The Main Functions of the CDS
The CDS functions as a depository to hold shares in trust for shareholders of quoted companies, pending transactions on the trading floor of the Colombo Stock Exchange, and acts as a safe keeper of quoted securities.

There are fifteen Stock Broking firms and ten commercial banks that have been provided participatory status with the CDS. These institutions provide custodial service for foreign and local investors.

The CDS Operations
The facilities and the services provided by the CDS are categorized as follows:

• Registration of clients (account opening)
• Deposit of shares
• Withdrawal of shares
• Transfer of shares
• Clearing
• Settlement
• Registration
• Handling of new and subsequent issues

Registration of Clients
An investor who wishes to transact in shares in the CSE should open a Securities Account with the CDS. The CDS on receipt of the account opening forms will enter the relevant data in the computer and assign a client identification number for such account. The CDS would then confirm the opening of the account to the participant the same day. The participant is required to post this document within three market days of registration to the respective client. A client can also change information when required through the CDS.

Deposit of Shares
In order to transact shares on the trading floor, the shares must first be physically transferred through a participant with the depository. The shareholder should forward the relevant share certificates with a duly completed Sold Transfer Form and a deposit slip through a participant. On receipt of the document, the CDS numbers the document and acknowledge and returns the duplicate copy of the deposit slip by franking. Documents are checked for completeness and thereafter an electronic book keeping entry is made. The shares are registered in the name of the beneficial owner. Thereafter the relevant security is returned to the company secretary / registrar of the company concerned for verification and cancellation (share de-materialization) and recording in the share register. The depository does not maintain a vault as in some share depositories. It also does not maintain a jumbo share certificates. All client accounts are segregated within the share depository.

Withdrawal of Shares
An investor who wishes to withdraw shares from the CDS, could do so by forwarding a Bought Transfer Form and withdrawal form in duplicate, in order to obtain the physical share certificate. (share re-materialization) The depository on receipt of a request for withdrawal would acknowledge such receipt by franking and returning immediately the duplicate of the withdrawal form. The withdrawal documents would be checked for completeness and thereafter entered into the computer to record the withdrawal and debit the respective account.

Transfer of Shares
A shareholder registered with the CDS can transfer shares between accounts opened through different Brokers/Participants. The investor is required to forward a completed form in duplicate through his respective participant. Immediately on receipt, the CDS will acknowledge by franking and returning the duplicate copy of the transfer. The document will be checked for accuracy and completeness and the transfer would be effected in the system.

The Exchange has permitted free transfers between accounts in the system for foreign investors operating from different time zones to that of Sri Lanka. These transfers could only be effected before the expiry of two market days from the date of conclusion of the first transaction (T+2). Private transfers are also possible within the system if the shares are held through the CDS.

Clearing
The depository has paved the way to scrip-less trading. Registration takes place on the same date when the transaction occurred. Participants are notified on the next date after the transaction day (T+1). The depository guarantees funds and securities transfers on executed trades of the Exchange. Securities transfers and fund transfers become final on settlement date.

Settlement
Settlement instructions are matched between participants on T+3 (Buyer) and T+4 (Seller). The depository provides a daily schedule listing out the net settlement figures for each participant. This listing is provided to all the participants with due advise to the settlement bank. In view of the custodian banks not being involved in trading activities, a schedule listing the transactions for each trading date is dispatched to them on a daily basis. All custodian banks are required to affirm these trades within trade day plus four market days to facilitate settlement. The settlement process in the CDS is in the form of a Two Tiered system.(Rolling System).The present settlement system is not a DVP system. A client is required to settle the value of a trade in respect of a purchase within trade day plus five market days whilst on account of a sale, a client would receive his cheque from his broker/participant on trade day plus six market days.

The broker to broker settlement of trades would be on trade day plus six market days. The settlement process is coordinated by the nominated settlement bank of the CDS. The depository does not provide cash accounts for fund transfers. Instead the participants maintain accounts with the settlement bank and the net settlement amounts are debited and credited accordingly to each participants account on date of settlement. The depository does not provide credit extensions or advance of funds to the Participants. A Participant cannot have short positions and has to settle all trades.

Registration
The registrar is the company secretary of the issuer. The depository maintains that part of the share ledger which comprises the shares deposited with it on behalf of the quoted companies and this is updated daily with the day to day transactions. The depository also makes available the share-holding (break-up of beneficial owners) of any quoted company on request. List of shareholders are generated and dispatched to the relevant companies for the payment of corporate entitlements as of the record date.

Handling of New and Subsequent Issues
During Initial Public Offerings (IPOs) the clients who subscribe to the offer could request the registrars to the issue to directly credit their depository account with any new shares allotted on such applications without generating a share certificate.

The depository mechanism facilitates the processing of Rights and Bonus Issues if a letter of allotment in respect of such Rights/Bonus Issue is lodged with the system.

Investors who subscribe for Rights and accepts Bonuses could request the issuer to directly credit their depository account with allotments without accepting a physical share certificate.