee consists of one elected June 2014) Further, matters pertaining to breach Director and three appointed Directors. *Mr. Balendra ceased to be Chairman of of CSE and/or Central Depository this Committee upon his resignation from Systems (CDS) Rules or provisions of the Seven meetings were held during the year. the Board and Mr. Kulatilaka was appointed Securities and Exchange Commission Act The members of the Committee were: Chairman in place of Mr. Balendra with effect by Members will also be referred to the Mr. H. de Alwis (Chairman)* from 19th June 2014 Committee for review. The Committee Mr. D. T. W. Thalgodapitiya consists of four Directors of CSE, one of 2. Risk and Audit Committee whom shall be an elected Director and the Ms. J. Niriella The primary function of the Risk and Audit other three shall be appointed Directors. Mr. M.R. Prelis** Committee is to ensure the establishment Members of the Committee shall notify the Mr. Anton Godfrey*** (appointed w.e.f. of an appropriate risk management Board of Directors before the hearing of 20th March 2015) framework within the CSE, to monitor the any possible conflict of interest and abstain * Mr. de Alwis ceased to be Chairman and integrity of financial statements and review from hearing a charge in which they may a member of this Committee upon his internal controls and work of internal and have a conflict of interest. The Committee resignation from the Board on 31st December external audit functions. The Committee may establish its own procedures except 2014 and Ms. Niriella was appointed should comprise of at least two appointed where it is expressly provided in the Chairman with effect from 20th February directors and two elected directors, one Stockbroker Rules and/or the Articles of 2015 of whom shall have recent and relevant Association of the CSE. financial experience. This Committee is **Mr. Kulatilaka will replace Mr. Prelis on the also empowered to review the financial One meeting was held during the year. Committee in the event there is a conflict of statements of the CDS. The members of the Committee were: interest in Mr. Prelis hearing any disputes Mr. H. de Alwis (Chairman)* Mr. D. T. W. Thalgodapitiya *** Mr. Anton Godfrey was appointed to the Committee with effect from 20th March 2015

32 Colombo Stock Exchange 5. HR Committee 6. Consultative Committee of *Mr. de Alwis ceased to be Chairman and a member of this Committee upon his The HR Committee is entrusted with Market Stakeholders resignation from the Board on 31st December evaluating, assessing, deciding and The Consultative Committee of Market 2014 recommending to the Board of Directors Stakeholders was set up to provide on any matter that may affect the Human recommendations and responses to the ** Mr. Anton Godfrey was appointed to the Resource Management of the CSE. Board of Directors or the Rules Committee Committee with effect from 20th March of the CSE on market development and 2015 The Committee reviews and recommends rules relating to CSE operations and to the compensation and benefits of the the Board of Directors of the CDS on 8. Market Development Committee CSE staff and lays down policies and new rules and amendments to rules of the parameters for compensation structures, CDS. The Committee comprises of sixteen A new committee for market development makes recommendations to the Board of members representing all stakeholders of was set up in March 2015 given the Directors of the additional/new expertise the CSE selected by the Board of the CSE. importance of focusing on promoting the required by the CSE and promotions for The Committee is chaired by the Chairman market to the different investor segments the Heads of Divisions, approves annual of the CSE. and to focus on strategies to develop increments and bonuses and establishes a the IPO market. The mandate of the succession plan in respect of the office of Two meetings were held during the year. Committee is to give a policy direction to the CEO and key management personnel the market promotional strategies of the of the CSE. Recommendations of the 7. Member Evaluation Committee CSE with a view to developing and broad Committee are submitted to the Board The Member Evaluation subcommittee is basing the stock market. The Committee of Directors for approval, modification or responsible for evaluating and reviewing would also be mandated to give a policy rejection. applications submitted by Member Firms direction aimed at developing the debt and for a significant change in shareholding. equity IPO markets. The Committee would One meeting was held during the year. The Committee’s role would be to comprise of 5 Directors. The members of the Committee were: ensure compliance with the guidelines and The members of the committee were: Mr. K. Balendra (Chairman)* procedure pertaining to the CSE Board, granting approval for a significant change Mr. Anton Godfrey (Chairman) Mr. M.R. Prelis in shareholding of a Stock broker Firm and Mr. C. V. Kulatilaka Mr. C.V. Kulatilaka* to make suitable recommendations to the Mr. R. Abeywardena Mr. D. T. W. Thalgodapitiya CSE Board . Mr. D. T. W. Thalgodapitiya Mr. H. de Alwis (ceased w.e.f. 31st December 2014) The Committee consists of three directors; Mr. A. Perera two appointed Directors and one elected Mr. R. Abeywardena Director and meetings would be held as Mr. A. Perera (appointed w.e.f. 11th July required. 2014) Mr. Anton Godfrey** (appointed w.e.f. 20th Three meetings were held during the year. March 2015) The members of the Committee were: Mr. C. V. Kulatilaka *Mr. Balendra ceased to be Chairman and Mr. D. T. W. Thalgodapitiya a member of this Committee upon his resignation from the Board and Mr. Kulatilaka Mr. H. de Alwis* was appointed Chairman in place of Mr. Mr. Anton Godfrey** (appointed w.e.f. 20th Balendra w.e.f. 19th June 2014 March 2015) ** Mr. Anton Godfrey was appointed to the Committee with effect from 20th March 2015

Annual Report 2014 33 MANAGEMENT TEAM

1 Rajeeva Bandaranaike 5 Priyana Gunasekera 4 9 16 11 17 Chief Executive Officer Head of Listing & Corporate Affairs 2 1 6 5 2 Renuke Wijayawardhane 6 Renu Ranatunga Chief Operating Officer Head of Legal

3 Chandrakanth Jayasinghe 7 Kusal Nissanka Chief Information Officer Head of Finance & Administration

4 Lalin Paranavitana 8 Niroshan Wijesundere Assistant General Manager Enterprise Head of Market Development Risk Management

34 Colombo Stock Exchange 5 Priyana Gunasekera 9 Charita Dumbukola 14 Prashanthi Sabesan 15 Head of Listing & Corporate Affairs 10 8 7 Head of IT Project Management Head of Human Resources 12 3 14 6 Renu Ranatunga 13 10 Nalin Fonseka 15 Wasantha Perera Head of Legal Head of Central Depository Systems Head of Information Security & Compliance

7 Kusal Nissanka 11 Nishantha Hewavithana 16 Janaka Mahagedarawatta Head of Finance & Administration Head of Research & New Products Manager Data Centre Operations

8 Niroshan Wijesundere 12 Nilupa Perera 17 Kaushal Siriwardena Head of Market Development Head of Trading & Market Surveillance Manager Systems Operation

13 Nilma Samarasinghe Head of Strategy

Annual Report 2014 35 Innovation and Technology

The Central Depository System was upgraded to enhance service, access and reliability

The new CDS features best-in-class technology that supports multi-asset classes and caters to the overall strategic goals of the CSE to improve trading infrastructure. The new system uses technology that comprises of a three- tier architecture which ensures system robustness, flexibility and adaptability. The new generation CDS replaces its existing 19-year-old legacy system, which was the first such depository in and one of the first depositories globally. A focal point of what we do... Technology has always been the focal point in our work since the 1990’s. However, exchange Cross-reference technology has been constantly evolving in response to the changing dynamics of exchanges Management Discussion & Analysis  Information globally. From a focus on resilience, high functionality, multi-asset platforms and scalability in Technology the past; the focus has changed to address low latency, performance, high order to trade ratio, competitive costs and low overheads. Page 48

Like in any Exchange, technology is the backbone of our business and also the key differentiator and a strategic driver. The Exchange continued to invest in state-of-the-art technology in different areas of its business, keeping a clear focus on its cost efficiency. During the year under review the Colombo Stock Exchange (CSE) continued to deliver and maintain technology products and services, returning value to our stakeholders via technology.

36 Colombo Stock Exchange Features of CSE app The CSE Mobile Applications enable users to access a range of features as provided through the CSE Web Portal, but through a mobile interface designed for heightened user experience.

The CSE Mobile Applications are trilingual, available in English, Sinhala and Tamil, and are available free of charge.

Market Summary

The CSE was transformed into a centre of excellence

Gainers and Loosers during the period under review, offering customers an improved user experience by providing a range of real- time and reference data products, successfully delivering a Announcements high performance trading platform.

Innovation and technological upgrades were the hallmarks of 2014 at the CSE, which served My Portfolio (personal watch list) to enhance services; from securing the trading environment to delivering a reliable trading platform for users, as well as an efficient post trade environment to assist the back end to function uninterrupted and constantly provide timely and relevant information to the market, leveraging on technology . Latest Trades The CSE was transformed into a centre of excellence during the period under review, offering customers an improved user experience by providing a range of real-time and reference data products. The current upgrades bring the CSE on par with other Asian From Google From iTunes Exchanges through the adoption of best practices. We are proud to declare that the latest Play Store App Store technology now powers the CSE and facilitates access by a wider swathe of investors, through mobile applications, SMS trade notification alerts, e statements and social media avenues such as Twitter, Facebook and LinkedIn.

Technological Upgrades Driving Market Innovation The CSE leverages cutting-edge technology to drive changes in the market, with upgrades to Download from App Store its Automated Trading System and the launch of a new Central Depository System, the CSE laid the initial groundwork for a Central Counterparty (CCP) System which will transform www.cse.lk/mobile_app.do the entirety of Capital Market operations in the future.

Annual Report 2014 37 Innovation and technology

During the period under review CSE recorded 100% uptime for all its critical systems. In order to ensure a safe and secure technological landscape for the functioning of the Capital Market, the CSE took several steps to improve the readiness of its systems for all eventualities.

The CSE successfully launched a new generation CDS system during the period under Embracing technology in all aspects review, which is expected to create the platform for future enhancements relating to of its operations and forging ahead to post-trade Clearing and Settlement services, while moving to a Delivery Vs. Payment establish a new frontier in its history, the (DVP) system of settlement and the CCP System. The new CDS features best-in-class CSE continued to pursue a host of other technology that supports multi-asset classes and caters to the overall strategic goals of the improvements during the year. Member CSE to improve trading infrastructure. The new system uses technology that comprises of readiness aspects including the industry- a three-tier architecture which ensures system robustness, flexibility and adaptability. The wide enhancement of Broker Back Office new generation CDS replaces its existing 19-year-old legacy system, which was the first and Order Management systems were such depository in South Asia and one of the first depositories globally. evaluated under its close supervision.

The Automated Trading platform was upgraded to version 7.18 to facilitate seamless Several infrastructure enhancements in the integration with the CDS and facilitate trading of Equity and Debt Instruments. Production and Disaster Recovery Data Centres were undertaken to facilitate the The Trading Platform facilitates trading of any type of instrument, including equities, new trading platform and CSE’s back office derivatives, fixed income and commodities. The ultra low-latency technology enables the systems. In a bid to shore up preparedness system to handle very large order volumes and is a more robust and flexible system. to meet increasing demand for automated trading, CSE initiated many projects to The platform which is built on a rule-based, distributed and fault tolerant technology, improve the robustness of its network enables it to be highly reliable and scalable and rules could be customised with minimal infrastructure. effort. During the year, CSE continuously Improved Performance and System Robustness improved its processes and procedures in The high end technology framework along with the robust monitoring systems, during the compliance with international best practices period under review, CSE recorded 100% uptime for all its critical systems. such as Business Continuity (ISO 22301) and IT Service Management Systems In order to ensure a safe and secure technological landscape for the functioning of the (ISO 20000). Maintaining a healthy track Capital Market the CSE took several steps to improve the readiness of its systems for all record with ISO 27001 (international eventualities. standard for Information Security), CSE conducted multiple systems, technological,

38 Colombo Stock Exchange IT governance audits with leading audit and advisory firms to measure the current posture Launch of New CDS against industry best practices. Vulnerability and risk assessments conducted during the year empowered CSE to operate in a well-regulated and protective eco-system. A Business Continuity Plan testing , including a Disaster Recovery Plan which is tested annually, is in place to ensure continuity of our business and technology operations.

Leverage on Information Technology for Effective Dissemination of Information Driving change within the spectrum of the Capital Market, the CSE has leveraged on information technology for broader and effective dissemination of information. Through these gateways investors and market intermediaries are offered a range of services which Replacing the legacy CDS which has been ensure they are empowered to make the decisions that drive the Exchange forward, in a in operation for nearly two decades, the continuous upward trajectory of innovation and growth. changeover to the new Millennium CDS provided by the London Stock Exchange While 2014 has been a watershed year in terms of technology additions and enhancements, Group was completed smoothly and CSE is poised to roll out newer innovations in the coming months to ensure that its system could be termed a successful transition by any standards. A simultaneous upgrade retains capacity, integrity and resilience, while being future-ready in every way. of the trading system was also done to complement the changeover process. Despite being quite a complex systems deployment, this process was managed efficiently with the collaborative efforts CSE facebook page of the CSE/ CDS project team and the Millennium IT teams assigned to the project. https://www.facebook.com/cseonline2014

CSE twitter handle

https://twitter.com/CSE_Media

CSE LinkedIn page

https://www.linkedin.com/company/ colombo-stock-exchange

Annual Report 2014 39 Management Discussion and Analysis

The CSE works diligently towards our strategic initiatives; including improvements to market infrastructure, mitigation of risks, new product development, improved governance and robust market surveillance structures, in addition to developing internal capabilities while improving financial performance. Annual Report 2014 41 Management Discussion & Analysis

A closer look at how we’re driving change…

Strategic Partnerships

Market Development Investor Education Focusing primarily on growing its investor base across a broad range of socio-economic and demographic segments in 2014, the Colombo Stock Exchange (CSE) engaged in a series of investor education and awareness workshops targeting both existing and potential investors. Driven by the CSE’s branch network, the curriculum for these workshops was developed by industry professionals and designed to reflect the growing trends in the market. Testifying to the success of the initiative, a notable increase in retail participation was observed in the During the year the CSE partnered market following the conclusion of these sessions. with several leading institutions in the Financial Services industry to enhance The year also saw the launch of a series of seminars aimed at cultivating an interest in its brand image among the corporate Capital Market investments among emerging professionals in Sri Lanka’s Universities, Higher sector. These partnerships included the Education Institutions and also among the community of professional educators. Having Institute of Chartered Accountants of received the approval from the University Grants Commission (UGC) and the Education Sri Lanka (CA, Sri Lanka) for its Annual Ministry for this endeavour, the CSE was allowed to conduct compulsory workshops for Report Awards, the Chartered Institute Undergraduate Students and Commerce Teachers across the country. of Management Accountants (CIMA), Sri Lanka and events with the Sri Lanka The two day workshop series for University Undergraduate Students was aimed at Institute of Directors (SLID). providing an introduction to personal financial planning, including general discussions on savings and investment, investment opportunities, Capital Market processes and the benefits of investing in shares. In addition, a session was conducted giving an overview of the role of the CSE in facilitating transactions within the Capital Market, the role of the Securities and Exchange Commission (SEC) and the role of Listed Companies, stockbrokers, investors and the contributory role of capital markets in developing the national economy.

The Teacher Training workshops focused on providing participants with an overview of the basic intricacies of investing in debt securities.

Awareness Session with CA, Sri Lanka

42 Colombo Stock Exchange A series of similar workshops were also conducted throughout the year at State Universities, National Schools and Provincial Schools across the country.

The CSE also held a number of programmes aimed at rejuvenating inactive investors. The topics included diverse investment options available in the market, investing in Unit Trusts and Debt Securities and the importance of the diversification of their portfolios.

Contribution to Total Market Turnover Furthermore, during the year, the CSE tied up with the Sri Lanka Foreign Employment Bureau to conduct a series of workshops under the theme “Potential Value of the Market 26% and the importance of Personal Financial Planning”. These workshops were aimed at educating those embarking on careers overseas. 1.6% Education and Awareness - Local

Type of Programme No. of Events No. of Participants Awareness Programmes 487 35,272 Educational Programmes 289 17,484 776 52,756 37.7% 34.7% Total

Danno Dinanno TV Programme The CSE and the SEC organised and funded the “Danno Dinanno” Reality TV show on  Foreign Individuals Sirasa TV, where CDS account holders were given an opportunity to compete and win  Local Companies monetary rewards with the first prize offered at Rs. 1,000,000. This programme was aimed  Local Individuals at attracting new investors and expanding the investor base by increasing awareness through  Foreign Companies media and other channels about the Stock Market and Unit Trusts. The TV show garnered top ratings and was the most viewed programme on the Sunday morning belt.

Attracting Foreign Investors Following the success of the “Invest Sri Lanka – Investor Forums” launched in 2013, a series of forums were hosted in Singapore, London and New York during 2014. The sessions featured a number of presentations made by local parties that highlighted Sri Lanka’s investment potential. The programmes also comprised of a series of testimonials by institutional investors who shared their positive experiences in Sri Lanka, including Morgan Stanley, BlackRock Investments and TPG Capital. The forums attracted an unprecedented number of investors for both the main sessions and the one-on-one meetings with Listed Companies held at the conclusion of each session. Moreover, foreign inflows for the year hit an all-time record high, with notable gains from locations where investor forums were hosted.

As a culmination of the forums hosted over the past two years, a Capital Market Conference was hosted in October 2014 in Colombo, bringing together International Institutional investors from North America, Europe, the Middle East and Asia alongside a large gathering of local industry professionals and intermediaries.

Empowering Investors To ensure increased accessibility to market information, the CSE iOS Application was launched as a follow-on from the Android application launched the previous year. Similarly, a twitter handle @CSE_Media was launched, aimed at retail investors, media personnel, and students eager to receive on-the-go information from the Stock Exchange on a wide variety

Annual Report 2014 43 Management Discussion & Analysis

of areas. Twitter followers are now able to receive a close-of-trading update on the two of those surveyed responding to the survey. main indices, share volume and market turnover linked to the market summary report for The findings of the survey are being used the day. The twitter handle also offers updates on corporate disclosures, CSE circulars, SEC to customise issuer relations activities. directives, CSE media releases, and upcoming and ongoing events.

Jan-Dec 2014 Mobile App Downloads Regional Issuer Relations Forums Android 7933 iOS 1800 Twitter Followers 1138 Web page Views 18,393,957

Encouraging New Issuers to List The CSE continued its action plan to enhance its brand image among the corporate sector The CSE also hosted two regional forums through participation at several industry related events. The Issuer Relations unit also in Kandy and Anuradhapura to advocate the value of listing to entrepreneurs in continued to engage potential issuers with one-on-one visits . these areas while showcasing the CSE as the premier destination for capital raising. The CSE also hosted two regional forums in Kandy and Anuradhapura to advocate the value of listing to entrepreneurs in these areas, while showcasing the CSE as the premier destination for capital raising.

Furthermore, in a bid to reach out to the IT-BPO and Knowledge Services Industry, a dedicated event was organised for the members of the Sri Lanka Association of Software and Service Companies (SLASSCOM). The event which attracted over 100 CEO’s and CFO’s of unlisted potential issuer companies, provided a platform for participants to network with the senior management representatives of Investment Banks and build mutually beneficial corporate relationships that would play a key role in the prospective listing process.

Issuer Relations (January – December 2014)

Total Listings 25 Debt 18 Equity 5 Introductions 2 Regional Forums 2 (Anuradhapura and Kandy) Other Forums 2 (SLASSCOM, SME) Events 3 (SLID, CIMA, CA Awards)

Research In 2014, the Research Division conducted an Opinion Survey to gauge the views of the management of unlisted companies on the barriers and motivations to list and identify the reasons for not listing. The study was conducted using a Sampling Frame of 1,418, including 1, 101 distinct entities, consisting of four national level members of Federation of Chambers and Commerce and Industries, the Ceylon Chamber of Commerce and SLASSCOM. A structured questionnaire was used for both the online survey and a postal survey with 20%

44 Colombo Stock Exchange Listings In addition to the above, the SEC has The year 2014 saw eight new Companies being listed on the CSE. Six such companies were issued a Directive Dated 23rd December equity listings of which five companies listed equity via IPOs, raising a sum of Rs. 2.7 Bn and 2014, requiring companies seeking a listing one Company listed via an Introduction. via an IPO to disclose the basis for offer price in the Prospectus. Accordingly, such a The two new companies that listed Debt Securities raised Rs. 2 Bn. During the year, 20 company may either obtain a competent companies including two new entrants issued and listed debt instruments through IPOs, independent valuation on the offer price or raising a total value of Rs. 54. 2 Bn compared to the 28 companies which raised a total value publish a Research Report prepared by the of Rs. 68.2 Bn in 2013. The tax incentive granted to Listed Debt securities in the National Investment Bank/ IPO Manager justifying Budget of 2013, where interest income from listed debt securities issued and listed from the IPO price and include necessary January 1, 2013 were exempted from income tax and withholding tax, has resulted in the disclosures in the Prospectus. continuous interest in raising capital via debt securities. Corporate Affairs Ten Listed Companies also availed themselves of their listed status and raised Rs. 8.1 Bn Annual Reports of all Listed Companies via Rights Issues in 2014. A minimal sum was raised upon the conversion of warrants into were reviewed by CSE in collaboration shares, whilst five companies issued shares through Private Placements raising a capital of with the SEC. Accordingly, 131 Annual Rs. 12.8 Bn and one company converted its debt to equity. Scrip Dividends and Reports were reviewed by the CSE and Capitalisations of Reserves also took place with one company and two companies the balance reviewed by the SEC. Areas respectively carrying out the same. Further, one company sub-divided its shares during 2014. deemed to be non-compliant were communicated to the respective companies Set out below are details pertaining to securities listed in the year 2014 for rectification and future compliance.

