Investing in Stock Market (Colombo stock exchange) - Guide to CSE


Monday, November 25, 2019

Investing in Stock Market (Colombo stock exchange)

The stock market is Climbing in Sri Lanka

Today I decided to give you a brief introduction to Colombo Stock Exchange which is a trending topic in Sri Lanka these days.
If an investor wishes to buy or sell shares through the Stock Exchange, the first thing that he/she should do is to open a Securities Account in the Central Depository System. 

Central Depository System

Central Depository System - Colombo Stock exchange
The Central Depository System (Pvt) Ltd. (CDS) is a depository for all securities traded on the Colombo Stock Exchange (CSE). It also handles the post-trade clearing and settlement of the secondary market transactions on the Colombo Stock Exchange. The CDS was incorporated in 1991 and it is a fully owned subsidiary of the Colombo Stock Exchange. The CDS is registered as a Clearing House by the Securities and Exchange Commission of Sri Lanka (SEC).  This registration is renewed annually.

The CDS functions as a depository to hold securities in trust on behalf of shareholders of companies and provides depository, clearing and settlement services for equities (shares, preference shares, warrants)  and fixed income securities (Corporate and Government Debt). Securities are held by the CDS in a dematerialized (electronic) form. The Securities and Exchange Commission of Sri Lanka has made it mandatory to convert any physically held share certificates to electronic form by 31 December 2011.

The CDS opens and maintains CDS accounts on behalf of account holders through 43 participant organizations of the CDS. The CDS has granted participant status to 27 Stock Brokers of the Colombo Stock exchange and 16 Commercial Banks (Custodian Banks). The participant organizations have access to all CDS services. Account-holders are required to use the services of participants to access the CDS services and it is possible to use more than one participant.

Opening and maintenance CDS Accounts

If an investor wishes to buy or sell shares through the Colombo Stock Exchange he/she should open a Securities Account in the CDS through a Participant organization (a stockbroker or a custodian bank). The applicant has to submit the duly completed Client Account Opening Forms together with the relevant supporting documents to the Participant. After scrutinizing the account opening documents inclusive of the supporting documents the CDS will register the applicant in the CDS system.

Once the registration process is completed the CDS system will generate an acknowledgment slip with the Client Account Number and this acknowledgment would be handed over to the Participant confirming the CDS account opening. The client account number will be the national Identity card number/ passport number of the client along with the broker code.

Registration of ownership

Registration of ownership in the CDS is automatic on the conclusion of a transaction of shares in a company listed on the Colombo Stock Exchange. The quantity of shares purchased is instantly credited to the CDS account of the purchaser. The Companies Act has provided for the person who purchases shares in a listed company to be deemed a shareholder in that company.

Documents required to open CDS account

Residents with normal identification

1. A clear photocopy of the National Identity Card (NIC).
  •  If the NIC is not available a copy of a valid Passport as at the date of the Account being opened at the CDS.
  • An account holder can open CDS accounts with more than one participant
  • In the event an existing CDS account holder registered under a NIC has lost/misplaced the NIC and is unable to submit a copy through the new participant, the CDS will accept a copy of a valid passport which bears the NIC number. This should be submitted together with a sworn affidavit stating the fact that the NIC is not available.
  • In the event, both the NIC and Passport are not available, a copy of the Driving License should be submitted, together with an Affidavit confirming the fact that both NIC and Passport are not available.
2. Proof of residency document Such as an electricity bill, telephone bill etc

Non-resident Sri Lankans
In the event a resident Sri Lankan becomes a non-resident that person would have to open a new (Foreign) account. In such an instance the following documents relating to opening a foreign Client account need to be submitted.

A copy of the Sri Lankan valid Passport.

Proof of residency document as per the Rules issued by the Financial Intelligence Unit of Sri Lanka
SIA (Securities Investment Account) account details with documentary proof.Apart from this, there are some other CDS forms that the investor has to fill.

The CDS offers the facility of changing client account information.

CDS statements

CDS will forward to the account holder a statement if such account was active during a particular month (monthly statement) and will  forward to the account holder a quarterly statement if such account was active during the preceding three months (quarterly statement). An active account is an account with at least one transaction (purchase/sale/deposit/withdrawal/transfer) during the period/s referred to above.
CDS will forward a statement annually as at 31st March  to inactive account holders (accounts with no transactions for a period of 12 months) having credit balances.

