Capital Alliance Ltd. (CALT), one of the five non-bank primary dealers in the country, has expressed its optimism about the potential for growth in the bond market in light of positive future developments.

CALT forms the securities trading arm of the wider Capital Alliance Group (CAL). Established in 2000, CAL is a full-service investment bank in Sri Lanka that caters to a diverse network of family businesses and institutional clients. Its expertise in capital markets is translated into the services offered to its clients, which include equity and debt advisory, stockbroking, fund management, private equity, and securities research services.

During a recent interview with The Sunday Morning Business, CALT Managing Director Somadasa Palihawadana shared his views on how the bond market evolved significantly since his entry into the domain in the early 1990s, and outlined how upcoming developments can further enhance the market despite the prevalent economic uncertainty in the country.

Following are excerpts of our conversation:

How has the bond market evolved since you started your career?

In 1992, I started with the Bank of Ceylon’s London branch as the Chief Dealer, trading in UK Government bonds. In the late 90s, the Central Bank of Sri Lanka started issuing government bonds, and by that time, I was the Chief Dealer of the Bank of Ceylon in Colombo. My experience of trading bonds in London helped me immensely in trading Sri Lankan Government securities. Initially, the government securities market was paper-based, and investors were issued paper certificates. Later, during the mid-2000s, government securities were made scripless, which greatly increased the secondary market transaction volume and made it easier to enter repurchase agreements with government securities as collateral. The introduction of the Bloomberg trading platform also increased the secondary market trading volumes as the banks and primary dealers started trading directly with each other, eliminating the brokerage cost of the transactions. The market transparency has further improved since the Central Bank of Sri Lanka mandated reporting of the secondary market transactions on the Bloomberg platform.

What was the turning point in the bond market?

In my personal opinion, the move to scripless securities was the turning point of the government securities market. This transition was a huge leap in the efficiency of the payments and settlement system. This transition increased secondary market transaction volumes and also increased the volumes of repurchase deals that were executed in the market.

Where do you see the bond market in the next five to 10 years?

Exciting times ahead. I have seen the bond market evolve immensely over the last 20+ years. Thanks to the Central Bank and their timely introduction of new technologies to the government securities market, the market has grown in terms of size and, more importantly, transparency. The possible introduction of the Central Counterparty system and a common electronic trading platform for all market participants will significantly reduce the counterparty risk in the market. This will increase the trading volumes, and we can see more narrow spreads in bond prices. This will eventually reduce the government’s borrowing costs.

How does your experience with a primary dealer company compare to your experience in banks?

Starting my career with a bank laid a solid foundation for me to have exposure to different asset classes. I have traded not just fixed income but also foreign exchange, money markets, and derivatives during my long career with the bank. But in managing a primary dealing company, our key focus is on fixed income products. This has allowed CALT to develop a unique expertise in trading government securities. Over the past 20 years, from the in-house systems to the