Capital Flows Moreover, Published Interim Financial Statements of the Listed Companies Initial capital raised from Equity and Debt (Rs.) 56,928,704,800 were reviewed on a sample basis and Capital raised from further issues (Rs.) 20,854,254,786 areas of non-compliances identified, were communicated to the respective companies Equity to be rectified. Initial capital raised (Rs.) 2,693,834,800 During the year 88 cases of non- New companies listed 6 compliance in respect of Annual Reports and 174 cases in respect of Interim Debt Financial Statements were observed Initial capital raised (Rs.) 54,234,870,000 and notified to Listed Companies for rectification. New companies listed 2 Making Listing Rules more relevant The year saw eight new companies being listed and three companies being de-listed resulting in a net increase of five companies which were added to the number of Listed In order to further develop the prevailing Companies There were 294 companies Listed at the CSE as at 31st December 2014. governance framework and to make the listing rules more relevant for issuers During the year under review, certain amendments were made to the CSE Listing Rules the CSE conducted a comparison of the by the Listings division. Two amendments were made to the definition of ‘Public Holding’ Listing Rules with the rules and practices for clarity (CSE Circular No. 03/2014 dated 11th April 2014 and Circular No. 05/2014 governing other regional markets in order dated 3rd July 2014). In respect of the Rules pertaining to Initial Listing, an amendment has to identify potential areas for improvement. been made with regard to the definition of ‘non-public shareholders’ (CSE Circular No. As such, a complete revision of the existing 05/2014 dated 3rd July 2014). While the rating requirements in listing debt securities has listing rules were conducted and it is been amended as well (CSE Circular No. 08/2014 dated 31st December 2014). Further, expected that industry consultations would new requirements were included in respect of continuous Public Holding requirement (CSE begin in 2015. Circular No. 02/2014 dated 20th March 2014) and on dealings in shares by Directors and CEOs (CSE Circular No. 03/2014 dated 11th April 2014). Meanwhile, a new set of Rules was introduced in this year in respect of Related Party Transactions which will be mandatory from 1st January 2016 (CSE Circular No. 03/2014 dated 11th April 2014)

Annual Report 2014 45 Management Discussion & Analysis

The Trading division was further Market Surveillance The CSE commenced the process of upgrading and enhancing the surveillance strengthened and restructured in system. Currently the CSE uses an electronic surveillance system provided by order to augment the monitoring of the National Stock Exchange of India. It is expected that the improvements to the trading and the CSE worked closely system would be made during the course of 2015 to improve the effectiveness and with Listed Companies to improve efficiency of market surveillance activities. The internal procedure for market the quality and timeliness of listed surveillance was reviewed and updated in order to make the process more stringent Company disclosures. and effective, during the course of the year.

A total of 10 cases of suspected market malpractices were detected during the Trading and Market Surveillance year. Of these three cases were for alleged insider dealing, a further three for Trading front running and four cases of market A methodology to monitor the dealings of Directors and CEO’s of Listed Companies manipulation. All the cases were referred to was implemented. This has enabled the CSE to effectively check and monitor compliance SEC for further investigation. with the Directors’ dealings rules. The Corporate Information Dissemination Policy of the CSE was also reviewed and updated during the year to further enhance the efficiency of Broker Supervision information dissemination process within the CSE. Revision of Stockbroker Rules:

The Trading division was further strengthened and restructured in order to augment the The Stockbroker Rules were revised monitoring of trading and the CSE worked closely with Listed Companies to improve the during the year, primarily to facilitate quality and timeliness of Listed Company disclosures. rules applicable to Stock Dealers who were admitted by the CSE as Trading The SEC issued a Directive under Section 13 (c) of the SEC Act with regard to the Members for Debt Securities. The rules imposition of the trading suspension on the securities of a company making an application were revised by the CSE in consultation for a voluntary delisting. As per the Directive, a trading suspension imposed by the with the industry. The revised rules titled CSE under Section 5 (4) of the SEC Rules on the securities of the company making an “Stockbroker/Stock Dealer Rules” has been application for a delisting will remain in force if the SEC Commission approves the delisting forwarded to SEC for approval. application. If the Commission rejects the application, the trading suspension will be immediately lifted. The said Directive is effective from 01st July 2014

Taking into consideration the importance of facilitating the financial sector consolidation plan of the Central Bank of Sri Lanka (CBSL), the SEC decided to relax the application of price constraints imposed on the ‘Crossings Board’ of the CSE for share transactions falling within the consolidation plan. On 22nd September 2014 the SEC issued a Directive to lift the price constraint imposed on the ‘Crossings Board’ Under Section 6.3 (a ‘crossing’ shall not take place at a price below 5% of the Closing price of the security) of the ATS Rules for the share transactions falling within the ambit of the Financial sector consolidation plan, if requested by the respective companies and determined by SEC as such.

46 Colombo Stock Exchange Enforcement actions: Branch offices: Details of enforcement actions carried out in relation to key violations of CSE Stockbroker Three branch offices were opened and Rules during 2014: seventeen branch offices were closed by Broker Firms during the period.  Minimum Net Capital requirement - Three Broker Firms failed to meet the minimum Net Capital requirement during the period. The said Firms subsequently complied with Admission of Primary Dealers the requirement within the time-frame set out in the Stockbroker Rules. as Trading Members for Debt Securities:  Adequacy of Client Funds - Three Broker Firms did not maintain adequate funds in Pursuant to the decision taken by the CSE their respective Client Bank Accounts to settle the Creditors over T+3 balances for to enhance the secondary trading activities several months during the period. Two Broker Firms were in compliance with the of Corporate Debt securities, eight Primary provisions relating to the adequacy of client funds as at 31st December 2014 and the Dealers (PDs), authorised by the CBSL, remaining Broker Firm was in the process of taking corrective actions to comply with were admitted by the CSE as Trading the aforesaid requirement as at 31st December 2014. Members for Debt Securities during 2014. All such PDs have received licenses from  Credit Rules the SEC, with four Firms commencing  Single Client Limit - Violation of the single client credit limit (15% of credit trading activities within 2014. extendable) was identified with regard to three Broker Firms during the period. Two Firms have subsequently taken corrective actions to comply with the requirement. The other Firm has been unable to comply with the requirement as at 31st December 2014. The CSE continues to follow up with the said Firm on compliance.

 Credit Extending Limit - Violation of the credit extending limit (three times of adjusted net capital) was identified with regard to one Broker Firm. The Firm has complied with the requirement as at 31st December 2014.

Systems Reviews: Systems Reviews of eighteen Broker Firms were carried out during the period. Seventeen were carried out in the form of on-site inspections and one was carried out in the form of an off-site inspection.

Shareholding changes of Broker Firms: The following shareholding changes of Broker Firms were approved by the CSE during 2014:

 Ownership changes of five Broker Firms in the form of share transfers.

 Capital infusions by the existing shareholders of six Broker Firms

 Rights Issue of one Broker Firm

 Reduction of shares of one Broker Firm

 Share reduction along with a transfer of shares of one Broker Firm

Appointment of Agents Eight Agents were appointed by four Broker Firms and one Agency Agreement was terminated by one Broker Firm during the period.

Annual Report 2014 47 Management Discussion & Analysis

Investor Complaints The new CDS features ground-breaking As set out in the CSE Stockbroker Rules, investors are afforded an opportunity to refer technology that supports multi-asset to the CSE any complaints they may have against a Stockbroker Firm, relating to any classes and caters to the CSE’s strategic transaction/s that have been carried out in their CDS Account. goal to improve trading infrastructure. The new system uses technology that The Secretariat of the CSE will arrive at its decision in accordance with the said Rules comprises of a three-tier architecture which based on the representations (verbal and written) made by the investor concerned and ensures system robustness, flexibility and the relevant Stockbroker Firm and any documentary evidence furnished to the CSE. adaptability. The upgrade also brings the The decision of the Secretariat of the CSE and the reasons for such decision will be CSE on par with regional Exchanges, by the communicated to the parties in writing. adoption of best practices for post trade settlement services. In the event, either party is not satisfied with the decision of the Secretariat of the CSE, such party may appeal to the Dispute Resolution Committee of the CSE, within a period of Upgrade of the Automated Trading 21 days from the date of the decision, for an adjudication of such a decision. platform During the year the Automated Trading The CSE has inquired into 38 complaints made against Stockbroker Firms by investors platform was upgraded to version 7.18, during 2014. The details are set out below: which facilitates seamless integration with the CDS while also enabling the trading Nature of the Complaint No. of Outcome of Equity and Debt Instruments. Carried Complaints out parallel to the implementation of the new CDS, the upgrade to version 7.18, Unauthorised Transactions 21  Decisions given by CSE Secretariat – 15 marked the first time in the CSE’s history  Settlements - 3 that all core systems were upgraded simultaneously.  Pending - 3 Extension of Credit/Force 11  Decisions given by CSE Secretariat - 10 Expanding Horizon of Services Selling  Pending - 1 The CSE expanded it’s services offered Disputes relating to Margin 1  Pending -1 to CDS Account holders vis-à-vis Trading Agreements e-statements and SMS based Trade Verification Service for CDS account Miscellaneous Matters 5  Decisions given by the CSE Secretariat - 4 holders. Introduced in July 2014, the SMS  Settlements - 1 based Trade Verification Service allows investors to verify trades executed in their account on a daily basis thus highlighting the Information Technology transparency of broker actions and acting Building technology for the future as an early warning system to assist clients in taking necessary actions pro-actively A highly focused technology strategy was implemented in order to implement new and against their brokers. innovative technologies to facilitate the changing landscape of the CSE. This enabled the CSE to increase the operational stability, availability and scalability of its core IT systems. This has In March 2014, the iOS based mobile helped ensure greater security and enabled the CSE’s business functions to perform in a application was also implemented, more efficient environment. to further demonstrate the division’s commitment to use state-of-the-art New IT system for the CDS technology to improve convenience In November 2014, CSE migrated to the Millennium Central Securities Depository ,a new to investors. The mobile application generation Central Depository System (CDS) provided by the London Stock Exchange provides real time information about the Group. This was a monumental undertaking that was the result of a collaborative effort by performance of the Stock Market. the CSE, the systems supplier and other key stakeholders. The transition is expected to lay the foundation for the proposed risk management mechanism identified by the CSE in the form of a “Delivery Verses Payment” (DVP) settlement and a Central Counterparty (CCP) System.

48 Colombo Stock Exchange Broker Back Office (BBO) and Order Management Systems (OMS) audits with leading audit and advisory firms During the year the CSE continued to pursue member readiness aspects including the to measure the current posture against industry wide enhancement of Broker Back Office (BBO) and Order Management Systems industry best practices. CSE Information (OMS). The CSE, acting as the facilitator of this process, published a RFP with regard to Security policy approved by the Board of procurement of BBO and OMS for member firms and completed the evaluation process Directors in 2012 has been revised to fulfill during the year. Four vendors were shortlisted and certified as compliant. Member Firms are new business requirements as well as to expected to select a shortlisted supplier of their choice and sign up for the BBO and OMS face modern cyber threats and information security risks. Throughout the year for implementation during the course of 2015. many security enhancements have been The OMS and BBO systems is an essential pre-requisite for the implementation of market completed including intrusion prevention, wide risk management by the CSE. information classification, encryption, secure information dissemination methodology for Infrastructure Enhancements brokers and access control. Vulnerability and risk assessments conducted during the year A number of other infrastructure enhancements were also carried out during the year, in assured that the CSE operates in a well- the Production and Disaster Recovery Data Centres, in order to support the new trading controlled and a protective environment. platform and CSE’s back office systems. CSE implemented a new consolidated backup solution with an objective of achieving the desired level of backup window. With continued Rebranding of the Central increasing demand for automated trading, CSE initiated many projects to improve the Depository System (CDS) robustness of the network infrastructure and implemented redundant infrastructures to The Central Depository Systems (Pvt) identified critical data links. Ltd. (CDS), a fully owned subsidiary Alignment to ISO Standards of the CSE has initiated an ambitious plan of rebranding the CDS for the first Ongoing improvements to processes and procedures continued throughout the year as per time in its 23 year history. Commencing the guidelines for Information Security (ISO 27001), Business Continuity (ISO 22301) and with the installation of a new IT system, IT Service (ISO 20000) Management Systems. Thus the CSE was able to continue offering other rebranding initiatives include superior services to Stakeholders . the diversification of revenue streams, introduction of value added services to Information Security and IT Compliance stakeholders, decentralisation of CDS The CSE has robust Information Security and IT audit arrangements, with extensive controls functions, addition of repository services to mitigate technical and informational security risks. Cybercrime activities, security breaches and the internationalisation of the CDS. and corruption of data could lead to the loss of investor confidence and reputational damage. While maintaining a healthy track record with ISO 27001, the international standard Service enhancements to for Information Security, CSE conducted multiple systems, technological, IT governance Stakeholders E-Services Number of Securities Accounts as at 31st December In 2014, the CDS took a momentous (Excluding multiple registrations) step of enhancing the service offerings to account holders by providing them with an end of day SMS alert of their transactions.

600,000 560,828 This service enables account holders to 540,709 519,263 keep track of their transactions the same 500,000 day and also allows them to immediately 400,000 identify any unauthorised transactions by 300,000 stockbrokers. Bringing the CDS on par with other regional depositories which provide 200,000 similar services, the popularity of the 100,000 service was evident right from the start and 7,884 8,619 8,133 4,705 4,295 4,396 4,491 4,287 4,134 1860 account holders had registered for 0 the SMS service as at 31st December 2014. Local Foreign Local Foreign Individuals Individuals Companies Companies

2014 2013 2012

Annual Report 2014 49 Management Discussion & Analysis

Operational Highlights (No.) 2014 2013 2012 New Accounts 27,656 27,608 35,321 Deposits 54,872 98,342 126,728 Withdrawals 21 12 52 Transfers 31,486 22,005 27,966 Trades-Equity 1,982,709 1,196,765 1,857,384 Trades-Closed End Funds 940 648 759 Listed Companies inclusive of Closed End Funds, as at 31st December 294 289 287 Participants 50 45 46 Value of Securities held by the CDS as at 31st December (Rs. Mn) Total Market Value of Securities 2,988,696 2,269,417 1,959,201 Quantity of Shares held by the CDS as at 31st December (No. Mn) Domestic Clients 58,055 53,094 49,911 Foreign Clients 20,274 18,236 17,464 Total quantity of Shares 78,329 71,330 67,375 Equity shares De-Mat % 94% 94% 93% Debt Securities De-Mat % 95% 93% 71% Value of Securities held by the CDS as at 31st December

Other Operations Handled by CDS New Technology  Scrip Dividends 02  Equity IPOs 08 The CDS replaced the19 year old legacy  Sub Divisions 01  Further Issues 56 IT system of the CDS with a state-of-the-  Right Issues 11  Debenture IPOs 46 art new generation Depository System in  Mandatory/Voluntary Offers 25 November 2014. The Millennium Central Securities Depository system was supplied by the London Stock Exchange Group. The system has several new outstanding CDS Green initiative features which will enable the CDS to The CDS launched an important green initiative by introducing an email service for CDS offer a far more superior service to its monthly statements. CDS account holders are now able to receive the statements to a participants in keeping with the changing designated email account on the first day following the month end and eliminates the need dynamics of the post trade business. to wait for the CDS statement by post. 2099 CDS account holders had registered for the The new system supports a Delivery service as at 31st December 2014. Vs payment (DVP) environment and is compatible to service a multi-asset class SSL-VPN service trading platform and comprises of a SSL-VPN service, was broadened to include 10 more company secretaries/registrars three-tier architecture that ensures system covering an additional 23 Listed Companies, bringing the total number of service users to robustness, flexibility and adaptability. 60, overseeing approximately 260 Listed Companies. The SSL-VPN service provides a secure channel which enables the company secretaries/registrars to download shareholder and Internationalisation transaction details. The CDS as part of the rebranding initiative has also embarked on a strategy to work in Corporate Action Services close cooperation with other Depositories With effect from October 2014, the CDS introduced new services to Listed Companies in the region. A ground breaking move and company registrars. The change which was implemented following the upgrade of CDS was made last year by the CDS when it technology would facilitate a number of value additions and ensure a better quality service. was awarded the rights by the Asia-Pacific Central Securities Depository Group

50 Colombo Stock Exchange (ACG) to host the 17th ACG Cross Training Seminar in Colombo in May 2015. This is the In addition a series of interim risk first time in its 23 year history that the CDS would host an international event. The event management measures were developed provides an opportunity for the CDS to showcase its Depository to its peers in the region. until the implementation of the CCP. The following measures based on the objectives The CDS has also finalised plans to sign a Memorandum of Understanding (MoU) with the and principles of securities regulation of National Securities Depository of India (NSDL) to collaborate on matters of mutual interest IOSCO June 2010 report will be submitted and benefit .It is expected that the MoU would be signed in April 2015 paving the way to to the Regulator for necessary approvals. formalise the cooperation between the two depositories.  Revision of the Minimum Liquidity The CDS is now an active member of the ACG, serving in its technical staff force. Deposit to three slabs based on broker turnover Operations  Implementation of the Value at Risk A higher number of new accounts were opened during the year, in comparison to 2013, (VaR) and Extreme Loss Margin (ELM) with 27, 656 accounts being opened. Deposits showed a decrease of 44% and inter/intra for crossings and purchase transactions share transfers showed an increase of 43% compared to the previous year. The year 2014 for a cumulative traded value of over also showed a 10% escalation of the corporate actions handled by the CDS. The value of Rs.20 Mn. equity trades settled in 2014 was Rs. 341.1 Mn while the settled debt trades value was Rs. 6.9 Mn.  Trade Crossings with a trade value over Rs.100 Mn to be settled on a Enterprise Risk Management Gross basis. In a landmark development the CSE established an Enterprise Risk Management (ERM)  Improving on the procedure to enable Division. The primary role of the division was to develop an ERM Framework for the CSE. ease of Access to SGF in the event of This task was completed successfully for implementation in 2015. Educational and awareness a settlement failure sessions for CSE staff members on the basic principles of the ERM Framework were  The Revision of Collateral Types conducted to guide them in identifying business risks, root causes, consequences and control Accepted By CSE mechanisms. A National Risk Assessment on Securities Key external risks were identified through a risk assessment performed on Member Firms, Sector on Anti Money Laundering and Custodian Banks and Settlement Banks. Awareness sessions were carried out for all external Terrorist Financing was also completed sources by visiting each institution and conducting awareness presentations. during the year.

Subsequent to the identification of divisional and external risks, an Organisation Risk Matrix Another significant achievement was the was developed by carrying out an impact analysis, likelihood of occurrence and severity of finalisation of the CSE policy framework the risks. Consequent to a review by the Management of CSE, nine risks were identified. for outsourcing of services. This will The strategic plan for 2015 was aligned with the mitigation strategies that were developed enable the CSE to monitor and review the for these nine risks. The Organisation Risk Matrix has been identified in collaboration with performance of outsourced services and to E&Y who were the consultants for the risk framework project. The ERM framework and mitigate the risks attached to outsourced risk assessments would be operational from the first quarter of 2015. business processes.

The CSE is working towards the implementation of a Central Counterparty Clearing House The division is also providing leadership (CCP) in view of mitigating asset commitment risk and counterparty risk for clearing and for the proposed CCP initiative and is the settlement of trades. coordinating office for the international project consultants . The ERM Division played an active role in the evaluation process of selecting a consultant to setup the proposed joint Clearing House with the CBSL and the SEC. The agreement with the consultant was reviewed and finalised. A five phased project and payment plan was developed and finalised jointly with the consultant. The agreement between CSE and the consultant was signed in December 2014 and the project commenced in January 2015.

Annual Report 2014 51 Management Discussion & Analysis

Legal Modification of CSE Trading Floor The legal team of the CSE has completed the following rule amendments.