Where an account holder wishes to change any particulars in the account, the account holder shall submit a letter indicating the desired changes together with any supporting document (relevant to the particular change) to the participant. The Participant shall verify the accuracy of information provided by the client and authenticate the signature before submitting the documents to the CDS. The CDS shall effect changes after verifying the documents submitted.

Locked account

The CDS also provides a service whereby shareholders of securities who do not wish to trade their securities, to "lock" their securities in a separate locked balance in their own CDS accounts. Once securities are  "locked"  in this manner such securities would not be visible to the CDS Participants (Stock Brokers and Custodian banks) thereby maintaining the confidentiality of the information and also safeguarding the account holder/shareholder from any possible unauthorized transaction by a Stock Broker. Trading on locked balances would be suspended.

Securities could be unlocked from a locked balance and transferred to the trading balance of the CDS account holder only with the written authority given by the CDS account holder to the CDS through the relevant Participant.( (Stock Broker and Custodian bank)

Dematerialization Service (Deposit of securities)

Dematerialization is the process by which the physical certificates of a shareholder of a listed company are converted to an electronic form.

A shareholder could only sell securities that are held electronically through a securities account in the CDS. The process of dematerialization requires the CDS account holder to submit the physical certificate and duly signed transfer form to CDS through the relevant CDS participant. The CDS will deposit the quantity of securities to the relevant securities account the same day.

Rematerialisation Service (Withdrawal of securities)

Rematerialisation is the process by which the electronic securities balances of a shareholder of a listed company get converted back to certificate form.

A CDS account holder could obtain a securities certificate for purposes of pledging. The Account holder is required forward the relevant duly signed transfer form to CDS through the relevant CDS Participant. The CDS will withdraw the shares from the relevant securities client account and forward the relevant documents to the respective company secretary. The company secretary is required to submit the relevant securities certificate to CDS before expiry of seven (07) market days of lodging a valid transfer with them. The CDS Participant is then required to collect the securities certificate from CDS and forward the certificate to the account holder.

Transfer service

A CDS account holder has the facility of transferring the securities between securities accounts opened through different CDS Participants. Gifts are possible between immediate family members and have to be approved by the Securities and Exchange Commission of Sri Lanka. Such transfers attract a stamp duty. A CDS account holder who wishes to transfer securities must forward the relevant transfer documents through the relevant CDS Participant.

Corporate Action Service

The CDS facilitates the distribution of corporate actions by providing the entitlement schedules to the Company Secretary or Registrar enabling the Company Secretary or Registrar to identify the shareholders who are entitled to the corporate action. Distribution of dividends is handled by the Company Secretary or Registrar. In the case of Stock Splits or Rights issues, the new shares will be directly uploaded to the respective account holders’ securities accounts in the CDS.


The transmission of shares to the heirs of a deceased shareholder is done by forwarding the necessary documents such as the probate or letters of administration to the CDS through the CDS Participant and registering the same with the relevant company secretary. Stamp Duty is payable to the Department of Inland Revenue for such transmission of shares.


A facility is available whereby account holders could nominate another person/s to receive shares in the event of the death of the account holder. This has been provided for by law through an amendment to the civil procedure code. The transmission of securities where a nomination has been made eliminates the need for legal documentation such as probate or letters of administration and expedites the process of transfer of shares to the named beneficiaries.


Equities are settled on a trade by trade basis followed by funds settlement 3 days later (T+3). Stock is transferred on trade date and cash transfers are on T+3. Settlement cycles are flexible for Government securities and Corporate debt securities at the discretion of the parties entering into the trade. Cash settlement is through one of the four commercial banks appointed by the CDS to act as settlement banks.

Instructions to CDS

All Instructions to the CDS have to be forwarded to the CDS through the relevant participant. All instructions to the CDS should be in the relevant CDS form except in the case of address changes where a letter signed by the account holder should be furnished with a proof of residency document.

You can find more articles about the Colombo Stock exchange in future articles. So please subscribe to the website for future updates on Colombo stock market.

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