APPLICATION FOR TRADING MEMBERSHIP FOR DEBT SECURITIES OF THE COLOMBO STOCK EXCHANGE (CSE) The CSE invites applications for Trading Membership for Debt Securities of the CSE in terms of Article 3A of the Articles of Association of the CSE to deal in Debt Securities traded on the Automated Trading System (ATS) of the CSE. THE TERMS AND CONDITIONS FOR ADMITTING TRADING MEMBERS FOR DEBT SECURITIES The terms and conditions pertaining to the application are as follows: 1. Eligibility Criteria Applications may be submitted by either of the following entities, which satisfy the Legal, Financial, Business and Other Requirements set out below: a) an institution appointed by the Central Bank of Sri Lanka as an Authorized Primary Dealer, which is incorporated under the Companies Act No. 07 of 2007. or b) a body corporate incorporated under the Companies Act No. 07 of 2007 providing financial services and having; i) a minimum stated capital of Rs.100 Mn., ii) adequate expertise and experience in dealing and trading in Debt Securities., iii) the capability to develop a retail and/or institutional clientele for Debt Securities. 2. Legal Requirements The Entity seeking the Trading Membership of the CSE shall; a) be a body corporate duly incorporated under the Companies Act of Sri Lanka; and b) be capable of satisfying the requirements set out in Part II of the Schedule to the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987, as amended (SEC Act). 3. Financial Requirements (Not applicable for Primary Dealers) The Entity seeking the Trading Membership of the CSE shall; a) have a minimum stated capital of Rs. 100 Mn. and b) maintain a positive net assets position for past 3 financial years. If the applicant is a new/start up company, the major shareholder/s of the applicant company should maintain a positive net assets position for the past 3 years. Where the major shareholder/s is an/are individual/s, a clear report obtained from Credit Information Bureau (CRIB) should be submitted. 1
Major shareholder/s herein shall mean person/s holding, either individually or jointly, over seventy five percentum (75%) of the ordinary voting shares representing the stated capital of the Entity. 4. Business and Other Requirements The Entity seeking the Trading Membership of the CSE shall: a) engage in the following business activities: Dealing in Debt Securities traded on the ATS of the CSE, upon obtaining the stock dealer license from the SEC; and Offering stock brokering services in Debt Securities to both retail and institutional investors, upon obtaining the stockbroker license from the SEC. Stock dealer herein shall mean any individual or body corporate engaged in the business of buying or selling of securities or in the dealing or jobbing or trading of securities, or the underwriting or retailing of securities but shall not include an underwriter who is a registered market intermediary. Stockbroker herein shall mean any individual or body corporate engaged in the business of buying or selling of securities on behalf of investors in return for a commission. b) possess the following minimum IT infrastructure/communication requirements, which are required for a Trading Member to operate the ATS: Hardware/software Cost The basic IT infrastructure that is required for a Trading Member to operate the ATS is as follows: Items Approximate Cost Router With two WAN interface Rs. 176,000 Trader license per workstation (Note 1) USD 100 Note 1: The number of licenses will depend on the number of traders using the ATS. Data Communication Charges As per the current service provider agreements, the following SLT and Dialog link costs are applicable: N Bandwidth of the Data Link SLT Monthly Rental on indicative bases per Data link (Rs) Dialog Monthly Rental on indicative bases per Data link (Rs) 2M 33,900/- 33,900/- 1M 21,000/- 24,900/- 512k 15,000/- 15,000/- 256k 12,500/- 12,500/- 128k 9,000/- 10,000/- 2
Notes: 1. The charges exclude applicable taxes. 2. Installation charges may vary depending on the location of the office. 3. 