(1) Revision of the CSE/CDS Rules: i. Amendments to the Stockbroker Rules of the CSE The Stockbroker Rules of the CSE were revised and retitled as ‘Stockbroker/Stock Dealer Rules’ with a view to include a set of new rules relating to Stock Dealers and to facilitate the amendments proposed by the Members/Trading Members of the CSE. The proposed new Stockbroker/Stock Dealer Rules have been submitted During the year the Administration to SEC for approval. Division undertook the modification of the CSE trading floor by introducing ii. Amendments to the Listing Rules of the CSE a platform and podium to be used for (a) Rules for issue and listing of shares of Entities approved by the Board of Investment special CSE events. of Sri Lanka (BOI Companies)

Rules have been introduced with a view to facilitate the listing of shares of BOI (2) Execution of Agreements/Deeds Companies on the CSE. The proposed Rules have been submitted to the SEC for approval. The Legal Division has also been responsible for negotiating and duly (b) Amendments Section 11 (Fees) executing 118 agreements and deeds with local and foreign parties during Section 11 has been amended in order to strengthen the CSE’s regular income 2014, including numerous Service and sources. The new fee structure will be implemented from 2015. Maintenance Agreements, Consultancy Agreements, Non-disclosure (c) Amendments to Section 4 (Funds) Agreements, Lease Agreements Section 4 has been amended with a view to facilitate the listing of units of and software/hardware purchase Open End Funds on the CSE. The proposed amendments have been submitted agreements. to the Project-5: Development of New Products committee, a SEC-CSE Joint Committee, for consideration. (3) Renewal of CSE License and CDS Registration (d) Amendments to facilitate Book Building The CSE has been licensed by the Rules have been introduced to facilitate the Book Building Process for Initial Public SEC to operate as a ‘Stock Exchange’, Offers. The proposed Rules have been submitted to the SEC for approval. while the CDS has been registered as a ‘Market Intermediary’. The said (e) Rules for issue and listing of shares pursuant to an Amalgamation of Companies CSE license and CDS registration have Rules have been introduced to facilitate the listing of shares pursuant to an been successfully renewed during amalgamation of companies. The proposed Rules have been finalised for 2014 in order to ensure smooth submission to the Board of Directors of the CSE for approval. functioning of the CSE and the CDS.

iii. Amendments to the CDS Rules/ Forms and other relevant documents to facilitate Finance and Administration e-CDS statements and SMS alerts The Finance Department looked into the revision of annual listing fees, and made a The CDS Rules have been amended in order to facilitate the e-CDS Statements revision to the information dissemination service and the SMS Alerts Service to account holders of the CDS. The relevant policy in order to bring in revenue Rule amendments to the CDS Rules are currently in force. from the following; introduction of a subscription scheme for the sale of Data

52 Colombo Stock Exchange Library, classification of information products according to availability and introduction of an growth objectives in this manner, this information re-distribution policy process is expected to set the foundation for a robust performance management Having conducted a research on similar markets, a suggestion was made to revise the system within the CSE. minimum charge of CDS fees for clearing function. Further, CDS corporate action fee was introduced. A ‘Goal Tracker System’ was put in place during the year, to monitor the progress Under the Improvement to the standard of Treasury Management function, Investment of the CSE’s strategic objectives and Committee meetings were held during the year and investment made in two new funds. goals. Updated on a monthly basis by the Further, amendments to the Investment Policy Statement were also made, during the year. respective “Goal Owners” with the support of the Strategy division, the process aims The Finance Division in collaboration with an external consultant, was responsible for to trigger a proactive response to address coordinating the development of procedure manuals for all divisions of the CSE. The Fixed possible mismatches. In this regard, goal Asset accounting module was incorporated to the ACCPAC accounting module. performance reviews are carried out on a monthly and quarterly basis, where During the year the Administration Division undertook the modification of the CSE qualitative and quantitative goals are trading floor by introducing a platform and podium to be used for special CSE events. measured using a range of different tools Furthermore the formal process of supplier registration was commenced by publishing a to compare actual results against projected Supplier Registration advertisement in national newspapers. The Administration division targets. was also responsible for initiating the CSR Project in the Balangoda area for a group of underprivileged school children. Quarterly, Mid-Year and Year End reports and presentations are also compiled with Strategy the coordination of the relevant Heads of The CSE developed a three year strategic plan which was implemented from January Division and the CEO. Finalised reports 2014 and corresponded to the CSE’s corporate mission. The plan was developed through are then submitted to the CSE Board for a process that included a pre-planning stage, which led to extensive research to assess review . strategic plans and development activities of regional peers. In addition, research was also conducted to ensure CSE goals were aligned with CBSL and SEC roadmaps for the future. Human Resources The CSE’s Human Resource strategies A think tank comprising of staff and key stakeholders was set up to identify emerging are based on five pillars. They are, training opportunities and highlight potential threats. The outcome of these brain storming sessions to enhance intellectual knowledge of the were then identified and analysed using internal and external benchmarks to establish workforce, compensation and benefits to a suitable template for growth. The goals, so identified, were then cascaded down into encourage a performance driven culture divisional level action plans with accompanying time-lines. Responsibilities for implementation through remuneration and incentive were also allocated together with accountability for the achievement of divisional level Key mechanisms, employee engagement to Performance Indicators (KPI’s). By linking the CSE’s performance targets with the personal develop employee goal congruence, organisational culture to groom future leaders and career path development to ensure career progression for all staff including the Branch staff members.

Human Resources works in collaboration with all stakeholders towards the vision of transforming the CSE into a world class organisation comprising of a knowledge based workforce.

CEO’s of Member Firms at a Market Opening Ceremony.

Annual Report 2014 53 Corporate Governance Framework

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  Risk and Audit Committee  Consultative Committee of Market  HR Committee Stakeholders  Rules Committee  Arbitration and Disciplinary Committee  Dispute Resolution Committee

Chief Executive Officer

Management Governance Framework  Management Committee  IT Steering Committee  Investment Committee  IT Procurement Committee

54 Colombo Stock Exchange The CSE’s Board of Directors is composed of nine members. Five Directors are elected by the 15 Member Firms, while the Minister of Finance nominates four. The CSE Secretariat, headed by the Chief Executive Officer is responsible for the operations of the CSE, and is accountable to the Board of Directors. The Board has appointed Sub-Committees to assist in the discharge of their collective duties and the delegation of authority to provide effective operation of the CSE. The Board is also engaged with the management in developing strategy and setting the short, medium and long term goals of the CSE. During the year the Board has reviewed the Strategic Plan developed by the Management for 2014-2016 and the monitoring of performance against agreed goals and KPIs was executed on a quarterly basis by the Board. In the process of corporate decision making, the views of the public, Securities and Exchange Commission of Sri Lanka (SEC) and Member Firms have been obtained.

The Board meets at monthly intervals, while special Board meetings are convened as the need arises. Details of Board meetings, Sub-Committee meetings and attendance are given below. NAMES OF THE CSE Rules Meeting Risk & Audit Dispute Extraordinary AGM Meeting to discuss Board Committee of the HR Committee Resolution General amendments to Meetings Committee meeting Committee meeting the member rules meeting DIRECTORS Mr. Krishan Balendra 6/6 - 1/1 - - - 2/2 - Mr. Vajira Kulatilaka 13/13 1/1 1/1 - - 1/1 2/2 1/1 Mr. M. R. Prelis 10/13 1/1 1/1 8/10 7/7 1/1 2/2 1/1 Mr. Ray Abeywardena 12/13 1/1 1/1 7/10 - 1/1 2/2 1/1 Mr. Asanga Seneviratne 7/13 1/1 - - - 0/1 2/2 1/1 Mr. Dakshitha Thalgodapitiya 7/13 - 1/1 10/10 5/7 0/1 0/2 1/1 Mr. Hiran De Alwis 13/13 - 1/1 - 7/7 0/1 0/2 0/1 Ms. Jeeva Niriella 12/13 1/1 - 10/10 6/7 0/1 0/2 0/1 Mr. Aravinda Perera 4/7 - - 1/1 - 0/1 - 0/1

Annual Report 2014 55 people

Human Resources Development Human Dynamics We believe that our employees are the fundamental resource that enriches the Colombo Our workforce consists of a diverse pool of Stock Exchange’s (CSE) offerings and powers our engine of growth. The commitment to individuals drawn from multiple disciplines, achieve employee excellence has encouraged us to work tirelessly to position ourselves social, ethnic and cultural backgrounds. At as an employer of choice. To achieve this goal, we have embraced a corporate culture that the CSE, we consider the diversity of our advocates openness and empowerment through equal opportunities. To reinforce the workforce a definite advantage that creates commitment to our employees that; an atmosphere of mutual understanding and respect and has a positive impact  They will always be treated with respect, courtesy and dignity on the quality of our service. As an  They will work in a refreshing, pleasant and safe environment equal opportunity employer, the CSE remains committed to provide a suitable  They will be offered meaningful career development through effective training environment conducive for personal  We will at all times, maintain an open door policy where employees have direct access and professional development of all its to their superiors employees.

All CSE employees are guided by a strict work ethic defined by our code of conduct, which Performance Culture outlines the exemplary standards that are expected from our employees at all times. This has helped us develop a responsible and committed workforce that collectively shares our Underscored by the importance of building vision. a performance driven culture, at the CSE, we continue to encourage our workforce to use their personal growth aspirations to

Training Compensation and Employee Organisational Career Path Benefits Engagement Culture Development Encourage a Develop Employee Groom future leaders Ensure career Enhance intellectual performance driven goal congruence progression for all staff knowledge of the culture through including the branch workforce remuneration and staff members incentives mechanisms

Essence of Success Work Life Balance

56 Colombo Stock Exchange spearhead corporate success. Well aware of the potential within our talent pool, As an equal opportunity employer, we seek to facilitate a high performance work culture, where employees can map the CSE remains committed to out their career prospects in tandem with the CSE’s long term growth objectives. In provide a suitable environment order to put this concept into gear, various schemes and employee programmes have conducive for personal and been introduced over the years, whilst many more are in the pipeline. Among the key initiatives introduced in 2014 were the professional development of all its performance based bonus scheme which signifies the CSE’s promise to embrace employees. a results driven cultural paradigm for the development of human capital. Dispersion of Employees Talent Acquisition Based on Qualifications Dispersion of Staff The CSE Recruitment Policy focuses on attracting the brightest talent in the 13% 7% market. Thus our employment proposition 16% comes with the assurance of providing 24% 11% new employees with a rewarding career within their area of specialisation. As a first step towards encouraging this level of 15% personal growth, existing employees are given first priority, where all recruitment opportunities are shared within the 54% organisation via-a-vis the Internal Job 60% Posting (IJP) mechanism, prior to calling for external applicants. This process forms the  basis of the CSE’s recruitment policy and Masters  Management Cadre  is aimed at providing equal opportunities Bachelors or Equivalent Qualification  Executive Cadre  for both internal placements and external Diploma  Non Executive Cadre  applicants alike. In certain cases, recruiting Secondary Education  fresh talent is deemed necessary as it is Primary Education seen as a means of bringing in new blood to the organisation and infusing new ideas and views into the CSE’s cultural fabric. In doing so, we are mindful of recruiting only 2014 the most competent individuals who also present the best possible fit in line with the CSE’s values. 2013

0 10 20 30 40 50 60

Foreign Training Programmes Local Training Programmes

Annual Report 2014 57 people

Employee Engagement Moreover, to promote greater unity and We strongly believe that meaningful employee engagement is symbolic of the deep rooted cultivate the spirit of family, we convene connection between employee and employer. It is also the critical bond that determines opportunities for our employees and their the behavioural culture of an organisation. Moreover, it influences employee motivation families to interact with the CSE, where and provides the impetus for hard work, dedication and loyalty that forms the basis of an the Avurudu Ulela, Vesak Dansala, Kids empowered workforce. Leadership Development Programme and Christmas Party were among the highlights Thus, employee engagement has always played a key role in the CSE’s talent management for the year. initiatives, with many schemes being introduced over the years. Led by an open door communication policy, we encourage one-on-one meetings between employees and the management, in addition to a range of open forums that permit employee access to the Management. Meanwhile cross functional teams have been introduced in a bid to develop a more meaningful insight into key behavioural aspects associated with each job category.

The weekly Management meetings have helped to foster a closer integration between the heads of division and helped to established an excellent communication channel so that initiatives and activities are well coordinated within the organisation.

Vesak Dansala Presentation Skills Workshop

Speechcrafter Avurudu Ulela

58 Colombo Stock Exchange The CSE’s training plan is designed to upgrade technical and soft skills while enabling personal development as a key driver of holistic growth.

Harnessing Talent HR Branding At the CSE, our training objective is to enhance the knowledge, skills and attitude of our In line with the goal of presenting the CSE employees. Accordingly, the CSE’s training plan is designed to upgrade technical and soft skills as an employer of choice, the CSE has while enabling personal development as a key driver of holistic growth. To facilitate a suitable made progress in its endeavour to create learning culture, we conducted both local, foreign and in-house training programmes, a dynamic brand proposition that would including the Speechcrafter programme facilitated by the Pinnacle Toastmasters Club and attract the best talent to the organisation. A a range of knowledge sharing sessions, where our own trainers were deployed to educate series of structured Internship Programmes, their colleagues. which provide excellent opportunities for undergraduates to gain work experience Our statistics can lay claim to the degree to which we have been able to improve the level have been formulated and conducted. of training at the CSE. We provide our staff with foreign training opportunities. Furthermore, Entry-level programmes of this nature have selected employees have also been offered the opportunity of working for the Foreign been designed in tandem with our results Investor Forums which were held in the Singapore, London and the USA. In addition, 58 oriented learning culture and seek to local training programmes were conducted, resulting in an increase in the training hours expose participants to all possible aspects from 0.37 in 2013 to 24.07 hours in 2014. of working at the CSE. Underscored by the knowledge and skills acquired through the six month internship, these Dispersion of Employees Dispersion of Employees participants would in turn be able to act Based on Gender Based on Age as brand ambassadors for the CSE training capabilities. This would certainly help 2% 40% 16% 1% reposition the CSE’s brand identity as a 0% preferred employer.

The Human Resource function is in pursuit of achieving the goal of becoming a strategic partner having the strategic accountability in the business to translate passion into energy. 60% 48% 33%

 Male  18-20 Years  Female  21-30 Years  31-40 Years  41-50 Years  51-55 Years  56 Years and above

Annual Report 2014 59 Corporate Sustainability Statement

Our Sustainability Philosophy ECONOMIC PERSPECTIVE OF SUSTAINABILITY The Colombo Stock Exchange (CSE), Commenting on our Economic Perspective in conducting operations, our duty as a market places great emphasis on creating operator is to ensure the sustainability of the Capital Market which will contribute towards economic value and practicing sustainable the growth of the economy. Our approach to developing a sustainable Capital Market and environmental, social and governance economy constitutes; providing liquidity and marketability to Securities, broadening the responsibility. The sustainability of its knowledge base, inculcating a culture of improved saving and investment among the trading operations is based on its pillars of community, while ensuring investor confidence. Our ongoing process of reform is subject economic, environmental, social and to the continuous assessment of the factors that cause change within the eco-system that governance best practices, which ensures we operate in, along with our prompt handling of opportunities and appropriate delivery sustainability of its operations. The CSE of strategy. Maximising direct value creation to the economy is emphasised by us, thus value focuses on providing economic benefit to created is increased through increasing turnover velocity and enhanced liquidity on a yearly the community in which it operates and basis, always aiming for an upward trajectory. to society at large, by employing fair and favourable business practices with minimal Equal Access to Investment and Capital Raising Opportunities environmental impact. In order to deliver Ensuring minimal development disparities by promoting equal access to trading superlative financial performance, non- opportunities and resources through the regional branch network is given high importance. financial factors such as adherence to social and environmental responsibilities are given Educational workshops are conducted across the island to introduce new concepts such utmost importance at CSE. as building an entrepreneurial perspective for investments and encouraging the practice of saving and investment. These programmes are executed through the Colombo Unit and About This Report regional CSE offices, thereby giving an equal opportunity to students of all provinces. Information pertaining to economic, social and environmental performance in this Furthermore in order to encourage entrepreneurs to raise capital through the CSE, Forums report has been extracted from the audited and one-on-one meetings were held with potential issuers, during the financial year under financial statements, while other internal review. information has been obtained from operations. The emphasis on sustainability provides us with the opportunity to make a Domestic Turnover - Local and Institutional series of commitments, as profiled through this report, which integrates sustainability as a core value and a point of reference for 600 our operational and corporate structure. We believe sustainability management is 500 an important precautionary approach to 400 economic, social and environmental risk 298 300

management. Rs. 200 129 73 100 189 67 118 88 61 0 2011 2012 2013 2014 Year  Local Institutional  Local Retail

60 Colombo Stock Exchange Corporate Sustainability Statement

Strengthening Risk Framework SOCIAL PERSPECTIVE OF Within the current dynamic environment, the investors and corporate community are SUSTAINABILITY always prone to uncertainty and its consequences, thus risk management plays a major role As key stakeholders of the business, we are to identify, prioritise and mitigate risks affecting our operations. To support and sustain risk well aware of the critical role played by our management throughout the organisation, a risk management framework was established. employees in defining CSE’S overall value proposition and continued trading success. Enhancing IT Capabilities Cognizant of the fact that technology is imperative to enhance value creation and to sustain From a social perspective, as a socially our competitiveness in the context of rapidly changing lifestyles and the fast-changing responsible entity, we believe that a landscape of capital markets, we continue to leverage on technology to appease our company should be sensitive to the needs investors, brokers and Listed Companies with product innovation and service excellence. and wants of all its stakeholders in its business operations. Being ethical and Exchange infrastructure in the form of an upgraded Automated Trading System and new philanthropic in conducting operations is Central Depository System (CDS) allowed for greater information dissemination through given the foremost priority at CSE. SMS and Email Statements for CDS account holders. Sustainable practices are developed and Upholding Compliance practiced within CSE to enable improved relationships with stakeholders and gain an In a bid to advocate corporate governance and ensure balanced regulation in order to edge in the marketplace. maintain market integrity and investor confidence, monitoring of non-compliance by Listed Companies, developing of a methodology to identify Directors’ Dealings and the Humanitarian School Project establishment of internal policy and procedure for market surveillance was undertaken. We strive to remain committed and In exchange for paying taxes, companies can expect the government to deliver a secure dedicated towards the community in which environment, a well-educated workforce and a comprehensive transport infrastructure - all we operate by focusing on education, vital conditions for businesses to grow and develop. Thus, the share transaction levy paid by health, and by engendering a pleasant the CSE is considered a major contribution from the CSE to the government, as the tax is environment. In alignment with CSE’s purely based on transactions taking place on the Stock Exchange. The revenue generated strategy of assisting schools in rural areas under this act fluctuates in accordance with the volume of share market dealings. The to improve educational facilities and quality increasing trading opportunities and revenue of the CSE has increased the share transaction of life for students, a humanitarian project levy contribution. CSE has contributed a total of Rs.12.4 Bn over the 10-year period from was carried out in a remote school in 2005 to 2014 to the state coffers. Balangoda. The CSR team of the CSE

Annual Report 2014 61 Corporate Sustainability Statement

took this initiative as its CSR project for 2014 under the theme, “Improving the Quality of The importance of employee health and Education” in Sri Lanka. In order to improve facilities at this Balangoda school, students were well-being is emphasised at CSE, as we given basic materials needed for learning, access to drinking water and provided with a believe that employee health is correlated playground. to organisational health and performance. Employee well-being is the catalyst that This Humanitarian Project carried out in the remote estate school in Balangoda indicates companies need to cultivate and engage that the CSE is continuously focusing on activities connected to education. thriving employees who perform at their best, every single day. Employees – A Valuable Asset The CSE has identified its role as an Employer that contributes towards creating job As a responsible employer, we ensure that opportunities in order to enhance the quality of the community it operates in. Maintaining employee welfare is enhanced, thereby, efficient staff performance through performance reviews, competitive remuneration, and providing a better quality of life to team ample benefits, rewards and recognition are implemented through the Human Resources members. Furthermore programmes are (HR) division. Since we consider employees to be our most valuable asset, one of the conducted to enhance employee training priorities of CSE is to enhance the value of that asset. Training and Development, promoting and capabilities, while encouraging a education and facilitating a culture of continuous learning remain ongoing priorities of our work-life balance through various welfare HR agenda. initiatives.

Maintaining smooth relationships through open and honest dialogue between employees, ENVIRONMENTAL PERSPECTIVE trade unions and management, respecting human rights, sustaining diversity and providing OF SUSTAINABILITY equal opportunities, are our key precepts. In order to serve society, a healthy working We are committed to promoting sound environment is created for employees to strengthen relationships and promote co- environmental practices through the operation. establishment of environmentally-friendly policies that will enable the conduct of We are a ‘knowledge based organisation’ by constitution, having a knowledgeable workforce our operations in a sustainable manner. A hailing from diverse specialisations. CSE believes in HR practices that ensure career firm’s operations causing zero damage to progression for employees by recognising their achievements, capabilities and innovations, in the environment will enable it to continue order to retain them and further develop their careers and help them to become experts operations in the long-term and strengthen in their respective area of specialisation. The knowledge sharing sessions held for staff on the relationship between the organisation every fourth Wednesday of each month titled “4WD” and the knowledge sharing at all and environmental stakeholders. management meetings on different topics are examples of these initiatives. In addition the CSE has commenced a series of programmes for staff on Financial Derivatives and a Ensuring that our operations are carried knowledge gathering and knowledge sharing project by the three new product development out without harm to the environment is of teams have also been set up. utmost importance. As a result of assessing the quality and environmental impact of our operations and services, initiatives were taken to consume less paper, with the introduction of e-statements and electronic interdepartmental communications. Proper e-waste disposal initiatives have also been implemented during the year.

