Capital Market Strategy 2020 - SEC Sri Lanka comprehensive transformative plan detailing strategic...
Transcript of Capital Market Strategy 2020 - SEC Sri Lanka comprehensive transformative plan detailing strategic...
A comprehensive transformative plan detailing strategic direction and goals for the Sri Lankan capital market
Capital Market Strategy 2020
Designed across
two core objectives
of regulation and
capital market
development
Enhances
capital market’s
competitiveness,
resilience and
innovation
Tactical initiatives
yield long-term
benefits across
capital market
stakeholders
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Strategic Considerations
Effective
governance,
enforcement and
compliance
Efficiency and
commercial
orientation of
market
institutions
Extant Market
characteristics
- size, liquidity
and diversification
constraints
Capacity building Market
infrastructure
and technology
gaps
Systemic risk
management
Government
policy and action
Regulatory readiness
and strength
2
Investor
protection
Comparative Market Development Indicators3
25.3 26.8
9.6
81.788.3
234.0
41.0
129.3
89.4
35.227.6
2.29.6
0.5
13.1
68.774.4
8.7
37.6
133.8
9.1
23.7
Sri Lanka Vietnam Argentina Phillipines Thailand South
Africa
Indonesia Malaysia South
Korea
Mexico Brazil
%
Market Capitalisation as a % of GDP
Market liquidity as a % of GDP
Source: The World Bank, Stock Market Capitalization to GDP for World [DDDM011WA156NWDB]. Deflation methodology for Market Capitalisation as a percentage of
GDP : {(0.5)*[Ft/P_et + Ft-1/P_et-1]}/[GDPt/P_at] where F is stock market capitalisation, P_e is end-of period CPI, and P_a is average annual CPI.End-of period CPI
(IFS line 64M..ZF or, if not available, 64Q..ZF).
Frontier Markets
Emerging Markets
Capital Market Snapshot
Number of New IPO Listings/Issues
Note: Market Capitalisation as a % GDP for 2014 and 2015 are based on The World Bank
methodology. See slide 3. Due to unavailability of 2016 data from this source, Market
Capitalisation as a % GDP in 2016 is based on provisional data released by the Department of
Census and Statistics with no deflation basis applied as per the CSE calculation methodology.
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Source: The World Bank,Central Bank of Sri Lanka and Colombo Stock Exchange
Sub optimal liquidity and contribution to GDP by the capital market. Low primary market equity flows.
Equity and Debt IPO Volumes, LKR Bn
Annual Turnover by product , LKR Bn
2.6 0.3 1.9
54.2
83.478.0
2014 2015 2016
Equity IPOs
Debt IPOs
340.9
253.2
7.1 4.76.2 2.7
2014 2015
Equity
Corporate Debt
5.0
2.0 3.0
20.0
25.0
17.0
2014 2015 2016
Equity IPOs
Debt IPOs
Limited product offering. Traditional reliance on Equity.Increased new entrants in the debt market due to recent tax concessions.
29.6
25.323.0
10.98.6
6.4
2014 2015 2016
Market Capitalisation
as a % of GDP
Turnover Velocity
Market Cap to GDP % and Turnover to Market Cap %
5
0.5
1.2 1.1
2013 2014 2015
Unit Trusts Assets Under Management as a % of GDP
Proliferation of Unit Trusts low.
Employee Provident Fund (EPF) and Employee Trust Fund (ETF)
portfolio allocation favours Government Securities.
Capital Market Snapshot Cont.
Source: Central Bank of Sri Lanka, Colombo Stock Exchange
1425.31623.6
1814.9
90.790.0
91.9
88.0
92.0
96.0
0
1000
2000
2013 2014 2015
%LKR Bn
EPF and ETF Assets Under Management
Total Combined AUM of
EPFs and ETFs
EPF &ETF Average Asset
Allocation % on
Government Securities
Increased participation by long-term investors such as
EPFs and ETFs would improve market stability and
sustainability
Anticipates broad-basing of investor participation.
26.0%
1.6%
34.7%
37.7%
2014
Foreign Companies
Foreign Individuals
Local Companies
Local Individuals
Investor Mix 2014 Vs. 2016
41.5%
1.0%31.4%
26.8%
2016
Note: Total market turnover for equity and debt in 2014 and
2016 is LKR 348.0 Bn and LKR 179.8 Bn, respectively.
Economic Snapshot
Source: Department of Census and Statistics ,Central Bank of Sri Lanka, National Budget 2017
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Note: * Provisional data as at November 2016
5.7
7.4
5.4*
2014 2015 2016
Fiscal Deficit as a % of GDP
Note:* 2016 is based on provisional data
11.1 10.29.5*
2014 2015 2016
Export Earnings, USD Bn
4.94.8
4.4*
2014 2015 2016
Growth of Real GDP %
Note: * 2016 is based on provisional data
Domestic
Bank
Borrowings
Domestic
Non-Bank
Borrowings
Foreign
Investments
in T-Bills and
T-Bonds
Total Foreign
Financing
5%
51%
-15%
59%5%
42%
10%
44%
Contributions by Source to Financing the
Budget Deficit, LKR Bn
2016
2017
Enabling Capital Market to Grow and Fund
Real Economy
Fiscal discipline, policy coherence and
credibility and performance relative to
peers create a supportive foundation for
revised sovereign rating.