128Kbps is the minimum bandwidth that is provided by the service providers and it is sufficient to provide access for eight ATS Trader Frontend users. (Assumption - The average bandwidth for an ATS Trader frontend user is 27.044Kbps and may vary due to user activities.) (iii) End User Workstations The broker workstations with the configuration of 512MB memory, Windows XP Operating System and 17 monitor has to be purchased by the broker to be used as trader workstations. All equipment in the Trading System environment should be on Uninterruptible Power Supply (UPS). c) demonstrate that it has personnel having the Educational/Professional requirements and experience as set out below : (iii) At least 2 persons who deal in Debt Securities possessing a degree or a professional qualification acceptable to the SEC and a minimum of 3 years experience dealing in Debt Securities. Evidence of experience in activities relating to debt dealing should be submitted. If such persons do not possess either of the above-mentioned educational qualifications, they should possess a minimum of 7 years experience in dealing in Debt Securities. Those who do not fulfill the above criteria and any new recruits engaging in dealing Corporate Debt Securities should have successfully completed the debt module of the Certificate in Capital Markets (CCM) examination. 5. Transaction Costs and Trading Member Fees: The following transaction costs and fees shall be applicable: a) Transaction Costs : - Corporate Debt and Beneficial Interest of Government Securities traded on the Automated Trading System of the CSE: All transactions Trading Member to client : 2 basis points divided equally amongst CSE, CDS and the SEC : Negotiable b) Trading Member Fees : - Admission fee as a Trading Member for Debt Securities: Primary Dealers Other body corporates - Exempted - Rs. 25 Mn. and applicable taxes - Monthly Trading Member fee payable to the CSE: Rs. 25,000/- 3
6. Rights and Obligations of Trading Members Trading Members (for Debt Securities) will be permitted access to the Debt Securities traded on the ATS of the CSE and shall be appointed as participants of the CDS. Such Trading Members will not be provided access to any other securities traded on the ATS of the CSE. On admission as a Trading Member, the Entity will be required to obtain a license, renewable annually, from the SEC to function as a stock broker and/or stock dealer (as applicable) prior to being permitted access by the CSE to the ATS and the CDS. Inability to obtain such license from the SEC will result in the termination of the Trading Membership of the CSE. As per the Articles of Association of the CSE, Trading Members do not have the right to attend, speak or vote at general meetings of the CSE or to receive notice of same. In the event the CSE is demutualized and the business of the CSE is carried out through a demutualized Company, the Trading Members will not have the right to participate in any capitalization of the assets of the CSE in the demutualized company. Please refer the Articles of Association of the CSE which can be downloaded from the CSE website www.cse.lk. Trading Members are required to comply with the applicable provisions of the CSE/CDS Rules (including capital requirements that may be specified by the CSE) and any amendments made thereto from time to time. Copies of the relevant CSE/CDS Rules will be provided to you, upon being granted the Trading Membership of the CSE. 7. General a) The application should be submitted by the Entity seeking the Trading Membership (for Debt Securities) of the CSE, in conformity with the Specimen Application Form set out below. b) The application should be signed and sealed in accordance with the Articles of Association of the applicant Entity. c) The CSE reserves the right to request for any additional information and/or documents from the applicant Entity. d) Admission of Trading Members (for Debt Securities) to the CSE will be at the sole discretion of the Board of Directors of the CSE. e) The duly completed applications should be submitted in a sealed envelope marked Application for Trading Membership of the CSE to the under mentioned address: Chief Executive Officer Colombo Stock Exchange #04-01, West Block World Trade Center, Echelon Square Colombo 01. 4
SPECIMEN APPLICATION FORM FOR TRADING MEMBERSHIP FOR DEBT SECURITIES OF THE CSE Information to be furnished by the applicant Entity: (1) Name of the applicant Entity (2) Company registration number of the applicant Entity (3) Registered address of the applicant Entity (4) Address at which the Trading Member business will be carried out (5) Details of the Contact Person: a) Name and Designation b) Telephone No. c) Fax No. d) E-mail address (6) Capital structure of the applicant Entity a) Details of Stated Capital b) Details of Debt capital (if any) (7) A brief profile of the applicant Entity and its business with specific reference to trading and dealing in Debt Securities. The applicant Entity (not being an Authorized Primary Dealer ) must demonstrate that it has; - adequate expertise and experience in dealing and trading in Debt Securities. - the capability to develop a retail and/or institutional clientele for Debt Securities. (6) Names and addresses of the shareholders of the applicant Entity and the number of shares held by each such shareholder and the percentage of shareholding. (7) Names, qualifications and experience (relating to financial market related activities) of each Director of the applicant Entity. (8) Details of Board positions held by the Directors of the applicant Entity in other companies. (9) Names and designations of the management staff of the applicant Entity with details of their qualifications and experience relevant to trading and dealing in Debt Securities. (10) Details of parent, subsidiaries and associate companies of the applicant Entity. (11) Any other information/details that may be applicable. 5