62 Colombo Stock Exchange Branch Network

Jaffna No. 147-2/3, KKS Road, . Tel: 021-2221455 Fax: 021-2221466 Branch Manager: Mr. Muthucumaraswamy Thileepan

Anuradhapura 2nd Floor, 488/8/2, Town Hall Place, Maithripala Senanayake Mw, Anuradhapura. Tel: 025-2235233 /44 Fax: 025 2235233 Branch Manager: Mr. Nimal Jayaratne

Hambantota No. 59/A, Main Street, Hambantota Tel: 047-2222010 /11 Fax: 0472220375 Branch Manager: Mr. Kamal Jayaweera

Ratnapura First Floor, No.131, Colombo Road . Tel: 045-2232388 /99 Fax : 045-2232388 Branch Manager: Mr. Hemal Weerasinghe

Kandy “Ceybank House”, No. 88 Dalada Veediya, Kandy. Tel: 081-4474407 /09 Fax: 081-4474475 Branch Manager: Mr. Dhananjaya Abeysiriwardana

Kurunegala 1st Floor, Union Assurance Centre, No. 6, Rajapihilla Mawatha, . Tel: 037-4691802 /04 Fax: 037-4691803 Branch Manager: Mr. Thusitha Meegahakumbura

Trading Floor 04-01 West Block, World Trade Centre, Echelon Square, Colombo 1 Tel: +94 11-2356456 Fax: +94 11-2445279

Negombo No. 72A, 2/1, Old Chilaw Road, Tel: 031-2227859 /61 Fax: 031-2227860 Branch Manager: Mr. Nuwan Chathuranga

Matara 1st Floor, E.H. Cooray Tower, No. 24, Anagarika Dharmapala Mawatha, Matara. Tel: 041-2220094 /95 Fax: 041-4390546 Branch Manager: Mr. Nirodha Abeygunewardene

Annual Report 2014 63 FINANCIAL STATEMENTS

During the financial year under review, the Colombo Stock Exchange experienced an increase of daily turnover by over 70%, which was reflected by a 25% increase in revenue.

This increase resulted in an operating profit of Rs.75.1 Mn. As a result, the total comprehensive income increased to Rs.30 Mn.

Within an atmosphere of increasing operating costs and a series of anticipated capital expenditure, the CSE hopes to increase income by diversifying avenues of revenue generation and looking to more profitable areas of investment. Annual Report 2014 65 Annual Report of the Board of Directors on the Affairs of the Company

The Board of Directors of the Colombo Vision, Mission and Corporate Conduct Auditor’s Report Stock Exchange has pleasure in presenting Messrs KPMG the Auditors of the The Vision and Mission statements are given their Annual Report to the Members, Company carried out the audit on the on page 03 of the report. The business together with the audited consolidated Consolidated Financial Statements for the activities of the Group are conducted in Financial Statements and Auditors’ Report year ended 31st December 2014 and their keeping with the highest level of ethical on those Financial Statements for the report on those statements which forms standards in achieving its Vision and Mission. financial year ended 31st December 2014. an integral part of the Report of the Board of Directors, is given on page 72 of this This Annual Report on the affairs of Principal Activities Annual Report. the Company contains the information The principal activity of the Company is required in terms of the Companies Act the operation of a Stock Exchange. The Board Sub Committee No. 07 of 2007. fully-owned subsidiary, Central Depository The composition of the Board sub Systems (Pvt) Ltd. (CDS) acts as a committees, comprising of Non-Executive The Financial Statements were reviewed depository for listed securities. and approved by the Board of Directors Directors is provided on pages 30 to 33. on 20th March 2015. There were no significant changes in The report of the Board Risk and Audit the nature of principal activities of the Committee is given on page 70 to 71. General Company and its subsidiary during the The Colombo Stock Exchange (CSE) financial year under review. Significant Accounting Policies is a company limited by guarantee, The significant accounting policies adopted incorporated in Sri Lanka on 02nd Review of Operation and Future in preparation of the Financial Statements December 1985, under the Companies Developments are given on pages 78 to 85. There have Act No.17 of 1982 and is licensed by A review of the activities of the CSE during been no changes in the accounting policies the Securities and Exchange Commission the year is contained in the Chairman’s adopted by the Company and its subsidiary, (SEC). The CSE was re-registered as per Statement on Pages 15 to 19 and the Chief during the year under review. the Companies Act No.7 of 2007 on 13th Executive Officer’s Review on Pages 21 to May 2008 with GL 12 as the new number 27 and the Management Discussion and Going Concern assigned to the Company. Analysis on pages 40 to 53 of the Annual The Board is satisfied that the Company Report 2014. These reports form an has adequate resources to continue its The CSE is a mutual exchange and has integral part of the Annual Report. fifteen Members & Nineteen Trading operations in the foreseeable future. Members, of which Twenty Eight Members Financial Statements Therefore, we continue to adopt the operate as Stockbrokers for both Equity & “going-concern” basis in preparing these The Financial Statement of the Company Debt and six members are appointed by Financial Statements. and its subsidiary have been prepared the CSE as Trading Members only for Debt. in accordance with Sri Lanka Accounting All Members are corporate entities. The Income Standard (SLFRS) laid down by the institute CSE became the first South Asian member The income of the Group for 2014 was of Chartered Accountants of Sri Lanka and of the World Federation of Exchanges Rs 960.83 Mn (2013: Rs 770.99 Mn) while complying with the requirements of the (WFE) in 1998. CSE is also a member of the Company’s income was Rs 559.66 Mn Companies Act No. 07 of 2007. the South Asian Federation of Exchanges (2013: Rs 353.36 Mn). An analysis of the (SAFE). income is given in Note 04 to the financial The financial statement of the Company statements. and its subsidiary for the year ended 31st The policy making body of the CSE is the December 2014, duly signed by the Head Board of Directors composed of nine Financial Results and Appropriations of Finance & Administration and two of members. Five Directors are elected by the Directors of the Company are given The Group has recorded a profit before the fifteen Members, while the Minister of on pages 73 to108 and form an integral tax of Rs.75.06 Mn (Rs.26.93Mn in 2013) Finance nominates four. part of the annual report of the Board of and profit after tax of Rs.56.21 Mn (Rs.4.62 Directors. Mn in 2013) for the year 2014. The CSE Secretariat, headed by the Chief Executive Officer is responsible for the The Group’s total other comprehensive operations of the CSE, and is accountable expense for the year was Rs 26.07 Mn to the Board of Directors.

66 Colombo Stock Exchange (2013: Rs 3.07 Mn) while the Company Outstanding Litigation The details of the Directors’ meetings has recorded a total other comprehensive In the opinion of the Directors and the which comprise Board meetings, Risk and expense of Rs 22.28 Mn for the year (2013: Company’s Lawyers, pending litigation Audit Committee meetings, HR Committee Rs 1.60 Mn) against the Company disclosed in Note 24 meetings and Rules Committee meetings of the Financial Statements will not have a and the attendance of Directors at these Donations material impact on the financial position of meetings are given on page 55 of the During the year the Company made the Company or its future operations. Annual Report. donations amounting to Rs.1,349,820/- including the CSR project done Events after the Reporting Date Directors’ Interest Register (Rs.4,717,854/- in 2013). No circumstances have arisen since the The CSE maintains a Directors’ Interests Statement of Financial Position date which Register conforming to the provision Taxation would require adjustments to, or disclosure of the Companies Act No. 7 of 2007. The income tax rate applicable on the in the Financial Statements. The Directors of the CSE have disclosed Company and the subsidiary company is their interests’ in other companies to the 28% (2013 – 28%). Board of Directors Board and those interests are recorded in the Interests Register conforming to the The following Directors held office as at Statutory Payments provisions of the Companies Act No.7 of the Statement of Financial Position date. 2007. The particulars of those entries are The Directors, to the best of their set out on Note 27 of the Annual Report knowledge and belief, are satisfied that Name of the Director and form an integral part of the Annual all statutory payments in relation to the Mr. C. V. Kulatilaka (Chairman) Report of the Board of Directors. Government and the employees have been Mr. M. R. Prelis made up to date. Mr. D. T. W. Thalgodapitiya Related Party Transactions Capital Expenditure Mr. R. Abeywardena The Directors have also disclosed transactions if any, that could be classified as The total capital expenditure on acquisition Mr. A. C. Seneviratne related party transactions in terms of LKAS of property, plant and equipment and Ms. M. A. D. S Jeeva Shirajanie Niriella 24 “Related Party Disclosures” which is intangible assets of the Group amounted Mr. M. Y. Aravinda Perera adopted in the preparation of the financial to Rs. 174 Mn (2013: Rs 196 Mn). Details (Appointed to the Board on 11th July statements. Those transactions disclosed of property & equipment are given in Note 2014) by the Directors are given in Note 27 to 09 to the financial statements. The capital the financial statements forming part of the expenditure approved and contracted for Mr. Krishan Balendra and Mr. Hiran M. C. Annual Report of the Board of Directors. and not contracted for as at Balance Sheet De Alwis resigned from Board of Directors date is given in Note 25 to the financial on 20th June 2014 & 31st December 2014 Directors’ Remuneration statements. respectively. In compliance with the provisions of Property & Equipment the Articles of Association, the CSE has Mr. Asanga Seneviratne and Mr. Vajira not made any payments on account Details of property, plant and equipment Kulatilaka retire by rotation at the of Directors’ remuneration other than are given in Note 09 to the financial conclusion of the Annual General Meeting payment pertaining to meet out of pocket statements. in terms of Article 50 of the Articles of expenses for attending Board Meeting Association, and being eligible and offering as given in Note 07 to the financial Reserves themselves for re-election. statements. The Group Accumulated fund and other reserves as at 31st December In terms of Section 211 (2) of the 2014 amounted to Rs.3,125,252,652 Companies Act, the Board of Directors (Rs.3,095,517,231 in 2013). The break up have given notice to the Company that and movement are shown in the Statement Mr. M. R. Prelis, aged 78 years be elected of Changes in Equity in the Financial as a Director and that the age limit of 70 Statements. years referred to in Section 210 of the Companies Act shall not apply to Mr. M. R. Prelis.

Annual Report 2014 67 Annual Report of the Board of Directors on the Affairs of the Company

Directors’ Responsibility for Corporate Governance Notice of Meeting Financial Reporting The Directors and Management of the CSE The 30th Annual General Meeting of the The Statement of Directors’ Responsibility have placed emphasis on conforming to CSE will be held on 1st June 2015 at 5.30 for the Financial Reporting given on page the best corporate governance practices p.m. at The Dorchestor, 10th Floor, The 69 forms an integral part of the Annual and procedures. A separate report on Kingsbury Hotel. Report of the Board of Directors. Corporate Governance is given on pages 54 to 55. Acknowledgement of the Contents Environmental Protection of The Report To the best of knowledge of the Board, the Auditors As required by Section 168 (1) (k) of the Company has complied with the relevant The Company’s Auditor’s during the Companies Act No. 07 of 2007, the Board environmental laws and regulations. period under review were Messrs KPMG, of Directors hereby acknowledges the The Company has not engaged in any Chartered Accountants. Audit Fee and contents of this Annual Report. activity that is harmful or hazardous to the reimbursement of expenses paid to KPMG environment. during the year under review by the For and on behalf of the Board of Directors Company and its subsidiary amounted to Risk Management and Internal Rs. 838,095 (Rs.1,020,446 in 2013). Further Control Rs.384,000 (Rs.462,829 in 2013) was paid on account of tax related services, IT Risk Management C. V. Kulatilaka D. T. W. Thalgodapitiya system audit and other services. The detail The Company has an ongoing process in Chairman Director of their remuneration is given in Note 07 place to identify, evaluate and manage the to the Financial Statements. risks that are faced by the Company. As far as the Directors are aware the Internal Control Auditors do not have any interest with Corporate Services (Private) Limited The strong internal controls are integral to the CSE or its subsidiary other than those Secretaries the sound management of the Company, disclosed above. hence the Board is committed to maintain 20th March 2015 strict financial, operational and risk The Auditors have expressed their Colombo management controls over all its activities willingness to continue in office. A including safeguard the assets of the resolution to re appoint the Auditors and Company and prevent and detect frauds. authorise the Directors to determine their remuneration will be proposed at the There is an ongoing process for identifying, Annual General Meeting. recording, evaluating and managing the risks that are faced by the Company, and the Directors have reviewed this process, through the Board Audit & Risk Committee including internal reviews, internal audits and system audits.

68 Colombo Stock Exchange Directors’ Responsibility for Financial Reporting

The responsibility of the Directors, in CSE and its Subsidiary CDS for the year The Directors to the best of their relation to the Financial Statements, is ended 31st December 2014 presented knowledge and belief, are satisfied that set out in the following statement. The in this report have been prepared in all statutory payments in relation to responsibility of the Auditors, in relation accordance with the Sri Lanka Accounting all relevant regulatory and statutory to Financial Statements, is set out in the Standards (SLFRS/LKAS), Companies Act authorities which were due and payable by Report of the Auditors’ on the Annual No: 7 of 2007 and Sri Lanka Accounting the CSE and its subsidiary CDS as at the Report. and Auditing Standards Act No: 15 of 1995. Statement of Financial Position date have been paid or where relevant provided for. As per the provisions of the Companies The Directors have adopted the going Act No. 7 of 2007 the Directors are concern basis in preparing the Financial The Directors are of the view that they required to prepare Financial Statements Statements. The Directors are of the have discharged their responsibilities as set for each financial year and place them view that the CSE & CDS have adequate out in this statement. before a General Meeting. The Financial resources to continue in operation. Statements comprise the Statement of By order of the Board Financial Position as at 31st December The Directors have taken reasonable steps 2014, and the Statement of Comprehensive to safeguard the assets of the CSE and its Income, Statement of changes in Equity and subsidiary CDS and in this regard to give proper consideration to the establishment Cash flows for the year then ended and Corporate Services (Private) Limited Notes thereto. of appropriate internal control systems Secretaries with a view of preventing and detecting The Financial Statements of the Company fraud and other irregularities. Further, the 20th March 2015 and its Subsidiary give a true and fair view Directors have a responsibility to ensure Colombo of the state of affairs of the Company that the Company maintains sufficient and its Subsidiary as at the Statement of accounting records to disclose, with Financial Position date and the Profit or reasonable accuracy. Loss of the Company and its Subsidiary for the financial year ended on the Statement Directors are required to prepare the of Financial Position date. Financial Statements and to provide the Company’s External Auditors, Messrs The Directors have ensured that, in KPMG, with every opportunity to carry out preparing these Financial Statements: any reviews and tests that were considered appropriate and necessary for expressing 1. The appropriate accounting policies their independent audit opinion on the have been selected and applied in a Financial Statements. consistent manner. The financial statements of the Company Material departures, if any have been and its Subsidiary have been certified disclosed and explained; by the Company’s Head of Finance & Administration, the officer responsible 2. All applicable accounting standards as for their preparation, as required by the relevant have been followed; Sections 150 (1) (b) and 152 (1) (b) of the Companies Act. Also the financial 3. Judgments and estimates have been statements of the Company and its made which are reasonable and Subsidiary have been signed by two prudent. Directors on 20th March 2015 as required by Sections 150 (1) (c) and 152 (1) (c) of The Directors confirm that the the Companies Act. Consolidated Financial Statements of the

Annual Report 2014 69 RISK AND AUDIT COMMITTEE REPORT

Composition of the Committee Meetings of the Committee  Reviewing collateral types accepted by The Risk and Audit Committee of the During the year, Ten Risk and Audit the CSE. Colombo Stock Exchange (CSE) comprised Committee meetings were held to discuss of 3 elected Directors and two appointed the reports on Risk Management, Budgets,  Minimum standards for Market Directors. Investments, the reports of the Internal and Intermediaries. External Auditors and Annual/Quarterly The members of the Risk and Audit accounts. The minutes of the meetings Integrity of financial statements Committee appointed by the Board are; were tabled at the meeting of the Board The Committee reviewed the of Directors for information and necessary appropriateness of the accounting policies Mr. D. T. W. Thalgodapitiya - Chairman action. used and financial statement of the group to assess on their integrity and compliance Mr. C. V. Kulatilaka Risk Management with Accounting Standards. The Committee (Resigned w. e. f. 19th June 2014) The Committee advised to re-visit the has reviewed and discussed with the Mr. M. R. Prelis entire Risk Management Framework and management, the quarterly financial statements and recommended for the Ms. M. A. D. S. Jeeva Shirajanie Niriella present Framework with an analysis and justification for each risk and action plans approval of the Board. In order to ensure Mr. R. Abeywardena for mitigation of the identified risks. the effectiveness of the Financial Reporting Mr. M. Y. A. Perera Systems in place and reliability of the (Appointed w. e. f. 11th July 2014) The options available for the Broker Back information provided, on the request of office system and Incentives to Brokers the Committee the Internal Auditors has All five members of the Risk and Audit have been also reviewed by the Committee performed a review on each quarterly Committee are Non-Executive Directors. during the year. financial statements.

Internal Controls External & Internal auditors, Chief Executive The Committee has recommended to Officer, Chief Operating Officer, Chief propose a methodology for the Capital The Committee reviewed the effectiveness Information Officer, AGM-Risk, Head of Adequacy Requirement (CAR) and of the Group’s internal control systems Finance & Administration, other relevant Margining. and suggests where necessary appropriate Senior Management members and External remedial measures. Auditors & Internal Auditors attended The Committee has reviewed the following External Audit to the meetings of the Risk and Audit Interim Measurements suggested by Committee on invitation. Management to mitigate settlement risk The independence of the External Auditor prior to the implementation of a Central was evaluated by the committee and also The Company Secretary functions as the Counter Party (CCP). reviewed the non audit services provided Secretary to the Risk and Audit Committee. by the Auditors to ensure that provision of  Revise minimum liquidity deposit to such services does not impair the External Responsibilities and Duties of the three slabs based on broker turnover Auditors’ independence. The Committee Committee met with the external auditor during the  The responsibilities and work of the Implement Value at Risk (VaR) and year to discuss their audit approach and Committee were based on the Terms of Extreme Loss Margin (ELM) for procedures, including matters relating Reference (TOR) adopted by the Company crossings and purchase transactions for to the scope of the audit and auditor’s in terms of best practices. the same security and the same client independence. The Risk and Audit that has a cumulative traded value of Committee reviewed the Consolidated The establishment of an appropriate over Rs, 20 Mn for the day. Financial Statement audited by KPMG for risk management framework within the financial year ended 31st December  CSE is among the primary functions of Identify crossings separately with a 2014 and approved the Financial the committee in addition to ensuring trade value over Rs.100 Mn to be Statement for submission to the Board. the integrity of financial statements, settled on gross basis. The Committee reviewed & approved the effectiveness of the system of internal Letter of Representation to be given to the  Ease of access to Settlement controls and internal audit function. External Auditors for the year 2014. Guarantee Fund (SGF) in the event of a settlement failure.

70 Colombo Stock Exchange The Risk and Audit committee has recommended to the Board of Directors the re-appointment of the external Auditor KPMG and fixed the Auditors’ remuneration, for approval at the Annual General Meeting.

Internal Audit The internal audit function is outsourced to Ernst & Young Advisory Services (pvt) Ltd. The Committee approved the internal audit plan for the period from 01st July 2014 to 31st December 2015 and monitored the implementation of the plan. The findings of the internal audit reports together with management comments were reviewed by the committee during the year.

IT System Audit IT System audit was carried out by the KPMG on the recommendation of the committee during the year. The findings of the IT System Audit was reviewed by the Committee and recommended to provide action plans to address the concerns raised for the consideration of the Committee.

Other Activities The Committee has reviewed Budget for the year and recommended for the approval of the Board. The Manual of Procedures on Outsourcing of Functions by the CSE has been reviewed by the Committee and recommended for the approval of the Board.