Need to consider high public debt level
limiting fiscal space.
Public investment approximated 5.1% on
average in recent years.
Continued need to tap private sector for
investment.
Enabling environment for PPP a necessity.
Enabling environment for portfolio
investment a necessity.
Capital Market Strategy 2020 to enable
market to complement the banking
sector and align with funding and growth
needs of national economy.
Investment to GDP
(5 yr average)
33.6%Of which Public Investment
(5 yr average)
5.1%*
GDP growth( 2010-2016)
CAGR 5.8%
GDP growth forecast by
Supra-National Organisations
2017 4.8% to 5.5%
Opportunities for listing of
strategic SOEs across different sectors
Hotels and Travels
Power and Energy
Manufacturing
*At December 2015
Budget deficit as % of GDP
5.4%*
Public Debt as % GDP
76.0%*
*National Budget 2017
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Integrated Strategy
Regulatory and Governance Strategies Development Strategies
Strengthening Regulatory and Governance
Environment
Creating an Enabling Environment for
Capital Formation
Increasing Accountability and Market
Oversight
Deepening Liquidity and Broad-basing
Market Participation
Raising the Standards and Competencies of
Capital Market Participants
Developing Infrastructure and Enabling
New Products
Managing and Mitigating Systemic Risk Building Domestic Capabilities
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Strengthening Regulatory and
Governance Environment
1. Submission of the proposed draft Securities Exchange Act to Parliament
2. Appraisal and revision of the Listing Rules of the Colombo Stock Exchange (CSE)
3. Review of all rules pertaining to market intermediaries
4. Completion of a Country Review of securities regulation by the International
Organisation of Securities Commissions (IOSCO)
5. Review of Corporate Governance Code in line with principles set out by the
Organisation for Economic Cooperation and Development (OECD)
6. Review of the Unit Trust Code
7. Finalisation of the new Takeovers and Mergers Code
8. Formalisation of the legal structure of securitisation
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Increasing Accountability and Market Oversight
1.Procurement of a new surveillance system with advanced functionalities for the
effective monitoring of trading
2.Development of a comprehensive framework of financial surveillance for Listed
Entities
3. Casting duties on supplementary service providers to ensure accountability
4. Enhancing SEC oversight of all capital market institutions and intermediaries
5.Introduction of an effective deterrence mechanism for curbing capital market
misconduct
6. Prompt investigation of market offences
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Raising Standards and Competencies
of Capital Market Participants
1. Enhancement of fit and proper standards for capital market institutions, market
intermediaries, and listed companies
2. Standardisation of documentation pertaining to market participants
3. Review and upgrade prevailing qualification criteria for capital market participants
4. Development of a multi-layered licensing framework to accommodate all asset
classes
5. Evaluation of the feasibility of introducing Global Investment Performance
Standards (GIPS) for unit trust managing companies and investment managers
6. Enhancement of know-your-customer (KYC) requirements applicable to regulatees
of the SEC to address money laundering
7. Categorisation and disclosure of financially-challenged companies
8. Development of guidelines for share valuation with respect to regulatory
requirements
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Mitigating and Managing Systemic Risk
1. Facilitation of the implementation of a Central Counterparty (CCP) mechanism
2. Development of a risk-weighted capital adequacy framework for capital market
institutions and intermediaries
3. Development of a risk-based assessment framework for on-site supervision
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Creating An Enabling Environment
For Capital Formation
1. Creation of a platform for entities with size, scale and liquidity to tap the capital
market
2. Development of the market for corporate debt
3. Introduction of a framework for infrastructure financing via the capital market
4. Establishment of alternative listing boards which cater to new market segments
5.Ascension to the Morgan Stanley Capital International (MSCI) Emerging Market
status
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Deepening Liquidity and
Broad-basing Market Participation
1.Develop the unit trust industry as a channel for small investors to access the
market
2. Increasing the participation of pension funds in the capital market
3. Enabling a conducive environment to attract foreign portfolio investors
4. Formulation of a methodology for the introduction of short selling, securities
borrowing and lending
5. Implementation of higher public float requirements to increase liquidity
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Developing Infrastructure and
Enabling New Products
1. Enhancement of the e-filing system for regulatory reporting
2.Implementation of consistent back office and order management systems
across the stock broking industry
3. Introduction of a standardised digital business reporting platform
4. Formulation of policies and rules for new products such as Exchange-traded
Funds (ETFs) and Real Estate Investment Trusts (REITs)
5.Creation of a platform for the introduction of risk-hedged products
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Building Domestic Capabilities
Exchange Capacity Building
1. Demutualisation of the CSE to enhance efficiency and global acceptability
Community Capacity Building
1.Ensuring the responsiveness of the SEC to
carry out its objectives in an effective,
efficient and timely manner
Enhancement of the financial literacy
and capital market exposure of all
stakeholders in relation to the capital
market
2.
Building the competencies of the regulator
by having measures in place to recruit and
retain a proficient workforce with
unquestionable integrity, appropriate
technical knowledge, and demonstrable
professionalism
Conduct of continuous investor
education and public awareness
programmes which equip investors
with the knowledge required to make
informed investment decisions
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