Documents to be furnished by the applicant Entity (to be attached to the Application): (1) A copy of the Articles of Association of the applicant Entity, certified as a true copy by the Company Secretary. (2) A copy of the certificate of incorporation of the applicant Entity, certified as a true copy by the Company Secretary. (3) Copies of the audited financial statements of the Entity for the three (3) financial years immediately preceding the date of submission of the application, certified as true copies by the Company Secretary. (Not applicable, if the securities of the applicant Entity are listed on the CSE) (4) A copy of the latest Form 20 filed with the Registrar of Companies, certified as a true copy by the Company Secretary. (5) A copy of the Form 6 filed with the Registrar of Companies, certified as a true copy by the Company Secretary. (6) Affidavits from each Director of the applicant Entity stating that; i. they are persons of good character and of high business integrity ii. they have not a) been declared bankrupt b) been themselves or been Directors of a company that has been denied a license as a stockbroker or stock dealer c) been themselves or been Directors of a company whose license as a stockbroker or stock dealer has been removed by appropriate authority d) been convicted of fraud or criminal breach of trust or cheating or criminal misappropriation e) been guilty of contravening any provision of the SEC Act or any rules or regulations made thereunder (7) An extract of the resolution passed by the Board of Directors of the Entity, certified by the Company Secretary, authorizing: - the submission of an application to the CSE to be admitted as a Trading Member for Debt Securities; and, - designated officials of the Entity to sign such application including any declarations and undertakings to be submitted by the Entity. (8) Documentary proof that the major shareholder/s of the Entity are of good financial standing. (9) A Declaration/s by the Entity, duly signed in accordance with the Articles of Association of the Entity, stating that; - the Directors and Senior Management of the Entity have not: been declared bankrupt; been themselves or been Directors, of a company that has been denied a license as a stockbroker; and, (iii) been themselves or been Directors of a company whose license as a stockbroker has been removed by a regulatory authority. 6
- the Directors and the Senior Management of the Entity are persons of good character and of high business integrity, who have not been convicted of fraud or criminal breach of trust or cheating or criminal misappropriation or guilty of contravening any provisions of any applicable securities law, including rules and regulations made thereunder. - the Entity understands and agrees that, in the event the CSE is demutualized and the business of the CSE is carried on through a demutualized company, the Entity being a Trading Member of the CSE shall have no right to participate in any capitalization of the asset of the CSE, in the new demutualized company and that the only persons who are entitled to participate in such distribution of assets are the Members of the CSE. - there are no other facts bearing on the application for Trading Membership (for Debt Securities) which should be disclosed to the Colombo Stock Exchange and that all information and documents submitted to the Colombo Stock Exchange are true and correct and no alteration, modification or falsification was carried out to them to hide or deflect true facts. Further, in the event of any variation to the information provided in this application, such information would be conveyed to the CSE immediately upon such change. (10) An Undertaking by the applicant Entity to the following effect: The Entity hereby undertakes to abide by and comply with the rules, regulations and guidelines of the CSE and CDS applicable to Trading Members and any amendments thereto that may be made from time to time. 7