On behalf of the Risk and Audit Committee;

D. T. W. Thalgodapitiya Chairman – Risk and Audit Committee

Colombo 20th March 2015

Annual Report 2014 71 INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF COLOMBO An audit involves performing procedures to Report on Other Legal and STOCK EXCHANGE obtain audit evidence about the amounts Regulatory Requirements Report on the Financial Statements and disclosures in the financial statements. As required by section 163 (2) of the The procedures selected depend on the We have audited the accompanying Companies Act No. 07 of 2007, we state auditors’ judgment, including the assessment the following: financial statements of Colombo Stock of the risks of material misstatement of the Exchange, (“the Company”), and the financial statements, whether due to fraud a) The basis of opinion and scope and consolidated financial statements of the or error. In making those risk assessments, Company and its subsidiary (“Group”), limitations of the audit are as stated the auditor considers internal control above which comprise the statement of financial relevant to the entity’s preparation of the position as at 31 December 2014, and financial statements that give a true and fair b) In our opinion: the statement of profit or loss and other view in order to design audit procedures comprehensive income, statement of that are appropriate in the circumstances,  we have obtained all the information changes in equity and cash flows statement but not for the purpose of expressing and explanations that were required for the year then ended and a summary an opinion on the effectiveness of the for the audit and as far as appears of significant accounting policies and other entity’s internal control. An audit also from our examination, proper explanatory information. includes evaluating the appropriateness accounting records have been kept by of accounting policies used and the Board’s Responsibility for the the Company. reasonableness of accounting estimates Financial Statements made by Board, as well as evaluating  The financial statements of the The Board of Directors (“Board”) is the overall presentation of the financial Company give a true and fair view responsible for the preparation of these statements. of its financial position as at 31 financial statements that give a true and December 2014 and of its financial fair view in accordance with Sri Lanka We believe that the audit evidence we performance and cash flows for the Accounting Standards and for such internal have obtained is sufficient and appropriate year then ended in accordance with control as Board determines is necessary to provide a basis for our audit opinion. Sri Lanka Accounting Standards. to enable the preparation of financial statements that are free from material Opinion  The financial statements of the misstatement whether due to fraud or In our opinion, the consolidated financial Company, and the Group comply with error. statements give a true and fair view of the requirements of sections 151 and the financial position of the Group as at 153 of the Companies Act No. 07 of Auditors’ Responsibility 31 December 2014 and of its financial 2007. Our responsibility is to express an opinion performance and cash flows for the year on these financial statements based then ended in accordance with Sri Lanka on our audit. We conducted our audit Accounting Standards. in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements CHARTERED ACCOUNTANTS and plan and perform the audit to obtain Colombo reasonable assurance about whether the financial statements are free from material 23rd March 2015 misstatement.

72 Colombo Stock Exchange Statement of Profit 0r Loss and Other Comprehensive Income

Group Company For the Year Ended 31December 2014 2013 2014 2013 Note Rs. Rs. Rs. Rs.

Revenue 4 732,878,407 456,190,018 559,655,316 353,360,615 Other Income 5 227,945,150 314,799,228 200,348,913 274,120,143 960,823,557 770,989,246 760,004,229 627,480,758

Staff Cost 6 (272,068,503) (219,060,273) (250,926,882) (203,459,590) Depreciation & Amortisation (127,219,662) (116,385,978) (127,219,662) (116,385,978) Other Operating Expenses 7 (486,480,073) (408,608,259) (392,322,328) (325,113,330)

Profit / (Loss) before Taxation 75,055,319 26,934,736 (10,464,643) (17,478,140) Income Tax Expense 8 (18,847,780) (22,072,561) - (18,769,070) Profit / (Loss) for the year 56,207,539 4,862,175 (10,464,643) (36,247,210)

Other Comprehensive Income Item that will never be reclassified to Profit or Loss Actuarial Gains / (Losses) on defined benefit plans (11,041,666) 5,693,145 (9,548,569) 4,753,713

Item that are or may be reclassified to Profit or Loss Net Change in Fair Value of Available-for-Sale Financial Assets (9,935,496) 70,005 (7,634,869) 2,487,477 Net Change in Fair Value of Available-for-Sale Financial Assets (5,094,554) (8,837,968) (5,094,554) (8,837,968) Reclassified to Profit or Loss Other Comprehensive Expense Net of Tax (26,071,716) (3,074,818) (22,277,992) (1,596,778)

Total Comprehensive Income / (Expense) for the Year 30,135,823 1,787,357 (32,742,635) (37,843,988)

The Notes annexed form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

Annual Report 2014 73 Statement of Financial Position

Group Company As at 31December 2014 2013 2014 2013 Note Rs. Rs. Rs. Rs.

ASSETS Non Current Assets Property and Equipment 09 241,280,354 297,210,299 241,280,310 297,210,255 Intangible Assets 10 248,817,780 149,407,808 248,817,780 149,407,808 Capital Work in Progress 11 38,893,634 111,704,679 38,893,634 111,704,679 Investments in Subsidiary 12 - - 25,000 25,000 Financial Investments - Available-For-Sale 13 830,391,812 835,043,617 419,707,666 422,058,843 Investments in LFSB 14 1,000,000 1,000,000 - - Settlement Guarantee Fund 15 100,000,000 100,000,000 100,000,000 100,000,000 Total Non Current Assets 1,460,383,580 1,494,366,403 1,048,724,390 1,080,406,585

Current Assets Inventories 3,859,987 4,058,720 3,719,068 3,927,896 Trade and Other Receivables 17 250,804,719 204,162,618 213,597,336 181,559,772 Income Tax Receivable 18,963,038 8,886,697 18,963,038 6,169,068 Financial Assets -Available-for-Sale 13 1,555,833,280 1,448,428,799 1,555,833,280 1,448,428,799 Cash and Cash Equivalents 18 146,353,742 120,937,242 134,835,486 120,556,020 Total Current Assets 1,975,814,766 1,786,474,076 1,926,948,208 1,760,641,555 Total Assets 3,436,198,346 3,280,840,479 2,975,672,598 2,841,048,140

EQUITY AND LIABILITIES Accumulated Fund 3,000,741,538 2,955,575,665 2,550,469,737 2,570,482,949 Other Reserves 19 124,911,516 139,941,566 21,193,463 33,922,886 Total Equity 3,125,653,054 3,095,517,231 2,571,663,200 2,604,405,835

Non Current Liabilities Brokers' Deposits in lieu of Bank Guarantee 20 84,439,970 84,439,970 84,439,970 84,439,970 Retirement Benefit Obligation 21 52,011,600 31,732,649 52,011,600 31,732,649 Total Non Current Liabilities 136,451,570 116,172,619 136,451,570 116,172,619

Current Liabilities Brokers' Deposits in lieu of Bank Guarantee 20 21,542,127 11,330,000 - - Income Tax Payable 15,129,845 - - - Other Payables 22 127,425,050 52,046,403 125,148,225 50,172,397 Amounts due to Related Company 23 - - 132,412,903 64,523,063 Bank Overdraft 18 9,996,700 5,774,226 9,996,700 5,774,226 Total Current Liabilities 174,093,722 69,150,629 267,557,828 120,469,686 Total Equity and Liabilities 3,436,198,346 3,280,840,479 2,975,672,598 2,841,048,140 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 D. T. W. Thalgodapitiya Chairman Director Colombo 20 March 2015 74 Colombo Stock Exchange Statement Of Changes In Equity

GROUP Accumulated Available-for- Capital Reserve Total Equity Fund Sale Reserve Rs. Rs. Rs. Rs.

Balance as at 01 January 2013 2,945,020,345 48,734,529 99,975,000 3,093,729,874

Total Comprehensive Income Profit for the Year 4,862,175 - - 4,862,175 Other Comprehensive Income Net Change in Fair Value of Available-for- Sale Financial Assets - (8,837,968) - (8,837,968) Reclassified to Profit or Loss Actuarial Gain/(Losses) on Retirement Benefit Obligations 5,693,145 - - 5,693,145 Net Change in Fair Value of Available-for- Sale Financial Assets - 70,005 - 70,005 Total Other Comprehensive Income / (Expenses) for the Year 5,693,145 (8,767,963) - (3,074,818) Total Comprehensive Income / (Expenses) for the Year 10,555,320 (8,767,963) - 1,787,357 Balance as at 31 December 2013 2,955,575,665 39,966,566 99,975,000 3,095,517,231

Balance as at 01 January 2014 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 - (5,094,554) - (5,094,554) Reclassified to Profit or Loss Actuarial Gain/(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 / (Expense) for the Year 45,165,873 (15,030,050) - 30,135,823 Balance as at 31 December 2014 3,000,741,538 24,936,516 99,975,000 3,125,653,054

Annual Report 2014 75 Statement Of Changes In Equity

COMPANY Accumulated Available-for- Total Equity Fund Sale Reserve Rs. Rs. Rs.

Balance as at 01 January 2013 2,601,976,446 40,273,377 2,642,249,823 Total Comprehensive Income Profit / (Loss) for the Year (36,247,210) - (36,247,210) Other Comprehensive Income Net Change in Fair Value of Available-for- Sale Financial Assets - (8,837,968) (8,837,968) Reclassified to Profit or Loss Actuarial Gain/(Losses) on Retirement Benefit Obligations 4,753,713 - 4,753,713 Net Change in Fair Value of Available-for- Sale Financial Assets - 2,487,477 2,487,477 Total Other Comprehensive Income / (Expenses) for the Year 4,753,713 (6,350,491) (1,596,778) Total Comprehensive Income / (Expenses) for the Year (31,493,497) (6,350,491) (37,843,988) Balance as at 31 December 2013 2,570,482,949 33,922,886 2,604,405,835

Balance as at 01 January 2014 2,570,482,949 33,922,886 2,604,405,835 Total Comprehensive Income Profit / (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 Gain/(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

The Notes annexed form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

76 Colombo Stock Exchange Statement of Cash Flows

Group Company For the Year Ended 31December 2014 2013 2014 2013 Note Rs. Rs. Rs. Rs.

Cash Flows from Operating Activities Profit / (Loss) before Taxation 75,055,319 26,934,736 (10,464,643) (17,478,140)

Adjustments For : Depreciation / Amortisation 09/10 127,219,662 116,385,978 127,219,662 116,385,978 Interest Income 05 (3,469,380) (104,224,067) (2,763,633) (103,263,939) Profit on Sale of Property & Equipment 05 (1,788,981) 2,142,377 (1,788,981) 2,142,377 Dividend Income 05 (181,573,518) (173,689,954) (158,340,560) (136,355,077) Gratuity Provision 21 9,856,285 7,829,147 9,090,793 7,198,338 Gratuity Provision - Transfer to / (Reversal from) Subsidiary 21 - - 2,258,589 (275,558) Provision / (Reversal) for Impairment of Trade receivables 2,565,440 202,652 171,731 172,040 Operating Profit / (Loss) before Working Capital Changes 27,864,827 (124,419,131) (34,617,042) (131,473,981)

Decrease in Inventories 198,733 367,140 208,828 350,644 Increase in Other Receivables (49,207,541) (7,297,524) (32,209,295) (13,207,036) Increase / (Decrease) in Other Payables 37,278,663 (5,725,556) 36,875,844 (5,873,762) Increase in Amounts due to Related Company - - 67,889,840 40,885,385 Increase / (Decrease) in Brokers' Deposit 10,212,127 (460,000) - - Cash Generated from / (Used in) Operating Activities 26,346,809 (137,535,071) 38,148,175 (109,318,750) Income Tax Paid (13,541,747) (15,280,189) (12,541,699) (5,111,848) Gratuity Paid 21 (619,000) (10,121,130) (619,000) (10,121,130) Net Cash Generated from / (Used in) Operating Activities 12,186,062 (162,936,390) 24,987,476 (124,551,728)

Cash Flows from Investing Activities Interest Income 05 3,216,853 103,876,421 2,511,363 102,916,293 Purchase of Property & Equipment and Intangible Assets 09 (19,425,155) (87,039,360) (19,425,155) (87,039,360) Proceeds from Sale of Property & Equipment 4,796,049 3,439,123 4,796,049 3,439,123 Increase / (Decrease) in Fixed Deposit Investments - 750,000,000 - 750,000,000 Dividend Income 05 181,573,518 173,689,954 158,340,560 136,355,077 (Increase) / Decrease in Investments in Unit Trusts (117,782,727) (639,057,327) (117,782,727) (639,057,327) Capital Work in Progress 11 (43,370,574) (159,965,145) (43,370,574) (159,965,145) Net Cash Generated from / (Used in) Investing Activities 9,007,964 144,943,666 (14,930,484) 106,648,661

Cash Flows from Financing Activities - - - -

Net Increase / (Decrease) in Cash and Cash Equivalents 21,194,026 (17,992,724) 10,056,992 (17,903,067) Cash and Cash Equivalents at beginning of the Year 115,163,016 133,155,740 114,781,794 132,684,861 Net Cash and Cash Equivalents at End of the Year 18 136,357,042 115,163,016 124,838,786 114,781,794

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 20,981,845 7,676,166 16,739,344 7,364,630 RTGS Account 18,200 19,400 - - Short term investment - Overnight Repo 125,123,647 113,011,626 117,871,092 112,966,340 Cash & Cash Equivalents 146,353,742 120,937,242 134,835,486 120,556,020

Bank Overdraft (9,996,700) (5,774,226) (9,996,700) (5,774,226) Net Cash & Cash Equivalents at End of the Year 136,357,042 115,163,016 124,838,786 114,781,794 The Notes annexed form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

Annual Report 2014 77 Notes to the Financial STATEMENTS

1. REPORTING ENTITY issue in accordance with a resolution and its Subsidiary for the year ended 1.1. Domicile and Legal Form of the Board of Directors on 31 December 2014. The Financial Colombo Stock Exchange is a 20th March 2015 Statements of the Company’s Company Limited by Guarantee Subsidiary for the purpose of incorporated & domiciled in Sri Lanka. 2.2. Basis of Measurement consolidation is prepared for the same The registered office of the Company The Financial Statements have been reporting year as that of Colombo is located at 4 - 01, West Block, prepared on the historical cost basis Stock Exchange using consistent World Trade Center, Echelon Square, except for the Available-for-sale accounting policies. Colombo 01 and the principal place Financial Asset which is measured at of business is also situated at the same Fair value. 3.1.1. Business Combinations place. Business combinations are accounted 2.3. Functional and Presentation for using the acquisition method as The Consolidated Financial Currency at the acquisition date – i.e. when Statements of the Company as at The Financial Statements are control is transferred to the Group. and for the year ended 31 December presented in Sri Lanka Rupees, which The consideration transferred in the 2014 comprise the Company and is the Company’s functional currency. acquisition is generally measured Central Depository Systems (Private) Financial information presented in Sri at fair value, as are the identifiable Limited which was incorporated Lanka Rupees has been rounded to net assets acquired. Any goodwill on 02 September 1991 as a wholly the nearest rupee. that arises is tested annually for Owned subsidiary of Colombo Stock impairment. Any gain on a bargain Exchange. 2.4. Significant Accounting Judgments, purchase is recognised in profit or Estimates and Assumptions loss immediately. Transaction costs are 1.2. Principal Activities and Nature of The preparation of Financial expensed as incurred, except if they Operations Statements requires management are related to the issue of debt or The principal activity of the Company to make judgments, estimates and equity securities. is the operation of a Stock Exchange. assumptions that affect the application The subsidiary operates a clearing and of accounting policies and the The consideration transferred settlement of securities system for reported amounts of Assets, Liabilities, does not include amounts related equities traded in the Colombo Stock Income and Expenses. Actual results to the settlement of pre-existing Exchange and acts as a depository for may differ from these estimates. relationships. Such amounts are such securities. generally recognised in profit or loss. Estimates and underlying assumptions 2. BASIS OF PREPARATION are reviewed on an ongoing basis. Any contingent consideration payable 2.1. Statement of Compliance Revisions to accounting estimates are is measured at fair value at the The Consolidated Financial recognised in the period in which the acquisition date. If the contingent Statements which comprise the estimate is revised and in any future consideration is classified as equity, Statement of Financial Position, periods affected. then it is not remeasured and Statement of Profit or Loss and Other settlement is accounted for within Comprehensive Income, Statement 3. SIGNIFICANT ACCOUNTING equity. Otherwise, subsequent changes of Changes in Equity, Statement POLICIES in the fair value of the contingent of Cash Flows and Notes to the The accounting policies set out consideration are recognised in profit Financial Statements thereto have below have been applied consistently or loss. been prepared in accordance with to all periods presented in these the Sri Lanka Accounting Standards consolidated financial statements, and 3.1.2. Non-Controlling Interests (SLFRSs and LKASs) laid down by the have been applied consistently by NCI are measured at their Institute of Chartered Accountants Group entities, except for the new proportionate share of the of Sri Lanka, and comply with the standards adopted from this year (see acquiree’s identifiable net assets at requirements of Companies Act No Note 3.12) the acquisition date. Changes in the 07 of 2007. Group’s interest in a subsidiary that 3.1. Basis of Consolidation do not result in a loss of control are The Financial Statements of Colombo The Financial Statements of the accounted for as equity transactions. Stock Exchange for the year ended 31 Company and Group comprise the December 2014 were authorised for Financial Statements of the Company

78 Colombo Stock Exchange 3.1.3. Subsidiaries the voting power of another entity. they are originated. All other financial ‘Subsidiaries’ are investees controlled Investments in associate’s entities assets (including assets designated as by the Group. The Group ‘controls’ are accounted for using the equity at fair value through profit or loss) an investee if it is exposed to, or has method (equity-accounted investees) are recognised initially on the trade rights to, variable returns from its and are recognised initially at cost. date, which is the date that the Group involvement with the investee and The cost of the investment includes becomes a party to the contractual has the ability to affect those returns transaction costs. provisions of the instrument. through its power over the investee. The financial statements of subsidiaries The Consolidated Financial The Group derecognises a financial are included in the consolidated Statements include the Company’s asset when the contractual rights to financial statements from the date on share of the profit or loss and the cash flows from the asset expire, which control commences until the other comprehensive income, after or it transfers the rights to receive the date when control ceases. adjustments to align the accounting contractual cash flows in a transaction policies with those of the Group, in which substantially all the risks and 3.1.4. Loss of control from the date that significant influence rewards of ownership of the financial When the Group loses control over commences until the date that assets are transferred. Any interest in a subsidiary, it derecognises the assets significant influence ceases. such transferred financial assets that and liabilities of the subsidiary, and any is created or retained by the Group related NCI and other components When the Company’s share of losses is recognised as a separate asset or of equity. Any resulting gain or loss exceeds its interest in an equity- liability. is recognised in profit or loss. Any accounted investee, the carrying interest retained in the former amount of that interest, including any Financial assets and liabilities are offset subsidiary is measured at fair value long-term investments, is reported and the net amount presented in the when control is lost. at nil, and the recognition of further statement of financial position when, losses is discontinued except to and only when, the Group has a 3.1.5. Transactions eliminated on the extent that the Group has an legal right to offset the amounts and consolidation obligation or has made payments on intends either to settle them on a net Intra-group balances and transactions, behalf of the investee. If the associate basis or to realise the asset and settle and any unrealised income and subsequently reports profits, the the liability simultaneously. expenses (except for foreign currency Company resumes recognising its transaction gains or losses) arising share of those profits only after its The Group classifies non-derivative from intra-group transactions, share of the profits equals the share financial assets into the following are eliminated in preparing the of losses not recognised. categories: financial assets at fair value consolidated financial statements. through profit or loss, held-to-maturity Unrealised gains and losses resulting 3.2. Foreign Currency Transactions financial assets, loans and receivables from transactions between the Group Transactions in foreign currencies are and available-for-sale financial assets. and its Associates are also eliminated translated to Sri Lankan Rupees at in preparing the consolidated financial the foreign exchange rate ruling at • Financial Assets at Fair Value through statements to the extent of the the date of the transaction. Monetary Profit or Loss Group’s interests in the Associates. assets and liabilities denominated in A financial asset is classified as at foreign currencies at the Reporting fair value through profit or loss if Unrealised losses are eliminated in Date are translated to Sri Lankan it is classified as held-for-trading the same way as unrealised gains, but Rupees at the foreign exchange rates or is designated as such on initial only to the extent that there is no ruling at that date. recognition. Financial assets are evidence of impairment. designated as at fair value through Foreign exchange differences arising profit or loss if the Group manages 3.1.6. Associates on translation are recognised in the such investments and makes purchase Associates are those entities in which profit or loss. and sale decisions based on their fair the Group has significant influence, value in accordance with the Group’s but not control, over the financial and 3.3. Financial Instruments documented risk management or operating policies. Significant influence 3.3.1 Non Derivative Financial Assets investment strategy. is presumed to exist when the Group The Group initially recognises loans holds between 20% and 50% of and receivables on the date that

Annual Report 2014 79 Notes to the Financial STATEMENTS

Attributable transaction costs are • Available for Sale Financial Assets 3.4. Property and Equipment recognised in profit or loss as Available-for-sale financial assets are 3.4.1. Recognition and Measurement incurred. Financial assets at fair value non-derivative financial assets that Property and equipment are stated through profit or loss are measured are designated as available-for-sale or at cost less accumulated depreciation at fair value and changes therein, are not classified in any of the above and any impairment losses. which takes into account any dividend categories of financial assets. Available- income, are recognised in profit or for-sale financial assets are recognised Cost includes expenditure that loss. initially at fair value plus any directly is directly attributable to the attributable transaction costs. acquisition of the asset. The cost of • Loans and Receivables self – constructed assets includes the Loans and receivables are financial Subsequent to initial recognition, they costs of materials and direct labour, assets with fixed or determinable are measured at fair value and changes any other costs directly attributable payments that are not quoted in therein, other than impairment losses to bringing the asset to a working an active market. Such assets are and foreign currency differences on condition for its intended use, and the recognised initially at fair value plus available-for-sale debt instruments, are cost of dismantling and removing the any directly attributable transaction recognised in other comprehensive items and restoring the site on which costs. Subsequent to initial recognition, income. they are located. Purchased software loans and receivables are measured that is integral to the functionality of at amortised cost using the effective When an investment is derecognised, the related equipment is capitalised as interest method, less any impairment the gain or loss accumulated in equity part of that equipment. losses. The losses arising from is reclassified to profit or loss. impairment are recognised in profit or Where parts of an item of property loss. 3.3.2 Non Derivative Financial Liabilities and equipment have different useful All financial liabilities are recognised lives, they are accounted for as • Held to Maturity Financial Assets initially on the trade date, which is the separate items (major components) of property and equipment. If the Group has the positive intent date that the Group becomes a party and ability to hold securities to to the contractual provisions of the Gains and losses on disposal of an maturity, then such financial assets instrument. The Group derecognises item of property and equipment are classified as held-to-maturity. a financial liability when its contractual are determined by comparing the Held-to-maturity financial assets are obligations are discharged, cancelled proceeds from disposal with the recognised initially at fair value plus or expire. carrying amount of property and any directly attributable transaction equipment, and are recognised net costs. Subsequent to initial recognition, The Group classifies non-derivative within the “other income” in profit or held-to-maturity financial assets are financial liabilities into the other loss. measured at amortised cost using financial liabilities category. Such the effective interest method, less any financial liabilities are recognised 3.4.2. Subsequent Costs impairment losses. The losses arising initially at fair value less any directly The cost of replacing part of an from impairment of such investments attributable transaction costs. item of property and equipment is are recognised in profit or loss. Subsequent to initial recognition, recognised in the carrying amount of the item, if it is probable that the • Cash and Cash Equivalents these financial liabilities are measured at amortised cost using the effective future economic benefits embodied Cash and cash equivalents comprise interest method. within the part will flow to the Group cash balances and call deposits and its cost can be measured reliably. with maturities of three months Other financial liabilities comprise The costs of the day - to – day or less from the acquisition date of bank overdrafts, trade and other servicing of property and equipment that are subject to an insignificant payables and brokers’ liquidity deposits are recognised in the profit or loss as risk of changes in their fair value, payables. incurred. and are used by the Group in the management of its short-term commitments.

80 Colombo Stock Exchange 3.4.3. Depreciation 3.5.2. Subsequent Expenditure impaired if there is objective evidence Depreciation is charged to the profit Subsequent Expenditure on Intangible of impairment as a result of one or or loss on a straight-line basis over Assets is capitalised only when it more events that occurred after the the estimated useful lives of each increases the future economic benefits initial recognition of the asset, and that part of an item of property and embodied in these assets. All other loss event(s) had an impact on the equipment. Items of property, plant expenditure is expensed as incurred. estimated future cash flows of that and equipment are depreciated asset that can be estimated reliably. from the date they are available for 3.5.3. Research and Development Costs use or, in respect of self-constructed Expenditure on research activities, Objective evidence that financial assets, from the date that the asset is undertaken with the prospect of assets are impaired includes default or completed and ready for use. gaining new scientific or technical delinquency by a debtor, restructuring knowledge and understanding, of an amount due to the Group on The estimated useful lives are as is recognised in profit or loss as terms that the Group would not follows: incurred. Development activities consider otherwise, indications that a involve a plan or design for the debtor or issuer will enter bankruptcy, Furniture & Fittings 6 – 7 years production of new or substantially adverse changes in the payment status Computers & improved products and processes. of borrowers or issuers, economic Office Equipment 5 years Development expenditure is conditions that correlate with defaults Motor Vehicles 5 years capitalised only if development or the disappearance of an active Telephones 4 years costs can be measured reliably, the market for a security. In addition, for product or process is technically and an investment in an equity security, a Depreciation methods, useful lives commercially feasible, future economic significant or prolonged decline in its and residual values are reviewed at benefits are probable, and the Group fair value below its cost is objective each reporting date and adjusted intends to and has sufficient resources evidence of impairment. appropriately. to complete development and to use or sell the asset. The expenditure • Financial Assets Measured at 3.4.4. Capital Work-in-Progress capitalised includes the cost of Amortised Cost Capital work-in-progress is stated at materials, direct labour, overhead The Group considers evidence cost. These are expenses of a capital costs that are directly attributable to of impairment for financial assets nature directly incurred for system preparing the asset for its intended measured at amortised cost (loans development. use, and capitalised borrowing costs. and receivables and held-to-maturity Other development expenditure financial assets) at both a specific asset 3.5. Intangible Assets is recognised in profit or loss as and collective level. All individually An Intangible Asset is recognised if incurred. significant assets are assessed for it is probable that future economic specific impairment. Those found benefits that are attributable to the Capitalised development expenditure not to be specifically impaired are asset will flow to the enterprise and is measured at cost less accumulated then collectively assessed for any the cost of the asset can be measured amortisation and any accumulated impairment that has been incurred reliably in accordance with the LKAS impairment losses. but not yet identified. 38, Intangible Assets. Accordingly, these assets are measured at cost less 3.6. Inventories Assets that are not individually accumulated amortisation and any Inventories include stationeries, stamps significant are collectively assessed accumulated impairment losses. and data wall spares and measured at for impairment by grouping together the lower of cost and net realisable assets with similar risk characteristics. 3.5.1. Amortisation value. Intangible Assets are amortised • Available-for-Sale Financial Assets 3.7. Impairment of Assets on a straight-line basis to profit or Impairment losses on available-for- 3.7.1 Non-derivative Financial Assets loss, from the date when the asset sale financial assets are recognised by A financial asset not classified as at fair is available for use, over the best reclassifying the losses accumulated value through profit or loss is assessed estimate of its useful economic life. in the fair value reserve in equity at each reporting date to determine to profit or loss. The cumulative whether there is objective evidence The estimated useful life of Computer loss that is reclassified from equity Software is 5 years. that it is impaired. A financial asset is

Annual Report 2014 81 Notes to the Financial STATEMENTS

to profit or loss is the difference cash inflows from continuing use that However under the Payment of between the acquisition cost, net are largely independent of the cash Gratuity Act No.12 of 1983, the of any principal repayment and inflows of other assets or CGUs. liability to an employee arises only on amortisation, and the current fair completion of five years of continued value, less any impairment loss 3.8. Employee Benefits service. recognised previously in profit or loss. 3.8.1. Short – Term Employee Benefits Changes in cumulative impairment Short-term employee benefit The Group recognises all Actuarial losses attributable to application of obligations are measured on an Gains / (Losses) arising from Defined the effective interest method are undiscounted basis and are expensed Benefit plans immediately in Other reflected as a component of interest as the related service is provided. A Comprehensive Income and Expenses income. If, in a subsequent period, the liability is recognised for the amount related to Defined Benefit in fair value of an impaired available-for- expected to be paid under short- employee benefits in profit or loss. sale debt security increases and the term cash bonus plans if the Group increase can be related objectively has a present legal or constructive The liability is not externally funded. to an event occurring after the obligation to pay this amount as a impairment loss was recognised, result of past service provided by the 3.9. Provisions then the impairment loss is reversed, employee, and the obligation can be A provision is recognised if the Group with the amount of the reversal estimated reliably. has a present legal or constructive recognised in profit or loss. However, obligation as a result of a past event, any subsequent recovery in the fair 3.8.2. Defined Contribution Plan – and it is probable that an outflow of value of an impaired available-for-sale Employees’ Provident Fund and economic benefits will be required to equity security is recognised in other Employees’ Trust Fund settle the obligation. comprehensive income. A defined contribution plan is a post employment benefit plan under which 3.10. Revenue 3.7.2. Non-Financial Assets an entity pays fixed contribution into Revenue is recognised to the extent The carrying amounts of the Group’s separate entity and will have no legal that it is probable that the economic non-financial assets, other than or constructive obligation to pay benefits will flow to the group and the inventories and deferred tax assets, further amounts. revenue can be reliably measured. are reviewed at each reporting date to determine whether there is any All employees who are eligible for 3.10.1. CSE & CDS Fees indication of impairment. If any such Employees’ Provident Fund and CSE & CDS fees on securities traded indication exists, then the asset’s Employees’ Trust Fund are covered by on the stock exchange are recognised recoverable amount is estimated. relevant contributions to the defined on a trade date basis. Goodwill and indefinite-lived contribution plans and are recognised intangible assets are tested annually as an expense in profit or loss when 3.10.2. Listing Fees for impairment. An impairment loss incurred. Annual listing fees are recognised on is recognised if the carrying amount an accrual basis and charged annually of an asset or cash-generating unit (a) Employees’ Provident Fund from Listed Companies a fee of (CGU) exceeds its recoverable The Company and employee Rs.50,000/- or 0.003% of the market amount. contribute 12% and 8% respectively Capitalisation of the Listed Entity on the basic salary of each employee as at 31st December of the year The recoverable amount of an asset to the employees’ approved provident immediately preceding, whichever is or CGU is the greater of its value in fund. higher, subject to a maximum of use and its fair value less costs to sell. Rs. 1,000,000/- In assessing value in use, the estimated (b) Employees’ Trust Fund future cash flows are discounted to 3.10.3. Quotation Fees The Company contributes 3% of the their present value using a pre-tax The initial listing fee payable when the basic salary of each employee to the discount rate that reflects current ordinary voting shares of an Entity are employee’s trust fund. market assessments of the time value listed on the Exchange and recognised of money and the risks specific to the upon the listing of an applicant. 3.8.3. Defined Benefits Plan – Gratuity asset or CGU. For impairment testing, As required by LKAS -19 “Employee assets are grouped together into the Additional listing fees are recognised Benefits”, which the Company has smallest group of assets that generates for a further issue of Securities by provided for gratuity liability based on the gratuity formula method.

82 Colombo Stock Exchange way of rights issue of shares, issues of 3.11.1. Current Taxation Deferred tax assets and liabilities are shares credited as fully paid-up by way Current tax is the expected tax offset if there is a legally enforceable of capitalisation of reserves, issues of payable on the taxable income for right to offset current tax liabilities shares through private placements, the year, using tax rates enacted and assets, and they relate to taxes scrip dividend, share swaps & ESOP as or substantively enacted on the levied by the same tax authority per listing rules. Reporting Date, and any adjustment on the same taxable entity, or on to tax payable in respect of previous different tax entities, but they intend 3.10.4. Brokers’ Fees years. to settle current tax liabilities and Monthly subscription fees from assets on a net basis or their tax brokers are recognised on an accrual Provision for taxation is based on assets and liabilities will be realised basis. the profit for the year adjusted for simultaneously. taxation purposes in accordance with 3.10.5. Charges for Computer Information the provision of the Inland Revenue A deferred tax asset is recognised The CDS charge a fee on a pre- Act No. 10 of 2006 and subsequent for unused tax losses, tax credits and determined basis from Listed amendments thereto. deductible temporary differences to Companies for the service rendered the extent that it is probable that pertaining to providing information The Company is Liable for income future taxable profits will be available and fees are recognised on an accrual tax at the rate of 28% on the taxable against which they can be utilised. basis. profit. Deferred tax assets are reviewed at each reporting date and are reduced 3.10.6. Listed Company Fees 3.11.2. Deferred Taxation to the extent that it is no longer Listed Company Fee is charged based Deferred tax assets are reviewed probable that the related tax benefit on the number of trades and Rs.15/- at each reporting date and are will be realised. will be charged per trade, subject to a reduced to the extent that it is no minimum charge of Rs.10,000/- and a longer probable that the related tax 3.11.3. Other Tax Exposures maximum charge of Rs.500,000/- per benefit will be realised. Deferred tax In determining the amount of current annum. is recognised in respect of temporary and deferred tax, the Group takes differences between the carrying into account the impact of uncertain 3.10.7. Other Income amounts of assets and liabilities for tax positions and whether additional • Dividend from unit trust is recognised financial reporting purposes and the taxes and interest may be due. This in profit or loss on an accrual basis amounts used for taxation purposes. assessment relies on estimates and when the Company’s right to receive assumptions and may involve a series the dividend is established. The measurement of deferred tax of judgments about future events. reflects the tax consequences that New information may become • Interest income is recognised in profit would follow the manner in which available that causes the Company or loss as it accrues, using the effective the Group expects, at the end of the to change its judgment regarding the interest method. reporting period, to recover or settle adequacy of existing tax liabilities; such the carrying amount of its assets and changes to tax liabilities will impact • Gain on disposal of property, plant liabilities. For investment property tax expense in the period that such a and equipment have been accounted that is measured at fair value, the determination is made. for in profit or loss, after deducting presumption that the carrying amount from the net sales proceeds on of the investment property will be 3.11.3.1Withholding Tax on Dividends disposal of the carrying amount of recovered through sale has not been Distributed by Subsidiary such assets. rebutted. Dividend distributed out of profit of the Subsidiary attracts 10% deduction 3.11. Taxation Deferred tax is measured at the tax at source and is not available for As per Sri Lanka Accounting Standard rates that are expected to be applied set off against the tax liability of the (LKAS 12) – “Income taxes”, tax to temporary differences when they Colombo Stock Exchange. Thus the expense is the aggregate amount reverse, using tax rates enacted or withholding tax deducted at source included in determination of profit substantively enacted at the reporting is added to the expense of the or loss for the period in respect of date. Subsidiary Company in the Group current and deferred taxes. Income Financial Statements as a consolidation tax expense is recognised in the adjustment. income statement.

Annual Report 2014 83 Notes to the Financial STATEMENTS

3.11.3.2 Economic Service Charge (ESC) 3.12.3. SLFRS 12 - Disclosure of Interests in SLFRS 9 is effective for annual period As per the provisions of Economic Other Entities beginning on or after 1st January 2018 Service Charge Act No. 13 of 2006 As a result of SLFRS 12, the Group with early adoption permitted. and subsequent amendments thereto, has expanded disclosures about its ESC is payable on the liable turnover interests in subsidiaries and associates. The Group is assessing the potential at specified rates. ESC is deductible impact on its Consolidated Financial from the income tax liability. Any 3.12.4. SLFRS 13 - Fair Value Measurement Statements resulting from the of unclaimed amount can be carried In accordance with the transitional SLFRS 9. Given the nature of the forward. provisions of SLFRS 13, the Group Group’s operations, this standard is has applied the new definition expected to have a pervasive impact 3.11.3.3 Value Added Tax (VAT) of fair value, as set out in Note on the Group’s financial statements. Value Added Tax is calculated in 3.14, prospectively. The change accordance with Value Added Tax had no significant impact on the 3.13.3. SLFRS 15 – Revenue Recognition Act No 14 of 2002 and subsequent measurements of the Group’s from Customer Contracts amendments thereto. VAT is payable assets and liabilities, but the group SLFRS 15 – “Revenue from Contracts at 12%. (w.e.f 2015 – 11%) has included new disclosures in with Customers” establishes a the financial statements, which are comprehensive framework for 3.11.3.4 Nation Building Tax (NBT) required under SLFRS 13. These determining whether, how much As per the provisions of the Nation new disclosure requirements are and when revenue is recognised. It Building Tax Act, No. 9 of 2009 and not included in the comparative replaces existing revenue recognition the subsequent amendments thereto, information. However, to the extent guidance LKAS 18 Revenue, LKAS 11 Nation Building Tax should be payable that disclosures were required by Construction Contracts. at the rate of 2% with effect from 1 other standards before the effective January 2011 on the liable turnover as date of SLFRS 13, the Group has SLFRS 15 is effective for annual per the relevant provisions of the Act. provided the relevant comparative reporting period beginning on or after disclosures under those standards. 1st January 2017, with early adoption 3.12. New Accounting Standards Adopted permitted. from this Year 3.13. New Accounting Standards Issued The Group has adopted the following but not Effective 3.14. Determination of fair values new standards and amendments to The Institute of Chartered Policy applicable from 1 January standards, including any consequential Accountants of Sri Lanka has 2014 amendments to other standards, with issued the following new Sri Lanka ‘Fair value’ is the price that would a date of initial application of 1 January Accounting Standard which will be received to sell an asset or paid 2014. become applicable for financial to transfer a liability in an orderly periods beginning on or after 1st transaction between market 3.12.1. SLFRS 10-Consolidated Financial January 2015. Accordingly, the participants at the measurement date Statements Group has not applied the following in the principal or, in its absence, the As a result of SLFRS 10, the Group new standards in preparing these most advantageous market to which has changed its accounting policy for consolidated financial statements. the Group has access at that date. The determining whether it has control fair value of a liability reflects its non over and consequently whether it 3.13.1 SLFRS 9-Financial Instruments performance risk. consolidates other entities. SLFRS 10 SLFRS 9 – “Financial Instruments” introduces a new control model that replaces the existing guidance in When available, the Group measures focuses on whether the Group has LKAS 39 – Financial Instruments: the fair value of an instrument using power over an investee, exposure Recognition and Measurement. the quoted price in an active market or rights to variable returns from its SLFRS 9 includes revised guidance on for that instrument. A market is involvement with the investee and the the classification and measurement regarded as active if transactions for ability to use its power to affect those of financial instruments including a the asset or liability take place with returns. new expected credit loss model for sufficient frequency and volume to calculating impairment on financial provide pricing information on an The change did not have a material assets. ongoing basis. impact on the Group’s financial statements.

84 Colombo Stock Exchange If there is no quoted price in an portfolio-level adjustments are given or received. However, in some active market, then the Group uses allocated to the individual assets cases the initial estimate of fair value valuation techniques that maximise and liabilities on the basis of the of a financial instrument on initial the use of relevant observable inputs relative risk adjustment of each of the recognition may be different from and minimise the use of unobservable individual instruments in the portfolio. its transaction price. If this estimated inputs. The chosen valuation technique fair value is evidenced by comparison incorporates all of the factors that The fair value of a demand deposit with other observable current market participants would take into is not less than the amount payable market transactions in the same account in pricing a transaction. on demand, discounted from the first instrument (without modification or date on which the amount could be repackaging) or based on a valuation The best evidence of the fair value required to be paid. technique whose variables include of a financial instrument at initial only data from observable markets, recognition is normally the transaction The Group recognises transfers then the difference is recognised in price – i.e. the fair value of the between levels of the fair value profit or loss on initial recognition consideration given or received. If hierarchy as of the end of the of the instrument. In other cases, the Group determines that the fair reporting period during which the the fair value at initial recognition is value at initial recognition differs change has occurred. considered to be the transaction price from the transaction price and the and the difference is not recognised fair value is evidenced neither by a Policy applicable before 1 January in profit or loss immediately but quoted price in an active market for 2014 is recognised over the life of the an identical asset or liability nor based ‘Fair value’ is the amount for which an instrument on an appropriate basis on a valuation technique that uses asset could be exchanged, or a liability or when the instrument is redeemed, only data from observable markets, settled, between knowledgeable, transferred or sold, or the fair value then the financial instrument is initially willing parties in an arm’s length becomes observable. measured at fair value, adjusted to transaction on the measurement date. defer the difference between the fair If an asset or a liability measured at value at initial recognition and the When available, the Group measures fair value has a bid price and an ask transaction price. Subsequently, that the fair value of an instrument using price, then the Group measures assets difference is recognised in profit or quoted prices in an active market for and long positions at a bid price and loss on an appropriate basis over the that instrument. A market is regarded liabilities and short positions at an ask life of the instrument but no later as active if quoted prices are readily price. Where the Group has positions than when the valuation is wholly and regularly available and represent with offsetting risks, mid-market prices supported by observable market data actual and regularly occurring market are used to measure the offsetting or the transaction is closed out. transactions on an arm’s length basis. risk positions and a bid or ask price adjustment is applied only to the net If an asset or a liability measured at If a market for a financial instrument is open position as appropriate. fair value has a bid price and an ask not active, then the Group establishes price, then the Group measures assets fair value using a valuation technique. The fair value of a demand deposit and long positions at a bid price and The chosen valuation technique is not less than the amount payable liabilities and short positions at an ask makes maximum use of market inputs, on demand, discounted from the first price. relies as little as possible on estimates date on which the amount could be specific to the Group, incorporates required to be paid. Portfolios of financial assets and all factors that market participants financial liabilities that are exposed would consider in setting a price and to market risk and credit risk that is consistent with accepted economic are managed by the Group on the methodologies for pricing financial basis of the net exposure to either instruments. market or credit risk are measured on the basis of a price that would be The best evidence of the fair value received to sell a net long position (or of a financial instrument at initial paid to transfer a net short position) recognition is the transaction price – for a particular risk exposure. Those i.e. the fair value of the consideration

Annual Report 2014 85 Notes to the Financial STATEMENTS

Group Company For the Year Ended 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

04 Revenue CSE & CDS Fees 614,234,692 350,896,279 476,293,321 272,562,133 Listing Fees 52,730,957 50,844,273 52,730,957 50,844,273 Quotation Fees 5,250,001 5,550,000 5,250,001 5,550,000 Brokers' Fees 23,406,896 22,106,919 23,406,896 22,106,919 Charges for Remote Data Link 1,075,916 1,044,000 1,075,916 1,044,000 Charges for Computer Information 6,943,625 1,253,290 898,225 1,253,290 Listed Company Fees 29,236,320 20,788,840 - - CDS Statement Fees - 3,706,417 - - 732,878,407 456,190,018 559,655,316 353,360,615

05 Other Income Interest Income 3,469,380 104,224,067 2,763,633 103,263,939 Dividend Income - Unit Trusts 181,573,518 173,689,954 149,340,560 127,355,077 Dividend Income - CDS - - 9,000,000 9,000,000 Profit/(Loss) on Disposal of Property & Equipment 1,788,981 (2,142,377) 1,788,981 (2,142,377) Miscellaneous Income 36,018,717 30,189,616 32,361,185 27,805,536 Net Gain on Disposal of Available-For-Sale Financial Assets 5,094,554 8,837,968 5,094,554 8,837,968 227,945,150 314,799,228 200,348,913 274,120,143

06 Staff Cost Salaries 215,406,920 186,733,698 199,796,953 174,118,296 Staff Bonus 31,444,636 12,553,302 28,915,016 11,772,718 Terminal Benefits (Gratuity) 9,931,797 7,829,147 9,090,793 7,198,339 Staff Welfare 7,878,493 5,173,770 6,625,546 4,361,800 Medical Expenses 3,308,031 2,852,134 2,919,206 2,542,491 Transport & Traveling 4,098,626 3,918,222 3,579,368 3,465,946 272,068,503 219,060,273 250,926,882 203,459,590

The Number of Employees at the end of the Year 2014 was 146 (140 in 2013).

86 Colombo Stock Exchange Group Company For the Year Ended 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

07 Other Operating Expenses Rent 118,451,343 103,147,158 100,405,447 87,087,730 Administration Expenses 47,781,593 51,006,409 30,762,614 33,549,904 Data Communication Charges 32,191,113 30,305,993 32,103,103 30,221,502 CDS Statement Expenses 13,199,694 12,650,067 - - Stationery Expenses 4,460,031 4,589,086 3,007,501 1,464,689 Maintenance Expenses 85,693,396 61,077,042 67,215,104 47,021,099 Issuer Marketing Expenses 5,786,430 - 4,812,074 - Donation 1,349,820 4,717,854 1,349,820 4,717,854 Training Expenses 4,051,480 2,842,162 3,385,687 2,373,236 Conference Expenses 3,292,088 - 2,749,902 - Nation Building Tax 12,537,710 7,088,401 9,722,562 5,510,177 Investor Education & Foreign Road Show Expenses 81,340,983 63,235,952 63,717,060 48,578,941 Publication & Website Expenses 26,083,427 27,798,891 26,055,190 27,539,293 Incentive Scheme for Brokers to open Branch Offices 1,153,717 899,000 1,153,717 899,000 Directors' Expenses 3,903,000 3,886,000 3,903,000 3,886,000 Auditors' Remuneration 838,096 1,020,446 507,384 653,569 Fees Paid to Auditors for Non-Audit Services 384,000 462,829 198,000 412,825 Legal Fees 4,031,661 5,230,362 3,985,061 5,230,362 Professional Charges & Subscription 37,385,051 28,447,955 37,117,371 25,795,109 Provision for Bad Debt 2,565,440 202,652 171,731 172,040 486,480,073 408,608,259 392,322,328 325,113,330

Annual Report 2014 87 Notes to the Financial STATEMENTS

08 Taxation

Group Company 2014 2013 2014 2013 Rs. Rs. Rs. Rs. 08.1 Income tax Expense Current tax expense 17,847,780 17,882,011 - 15,665,396 Under / (Over) Provision for taxes - 86,876 - - 17,847,780 17,968,887 - 15,665,396 Deferred tax expense (Note 16) - 3,103,674 3,103,674 Taxes on dividends 1,000,000 1,000,000 - - 18,847,780 22,072,561 - 18,769,070

08.2 Reconciliation on Accounting Profit to Income Tax Accounting Profit/(Loss) before taxation 75,055,319 26,934,736 (10,464,643) (17,478,140)

Adjustment on Disallowable Expenses 168,227,603 150,240,800 162,976,922 147,615,653 Adjustment on Allowable Expenses (195,261,890) 130,900.631 (163,027,042) (201,582,540) Exempt Income (155,240,560) (147,908,185) (155,240,560) (147,908,185) Income not form an part of total Statutory Income (9,000,000) (9,000,000) (9,000,000) (9,000,000) Statutory Income (116,219,528) (110,633,280) (174,755,323) (228,353,212)

Other Sources of Income 2,763,633 103,263,939 2,763,633 103,263,939 Royalty Paid (9,898,250) (11,173,720) (9,898,250) (11,173,720) Tax Loss Utilised - (36,142,379) - (36,142,379) Loss from other sources of Income (7,134,617) 55,947,840 (7,134,617) 55,947,840

Income Tax at 28% (Note 8.3) 17,847,780 17,882,011 - 15,665,396 Income Tax on Current year Profit 17,847,780 17,882,011 - 15,665,396

08.3 Tax has been provided at the rate of 28% in respect of CSE & CDS for the Financial Year 2014 (28% in 2013).

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.252,270/- ( Rs. 347,646/- in 2013).

88 Colombo Stock Exchange 09 Property & Equipment

GROUP Furniture & Computers Motor Vehicles Telephones Total Fittings & Office Equipment Cost Rs. Rs. Rs. Rs. Rs.

As at 01 January 2014 157,437,629 436,624,524 22,134,487 15,491,935 631,688,575 Additions 1,113,142 15,209,526 - 2,090,494 18,413,162 Transfers from Capital Work in Progress - 6,762,283 - - 6,762,283 Disposals (75,136) (2,158,269) (8,885,000) (80,991) (11,199,396) As at 31 December 2014 158,475,635 456,438,064 13,249,487 17,501,438 645,664,624

Accumulated Depreciation As at 01 January 2014 59,607,595 255,288,227 9,794,947 9,787,507 334,478,276 Charge for the year 17,625,221 54,464,300 3,081,638 2,927,163 78,098,322 Disposals (75,135) (2,150,176) (5,938,333) (28,684) (8,192,328) As at 31 December 2014 77,157,681 307,602,351 6,938,252 12,685,986 404,384,270

Net Book Value As at 31 December 2014 81,317,954 148,835,713 6,311,235 4,815,452 241,280,354 As at 31 December 2013 97,830,034 181,336,297 12,339,540 5,704,428 297,210,299

COMPANY Furniture & Computers Motor Vehicles Telephones Total Fittings & Office Equipment Cost Rs. Rs. Rs. Rs. Rs.

As at 01 January 2014 157,046,312 433,627,367 22,134,487 15,431,085 628,239,251 Additions 1,113,142 15,209,526 - 2,090,494 18,413,162 Transfers from Capital Work in Progress - 6,762,283 - - 6,762,283 Disposals (75,136) (2,158,269) (8,885,000) (80,991) (11,199,396) As at 31 December 2014 158,084,318 453,440,907 13,249,487 17,440,588 642,215,300

Accumulated Depreciation As at 01 January 2014 59,216,302 252,291,088 9,794,947 9,726,659 331,028,996 Charge for the year 17,625,221 54,464,300 3,081,638 2,927,163 78,098,322 Disposals (75,135) (2,150,176) (5,938,333) (28,684) (8,192,328) As at 31 December 2014 76,766,388 304,605,212 6,938,252 12,625,138 400,934,990

Net Book Value As at 31 December 2014 81,317,930 148,835,695 6,311,235 4,815,450 241,280,310 As at 31 December 2013 97,830,010 181,336,279 12,339,540 5,704,426 297,210,255

Annual Report 2014 89 Notes to the Financial STATEMENTS

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

10 Intangible Assets Cost Balance as at 01 January 340,210,230 307,619,810 340,210,230 307,619,810 Acquisition and Transfers during the year 148,531,313 32,590,420 148,531,313 32,590,420 Balance as at 31 December 488,741,543 340,210,230 488,741,543 340,210,230

Accumulated Amortisation Balance as at 01 January 190,802,422 146,509,667 190,802,422 146,509,667 Charge for the year 49,121,341 44,292,755 49,121,341 44,292,755 Balance as at 31 December 239,923,763 190,802,422 239,923,763 190,802,422

Net Book Value 248,817,780 149,407,808 248,817,780 149,407,808

Intangible Assets consist of application software used in trading, clearing, settlement, surveillance, accounting, mail systems and the web site of the Colombo Stock Exchange. Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

11 Capital Work in Progress Balance as at 01 January 111,704,679 60,701,465 111,704,679 60,701,465 Incurred during the year 72,783,074 159,965,145 72,783,074 159,965,145 Transfers (145,594,119) (108,961,931) (145,594,119) (108,961,931) Balance as at 31 December 38,893,634 111,704,679 38,893,634 111,704,679

12 Investment in Subsidiary Central Depository Systems (Pvt) Ltd. (10,000,000 Ordinary Shares) - - 25,000 25,000 - - 25,000 25,000

13 Financial Investments - Available-for-Sale Long Term Investments NDB Aviva - Eagle Gilt Edged Fund 830,391,812 835,043,617 419,707,666 422,058,843 830,391,812 835,043,617 419,707,666 422,058,843

Current Investments CEYBANK - Savings Plus Money Market Fund 590,411,026 485,260,054 590,411,026 485,260,054 CEYBANK - Surakum Gilt Edged Fund 298,000,889 504,296,583 298,000,889 504,296,583 NDB Aviva - Eagle Gilt Edged Fund 5,847,449 458,872,162 5,847,449 458,872,162 NDB Aviva - Eagle Money Plus Fund 406,656,193 - 406,656,193 - NDB Aviva - Eagle Income Fund 254,917,723 - 254,917,723 - 1,555,833,280 1,448,428,799 1,555,833,280 1,448,428,799

Total 2,386,225,092 2,283,472,416 1,975,540,946 1,870,487,642

90 Colombo Stock Exchange As at 31December 2014 2013 No. of Units Rs. No. of Units Rs.

13 Financial Investments - Available-for-Sale (Ctd.) Group

CSE CEYBANK - Surakum Gilt Edged Fund 28,391,582 298,000,889 47,688,522 504,296,583 CEYBANK - Savings Plus Money Market Fund 56,536,534 590,411,026 45,578,019 485,260,054 NDB Aviva - Eagle Gilt Edged Fund 41,750,151 425,555,115 85,944,488 880,931,005 NDB Aviva - Eagle Money Plus Fund 30,629,774 406,656,193 - NDB Aviva - Eagle Income Fund 24,213,310 254,917,723 - 1,975,540,946 1,870,487,643

CDS NDB Aviva - Eagle Gilt Edged Fund 40,291,197 410,684,146 40,291,197 412,984,774 410,684,146 412,984,774

Total 2,386,225,092 2,283,472,417

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

14 Investment in LFSB 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.

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs. 15 Settlement Guarantee Fund 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 incidential thereto. Current trustees of the fund are Securities 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.

Annual Report 2014 91 Notes to the Financial STATEMENTS

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

16 Deferred Tax Assets Deferred Tax Liabilities (54,430,319) (48,943,112) (54,430,319) (48,943,112) Deferred Tax Assets 54,430,319 48,943,112 54,430,319 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 194,393,996 174,796,829 194,393,996 174,796,829 Retirement Benefit Obligation (52,011,600) (31,732,649) (52,011,600) (31,732,649) Brought Forward Tax Loss (142,382,396) (143,064,180) (142,382,396) (143,064,180) Total Taxable Temporary Difference - - - - Applicable Tax Rate 28% 28% 28% 28% Deferred Tax Assets - - - -

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 differed 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 loss can be utilised by the entity.

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

17 Trade & Other Receivables

Trade Receivables 44,644,970 26,583,864 5,529,011 4,650,656 Provision for Impairment (4,306,879) (1,741,439) (1,379,078) (1,207,347) 40,338,091 24,842,425 4,149,933 3,443,309 CSE & CDS Fees Receivable 3,402,278 4,108,412 2,646,217 3,195,430 Prepayments 60,605,329 60,618,207 60,344,696 60,327,773 Advance Payments 689,949 7,581,223 689,949 7,581,223 Refundable Deposits 53,784,265 44,898,572 53,784,265 44,898,572 Sundry Debtors 28,676,141 3,312,715 28,674,901 3,312,715 Other Receivable 2,019,884 16,131,322 2,019,627 16,131,016 Interest Receivable 17,708 21,365 16,674 21,357 Staff Loans 43,605,188 27,238,340 43,605,188 27,238,340 Prepaid Staff Cost 17,665,886 15,410,037 17,665,886 15,410,037 250,804,719 204,162,618 213,597,336 181,559,772

92 Colombo Stock Exchange Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

18 Cash & Cash Equivalents

Treasury Bill Overnight Repos 125,123,647 113,011,626 117,871,092 112,966,340 Cash at Bank 20,981,845 7,676,166 16,739,344 7,364,630 RTGS Account 18,200 19,400 - - Cash in Hand 230,050 230,050 225,050 225,050 Cash & Cash Equivalents 146,353,742 120,937,242 134,835,486 120,556,020 Bank Overdraft (9,996,700) (5,774,226) (9,996,700) (5,774,226) Cash & Cash Equivalents in the Statement of Cash Flows 136,357,042 115,163,016 124,838,786 114,781,794

19 Other Reserves

Capital Reserve (Note 19.1) 99,975,000 99,975,000 - - Available-for-Sale Reserve 24,936,516 39,966,566 21,193,463 33,922,886 124,911,516 139,941,566 21,193,463 33,922,886

19.1 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.

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

20 Broker Deposits In Lieu Of Bank Guarantee

Non Current Assets Broker Deposits (Note 20.1) 83,500,000 83,500,000 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 84,439,970 84,439,970 84,439,970 84,439,970

Current Assets Dex Liquidity Deposits (Note 20.2) 14,342,127 11,330,000 - - 15% Margin Deposit (Note 20.3) 7,200,000 - - - 21,542,127 11,330,000 - -

20.1 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.

20.2 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.

20.3 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.

Annual Report 2014 93 Notes to the Financial STATEMENTS

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

21 Retirement Benefit Obligations

Balance as at 01 January 31,732,649 39,684,711 31,732,649 39,684,711 Charge for the year 7,373,401 4,887,788 6,887,143 4,596,616 Interest for the year 2,482,884 2,974,425 2,203,650 2,601,722 Actuarial Gains / (Losses) recognised in OCI 11,041,666 (5,693,145) 9,548,569 (4,753,713) Provision made for Subsidiary - - 2,258,589 (275,557) Payments made during the year (619,000) (10,121,130) (619,000) (10,121,130) Balance as at 31 December 52,011,600 31,732,649 52,011,600 31,732,649

As required by the Sri Lanka Accounting Standard LKAS 19 - “Employee Benefits”, the company has provided gratuity liability based on the Gratuity Formula Method.

The principal assumptions used to arrive above gratuity liability are as follows;

2014 2013 Expected Annual Average Salary Increment 10% 8% Discounting Rate / Interest Rate 8.25% 10% Staff Turnover Factor 9% 8%

21.1 Sensitivity of Assumptions Employed on Gratuity Formula Method 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.

The 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 (294,680) 242,444 539,827 (580,204) Effect on Defined Benefit Obligation (3,483,331) 3,222,790 2,902,565 (3,100,179)

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

22 Other Payables Interest Payable to Brokers 1,094,385 1,512,708 1,088,388 1,512,708 Payments Received in Advance 890,795 542,266 890,795 542,267 Sundry Creditors & Accrued Expenses 125,439,870 49,991,429 123,169,042 48,117,423 127,425,050 52,046,403 125,148,225 50,172,397

23 Amounts due to Related Company Relationship Central Depository Systems (Pvt) Ltd. Subsidiary - - 132,412,903 64,523,063 - - 132,412,903 64,523,063

94 Colombo Stock Exchange 24 Contingencies & Commitments 24.1 Litigation Against the CSE 01 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 03 September 2015.

02 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 damages. The Trial commenced on the 17 February 2009. Further, Trial in the said matter has been fixed for 03 June 2015.

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.

24.2 Tax Assessments Against the 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.

24.3 Tax Assessments Against the 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.

25 Capital Commitments The Group and the Company has following purchase commitments in the ordinary course of business as at 31 December 2014 as follows:

Group Company As at 31December 2014 2013 2014 2013 Rs. Rs. Rs. Rs.

Property and Equipment - approved & contracted 218,767,164 86,433,553 218,767,164 86,433,553 218,767,164 86,433,553 218,767,164 86,433,553

Annual Report 2014 95 Notes to the Financial STATEMENTS

26 Financial Instruments 26.1 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 instrument fails to meet its contractual obligations. The Group is exposed to credit risk primarily from investment in unit trust, investment in fixed deposit, staff loans receivable, trade & other receivables which are financial assets and cash and bank balances with financial institutions. Majority of the investments in unit trust 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.

(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 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 trust. 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 liabilities, including estimated interest payments.

96 Colombo Stock Exchange 26 Financial Instruments (Ctd.) 26.1 Financial Risk Management (Ctd.) (b) Liquidity Risk (Ctd.) Carrying Amount Total 03 Months or Less 03-12 Months Over 01 Year Non -Derivative Financial Assets Group 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 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 21,542,127 - 84,439,970 Trade Payables 127,425,050 127,425,050 127,425,050 - - Bank Overdraft 9,996,700 9,996,700 9,996,700 - - 243,403,847 243,403,847 158,963,877 - 84,439,970

31 December 2013 Cash & Cash Equivalents 230,050 230,050 230,050 - - Balances with Banks & Financial Institutions 120,707,192 120,707,192 120,707,192 - - Financial Investments - Available-for-Sale 2,283,472,416 2,283,472,416 1,448,428,799 - 835,043,617 Investments in LFSB 1,000,000 1,000,000 - - 1,000,000 Other Receivables 116,519,151 116,519,151 116,519,151 - - 2,521,928,809 2,521,928,809 1,685,885,192 - 836,043,617

Brokers' Deposits in lieu of Bank Guarantee 95,769,970 95,769,970 11,330,000 - 84,439,970 Trade Payables 52,046,403 52,046,403 52,046,403 - - Bank Overdraft 5,774,226 5,774,226 5,774,226 - - 153,590,599 153,590,599 69,150,629 - 84,439,970

Company 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 1,300,915,557 254,917,723 419,707,666 Other Receivables 144,957,467 144,957,467 144,957,467 - - 2,255,333,899 2,255,333,899 1,580,708,510 254,917,723 419,707,666

Brokers' Deposits in lieu of Bank Guarantee 84,439,970 84,439,970 - - 84,439,970 Trade Payable 125,148,225 125,148,225 125,148,225 - - Bank Overdraft 9,996,700 9,996,700 9,996,700 - - 219,584,895 219,584,895 135,144,925 - 84,439,970

31 December 2013 Cash in Hand 225,050 225,050 225,050 - - Balances with Banks & Financial Institutions 120,330,970 120,330,970 120,330,970 - - Financial Investments - Available-for-Sale 1,870,487,642 1,870,487,642 1,448,428,799 - 422,058,843 Other Receivables 94,207,045 94,207,045 94,207,045 - - 2,085,250,707 2,085,250,707 1,663,191,864 - 422,058,843

Brokers' Deposits in lieu of Bank Guarantee 84,439,970 84,439,970 - - 84,439,970 Trade Payables 50,172,397 50,172,397 50,172,397 - - Bank Overdraft 5,774,226 5,774,226 5,774,226 - - 140,386,593 140,386,593 55,946,623 - 84,439,970

Annual Report 2014 97 Notes to the Financial STATEMENTS

26 Financial Instruments (Ctd.) 26.1 Financial Risk Management (Ctd.) (c) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates that 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 in 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.

Interest Rate Risk Interest rate risk arises due to fluctuations in the interest rate 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, a sensitivity analysis has been carried out on group financial assets and liabilities, taking into various interest rate scenarios.

Given below is a sensitivity analysis carried out as at 31 December 2014 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 by 1% - Effect drop - by 1% to the Interest Effect to the Income Interest Income Effect on Profit or Loss 25,076 (25,076)

(d) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the company’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.

98 Colombo Stock Exchange 26 Financial Instruments (Ctd.) 26.2 Accounting Classification and Fair Values

GROUP Held to Loans and Available for Other Financial Total Carrying Fair Value Maturity Receivables Sale Liabilities Amount As at 31 December 2014 Note Rs. Rs. Rs. Rs. Rs. Rs.

Assets Cash in Hand 18 - 230,050 - - 230,050 230,050 Balances with Banks & 18 - 146,123,692 - - 146,123,692 146,123,692 Financial Institutions Financial Investments - 13 - - 2,386,225,092 - 2,386,225,092 2,386,225,092 Available-for-Sale Investments in LFSB 14 - - 1,000,000 - 1,000,000 1,000,000 Other Receivables 17 - 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

Held to Loans and Available for Other Financial Total Carrying Fair Value Maturity Receivables Sale Liabilities Amount As at 31 December 2013 Note Rs. Rs. Rs. Rs. Rs. Rs.

Assets Cash in Hand 18 - 230,050 - - 230,050 230,050 Balances with Banks & 18 - 120,707,192 - - 120,707,192 120,707,192 Financial Institutions Financial Investments - 13 - - 2,283,472,416 - 2,283,472,416 2,283,472,416 Available-for-Sale Investments in LFSB 14 - - 1,000,000 - 1,000,000 1,000,000 Other Receivables 17 - 116,519,151 - - 116,519,151 116,519,151 Total Financial Assets - 237,456,393 2,284,472,416 - 2,521,928,809 2,521,928,809

Liabilities Due to Customers - - - 12,547,960 12,547,960 12,547,960 Due to Brokers - - - 97,282,678 97,282,678 97,282,678 Due to Banks - - - 5,774,226 5,774,226 5,774,226 Other Financial Liabilities - - - 37,985,735 37,985,735 37,985,735 Total Financial Liabilities - - - 153,590,599 153,590,599 153,590,599

Annual Report 2014 99 Notes to the Financial STATEMENTS

26 Financial Instruments (Ctd.) 26.2 Accounting Classification and Fair Values (Ctd.)

COMPANY Held to Loans and Available for Other Financial Total Carrying Fair Value Maturity Receivables Sale Liabilities Amount As at 31 December 2014 Note Rs. Rs. Rs. Rs. Rs. Rs.

Assets Cash in Hand 18 - 225,050 - - 225,050 225,050 Balances with Banks & 18 - 134,610,436 - - 134,610,436 134,610,436 Financial Institutions Financial Investments - 13 - - 1,975,540,946 - 1,975,540,946 1,975,540,946 Available-for-Sale Other Receivables 17 - 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

Held to Loans and Available for Other Financial Total Carrying Fair Value Maturity Receivables Sale Liabilities Amount As at 31 December 2013 Note Rs. Rs. Rs. Rs. Rs. Rs.

Assets Cash in Hand 18 - 225,050 - - 225,050 225,050 Balances with Banks & 18 - 120,330,970 - - 120,330,970 120,330,970 Financial Institutions Financial Investments - 13 - - 1,870,487,642 - 1,870,487,642 1,870,487,642 Available-for-Sale Other Receivables 17 - 94,207,045 - - 94,207,045 94,207,045 Total Financial Assets - 214,763,065 1,870,487,642 - 2,085,250,707 2,085,250,707

Liabilities Due to Customers - - - 12,547,960 12,547,960 12,547,960 Due to Brokers - - - 85,952,678 85,952,678 85,952,678 Due to Banks - - - 5,774,226 5,774,226 5,774,226 Due to Related Parties - - - 64,523,063 64,523,063 64,523,063 Other Financial Liabilities - - - 36,111,729 36,111,729 36,111,729 Total Financial Liabilities - - - 204,909,656 204,909,656 204,909,656

100 Colombo Stock Exchange 26 Financial Instruments (Ctd.) 26.3 Fair Values of Financial Instruments 26.3.1 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.

26.3.2 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.

Group Level 1 Level 2 Level 3 Total Rs. Rs. Rs. Rs.

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 - - - -

31 December 2013 Assets Financial Investments - Available-for-Sale - - 2,284,472,416 2,284,472,416 Total Financial Assets - - 2,284,472,416 2,284,472,416

Liabilities - - - -

Annual Report 2014 101 Notes to the Financial STATEMENTS

26 Financial Instruments (Ctd.) 26.3 Fair Values of Financial Instruments (Ctd.) 26.3.2 Financial instruments Measured at Fair Value – Fair Value Hierarchy

Company Level 1 Level 2 Level 3 Total Rs. Rs. Rs. Rs.

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 - - - -

31 December 2013 Assets Financial Investments - Available-for-Sale - - 1,870,487,642 1,870,487,642 Total Financial Assets - - 1,870,487,642 1,870,487,642 - - Liabilities - -

Level 3 fair value measurements

26.3.3.1 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 2014 2,283,472,416 1,870,487,642 Total gains or losses: - In profit or loss 5,094,554 5,094,554 - In OCI (9,935,497) (7,634,869) Purchases 762,689,374 762,689,374 Redemption (655,095,755) (655,095,755) Balance at 31 December 2014 2,386,225,093 1,975,540,946

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 5,094,554 5,094,554

Total gains and losses recognised in OCI: Net change in fair value of available-for-sale financial assets (9,935,497) (7,634,869)

102 Colombo Stock Exchange 26 Financial Instruments (Ctd.) 26.3 Fair Values of Financial Instruments (Ctd.) 26.3.3.2 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 Values Total Carrying 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

Level 01 Level 02 Level 03 Total Fair Values Total Carrying Amount 31 December 2013 Rs. Rs. Rs. Rs. Rs.

Assets Cash & Cash Equivalents - - 230,050 230,050 230,050 Balances with Banks & Financial Institutions - - 120,707,192 120,707,192 120,707,192 Investments in LFSB - - 1,000,000 1,000,000 1,000,000 Other Receivables - - 116,519,151 116,519,151 116,519,151 Total Financial Assets - - 238,456,393 238,456,393 238,456,393

Liabilities Due to Customers - - 12,547,960 12,547,960 12,547,960 Due to Brokers - - 97,282,678 97,282,678 97,282,678 Due to Banks - - 5,774,226 5,774,226 5,774,226 Other Financial Liabilities - - 37,985,735 37,985,735 37,985,735 Total Financial Liabilities - - 153,590,599 153,590,599 153,590,599

Annual Report 2014 103 Notes to the Financial STATEMENTS

26 Financial Instruments (Ctd.) 26.3 Fair Values of Financial Instruments (Ctd.) 26.3.3.3 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 Values Total Carrying 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

Level 01 Level 02 Level 03 Total Fair Values Total Carrying Amount 31 December 2013 Rs. Rs. Rs. Rs. Rs.

Assets Cash & Cash Equivalents - - 230,050 230,050 230,050 Balances with Banks & Financial Institutions - - 120,330,970 120,330,970 120,330,970 Other Receivables - - 187,728,840 187,728,840 187,728,840 Total Financial Assets - - 308,289,860 308,289,860 308,289,860

Liabilities Due to Customers - - 12,547,960 12,547,960 12,547,960 Due to Brokers - - 85,952,678 85,952,678 85,952,678 Due to Banks 5,774,226 5,774,226 5,774,226 Other Financial Liabilities 50,462,395 50,462,395 50,462,395 Total Financial Liabilities - - 154,737,259 154,737,259 154,737,259

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.

104 Colombo Stock Exchange 27 Related Party Disclosures 27.1 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), their immediate family member and senior management who can influence the planning & decision making process have been classified as Key Management Personnel of the Company. CSE paid Rs.3,903,000 during the year as Directors’ Expenses. (Rs. 3,886,000/- in 2013) The Company has incurred following costs for the CEO, COO, CIO, AGMs, Senior Managers and Managers during the year. Company 2014 2013 Amount Rs. Amount Rs. Short Term Employee Benefits 72,203,457 44,001,539 Long Term Employee Benefits 6,924,953 4,779,638 27.2 Transactions with Group Companies and Director Related Entities 2014 2013 Company Name Relationship Nature of Transaction Amount Rs. Amount Rs. a) Mr. Vajira Kulatilaka NDB Securities (Pvt) Director CSE Member fees, data communication charges & 947,582 884,487 Ltd. other charges received Payment on incentive scheme for brokers to open 1,153,717 680,000 branch offices Receipt on representing dispute resolution - 30,000 committee Receipt on Sponsorship Income for Foreign Fund 250,000 - Managers Forum Interest paid for Member Firms' liquidity deposit 184,060 162,406 Member Firms' liquidity deposit & entrance 2,290,000 2,290,000 deposit as at year end Interest payable for Member Firms' liquidity 29,327 40,763 deposit as at year end Member fees and data communication charges 65,598 168,234 receivable as at year end CDS Sale of CDS Forms & reimbursement for 23,837 209,898 packeting & posting expenses Amount receivable for sale of CDS Forms 3,750 6,745 Interest paid for Member Firms' margin deposit 148,185 237,868 NDB Wealth Director CSE Receipt on Sponsorship Income for Foreign Fund 250,000 - Management Limited Managers Forum Investment made during the year 650,000,000 453,500,000 Redemptions during the year 450,000,000 - Investment in Unit Trusts as at year end 1,087,129,031 880,931,004 Dividends received from Unit Trusts 62,126,440 47,352,943

CDS Investment in Unit Trusts as at year end 410,684,146 412,984,774 Dividends received from Unit Trusts 32,232,958 46,334,877 NDB Capital Director CSE Annual Listing fees received for year 552,803 655,870 Holdings PLC Receipt on Sponsorship Income for Foreign Fund 250,000 - Managers Forum Receipt for computer information provided 2,663 2,966 Computer Information Charges Receivable as at - 571 year end CDS Computer Information Charges Receivable as at 1,785 - year end Listed Company fee receivable as at year end 10,204 12,168 NDB Investment Director CSE Receipt on Sponsorship Income for Foreign Fund 250,000 - Bank LTD Managers Forum

Annual Report 2014 105 Notes to the Financial STATEMENTS

27 Related Party Disclosures (Ctd.) 27.2 Transactions with Group Companies and Director Related Entities (Ctd.)

2014 2013 Company Name Relationship Nature of Transaction Amount Rs. Amount Rs. b) Mr. Krishan Balendra (Resigned with effect from 20 June 2014) Nations Trust Bank Director CSE Annual Listing Fee received for the year 491,787 442,765 PLC Receipt for computer information provided & 8,697 10,611 subscription fees Quotation fees received for debt listing - 102,041 Computer Information Charges Receivable as at - 629 year end CDS Receipt for participants Fees 61,224 126,122 Listed Company fee receivable as at year end - 167,755 John Keells Stock Director CSE Member fee, data communication charges & other 658,787 1,195,380 Brokers (Pvt) Ltd charges received Interest paid for Member Firms' Liquidity deposit 109,946 244,203 Member Firms' liquidity deposits and entrance 3,540,000 3,540,000 deposit as at 20 June 2014 Interest payable for Member Firms' Liquidity - 63,407 deposit as at year end Data Communication charges receivable as at year - 32,558 end CDS Sale of CDS Forms & reimbursement for 3,031 220,608 packeting & posting expenses Interest paid for Member Firms' margin deposit 16,460 158,161 c) Mr. M. R. Prelis Capital Trust Director CSE Member fee, data communication charges & other 1,970,179 2,217,143 Securities (Pvt) Ltd. charges received Member fee, data communication & other charges 313,955 175,044 receivable Interest paid for Member Firms' liquidity deposit 202,882 263,313 Member Firms' liquidity deposits & entrance 3,540,000 3,540,000 deposit as at year end Interest payable for Member Firms' liquidity 45,621 63,407 deposit as at year end CDS Sale of CDS Forms & reimbursement for 2,448 360,137 packeting & posting expenses Interest paid for Member Firms' margin deposit 686 133,868 Amount receivable for sale of CDS Forms 18,658 - Dialog Axiata PLC Director CSE Annual listing fee & fee for high speed data signal 1,571,428 1,765,306 received Amount receivable for high speed data signal 142,857 - Income Payment made during the year for E1 link charges, 2,174,872 597,576 mobile phone charges & broad band charges Payment made for mobile phone purchased - 305,964 Amount payable for mobile phone charges as at 97,891 - year end CDS Listed Company fee receivable as at year end 170,434 115,668 Amount receivable for computer information 42,877 - income and direct deposit of shares d) Mr. Ray Abeywardena Acuity Stock Brokers Director CSE Member fee, data communication charges & other 1,186,706 688,375 (Pvt) Ltd charges received Member fee, data communication & other charges 160,918 127,961 receivable Interest paid for Member Firms’ liquidity deposit 304,581 199,131 Member Firms’ liquidity deposit & entrance 3,540,000 3,540,000 deposit as at year end 106 Colombo Stock Exchange 27 Related Party Disclosures (Ctd.) 27.2 Transactions with Group Companies and Director Related Entities (Ctd.) 2014 2013 Company Name Relationship Nature of Transaction Amount Rs. Amount Rs. Interest payable for Member Firms' liquidity 45,621 63,407 deposit as at year end CDS Receipt from Sale of CDS forms & Other CDS 13,331 - Charges Amount receivable on sale of CDS forms as at 2,143 20,224 year end Interest paid for Member Firms’ margin deposit 68,588 - Lanka Ventures PLC Director CSE Annual listing fee received 70,286 - CDS Listed Company fee receivable as at year end 12,276 15,321 Amount receivable for computer information 4,082 - provided as at year end Asian Alliance Director CSE Receipts for computer information provided 9,714 30,057 Insurance PLC Amount receivable for computer information 109,930 14,457 provided as at year end CDS Listed Company fees receivable as at year end 29,679 35,357 Amount receivable for computer information 5,612 - provided as at year end Acuity Securities Ltd Director CSE Member fee receivable as at year end 27,871 - e) Mr. Hiran de Alwis Sri Lanka National Member of CSE Arbitration Centre Charges paid during the year 209,500 190,060 Arbitration Centre the Board of Governors f) Mr. Asanga Seneviratne Nation Lanka Equities Director CSE Member fee, data communication charges & other 1,192,901 401,474 (Pvt) Ltd charges received Member fees and other charges receivable as at 178,745 476,690 year end Interest paid for Member Firms' liquidity deposit 165,055 70,710 Member Firms' liquidity deposit & entrance 3,540,000 3,540,000 deposit as at year end Interest payable for Member Firms' liquidity 45,621 63,407 deposit as at year end CDS Interest Payment on Margin Deposit Balances 10,454 -

Nation Lanka Finance Director CSE Annual listing fee & computer information income 61,702 - PLC received Subscription received for ticker software - 114,500 CDS Listed Company fee receivable as at year end 334,393 510,204 Computer Information Charges Receivable as at 4,082 - year end Anilana Hotels & Director CSE Annual listing fee & computer information income 101,304 - Properties Ltd received Quotation fees received for initial listing of shares - 153,061 CDS Listed Company fees receivable as at year end 74,051 23,235 Computer Information Charges Receivable as at 37,970 - year end g) Mr. Dhakshitha Thalgodapitiya Sri Lanka National Member CSE Arbitration Centre Charges paid during the year 209,500 190,060 Arbitration Centre of the Board of Governors

h) Mr. Aravinda Perera (Appointed with effect from 11 July 2014) S C Securities (Pvt) Director CSE Member fee & other charges received 273,083 - Ltd

Annual Report 2014 107 Notes to the Financial STATEMENTS

27 Related Party Disclosures (Ctd.) 27.1 Transactions with Key Management Personnel (Ctd.) 2014 2013 Company Name Relationship Nature of Transaction Amount Rs. Amount Rs. Member fees and other charges receivable as at 377,783 - year end Interest paid for Member Firms' liquidity deposit 28,634 - Member Firms' liquidity deposit & entrance 1,790,000 - deposit as at year end Interest payable for Member Firms' liquidity 22,811 - deposit as at year end CDS Sale of CDS Forms 5,485 - Interest paid for Member Firms' margin deposit 61,530 - Siyapatha Finance Ltd Director CSE Quotation fees received for initial listing of shares 51,020 - CDS Listed Company fee receivable as at year end 10,204 - Computer Information Charges Receivable as at 1,020 - year end Sampath Bank PLC Director CSE Annual listing fee & computer information income 988,892 - received Amount receivable for Sponsorship Income for 500,000 - Foreign Fund Managers Forum Computer Information Charges Receivable as at 908 - year end Investment in overnight Repo 3,254,281,000 - Investment in overnight Repo as at year end 11,705,000 - Interest received for investment in Overnight 668,045 - Repo Interest receivable for investment in Overnight 1,539 - Repo as at year end CDS Receipt for participants Fees 61,224 - Sale of CDS Forms 122 - Amount Receivable for computer information & 493,336 - Other charges Lanka Financial Director CDS Investment as at year end 1,000,000 - Services Bureau Ltd Dividend received during the year 1,890 - Payment made as monthly SWIFT connectivity 1,292,211 - charges Amount payable as monthly SWIFT connectivity 117,163 - charges i) Central Depository Fully Fund Transfer In (246,705,499) - Systems (Pvt) Ltd owned Fund Transfer Out 76,046,774 6,452,880 Subsidiary Expenses transferred 94,734,415 76,831,616 Dividend Received 9,000,000 9,000,000 Cheque received on behalf of CDS (296,039) (291,102) Cheque received on behalf of CSE 33,688 4,097 Interest Expense (703,178) (953,972)

28 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.

29 Directors’ Responsibility Statement The Board of Directors of the Company is responsible for the preparation and fair presentation of these Financial Statements in accor- dance with LKASs and SLFRSs.

30 Comparative Figures To facilitate comparison, relevant balances pertaining to the previous year have been reclassified to confirm to current year classification and presentation.

108 Colombo Stock Exchange NOTICE OF MEETING

The 30th Annual General Meeting of the CSE will be held on 1st June 2015 at 5.30 p.m. at The Dorchestor, 10th Floor, The Kingsbury Hotel for the following purposes: -

AGENDA 1. To receive and consider the Annual Report of the Directors and Financial Statement of the Company for the year ended 31st December 2014 together with the Report of the Auditors thereon.

2. Election / Re-election of Directors a) To re-elect Mr. Asanga Seneviratne who retires in terms of Article 50 of the Articles of Association. (Mr. Seneviratne being eligible is offering himself for re-election).

b) To re-elect Mr. Vajira Kulatilaka who retires in terms of Article 50 of the Articles of Association. (Mr. Kulatilaka being eligible is offering himself for re-election).

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.

“Resolved that Mr. M R Prelis of 3/3 Maitland Crescent, Colombo 7, who is 78 years of age is hereby elected a Director in terms of Section 211 of the Companies Act No 7 of 2007 and it is further specially declared that the age limit of 70 years referred to in Section 210 of the Companies Act No 7 of 2007 shall not apply to the said Mr. M. R. Prelis.”

3. To re-appoint the retiring Auditors Messrs. KPMG, Chartered Accountants, as the Auditors of the Company, to hold office until the conclusion of the next Annual General Meeting of the Company, to audit the Financial Statements of the Company for the ensuing year and authorise the Directors to determine their remuneration.

4. To authorise the Directors to determine donations for the year ending 31st December 2015 and up to the date of the next Annual General Meeting.

By order of the Board

Director CORPORATE SERVICES (PRIVATE) LIMITED Secretaries COLOMBO STOCK EXCHANGE

At Colombo, on this 22nd day of April 2015.

Note: (1) Any member entitled to attend and vote is entitled to appoint a corporate representative instead (please see attached form of resolution).

Annual Report 2014 109 Notes

110 Colombo Stock Exchange 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 ……………………….. 2015.

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 ...... 2015, 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, 4 – 1, West Block, World Trade Centre, Echelon Square, Colombo 1 where the meeting is to be held, either before or at the time of the meeting.

Annual Report 2014 111

Corporate Information

Name Bankers/ Settlement Banks Colombo Stock Exchange Commercial Bank of Ceylon PLC Legal Status Sampath Bank PLC A Company Incorporated in Sri Lanka and The Hongkong and Shanghai Banking Corporation Limited Limited by Guarantee

Company Registration Number Colombo Stock Exchange Contact GL12 Tel : +94 11 2356456 Fax : Subsidiary Clearing and Settlement : +94 11 2440396 Central Depository Systems (Private) Finance : +94 11 2448921 Limited. Administration : +94 11 2325804 Registered Office Information Technology : +94 11 2440162 # 04-01, West Block, World Trade Center, Trading and Market Surveillance : +94 11 2448925 Echelon Square, Colombo 1, Sri Lanka. Market Development : +94 11 2445279 Secretaries Listing and Corporate Affairs : +94 11 2391128 Human Resources : +94 11 2440163 Corporate Services (Private) Limited Legal : +94 11 2440539 Auditors Email : [email protected] KPMG Website : www.cse.lk

Lawyers M/s Julius & Creasy, Attorneys-at-Law M/s FJ and G de Saram, Attorneys-at-Law

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