1. The Marketplace: Colombo Stock Exchange (CSE)

Think of the Colombo Stock Exchange (CSE) as the central marketplace. It is not a physical place you can walk into, but a digital platform. The CSE is the only licensed entity in Sri Lanka that operates a platform for “shares” (which represent ownership in a company) to be bought and sold.

2. The Regulator: Securities and Exchange Commission (SEC)

The market has a “referee” to ensure fairness and prevent cheating. This is the Securities and Exchange Commission (SEC) of Sri Lanka. The SEC’s job is to regulate the CSE, protect investors, and make sure all listed companies and brokers follow the rules.

3. The “Entry Ticket”: The CDS Account

Before you can buy or sell anything, you must be registered. You cannot walk up to a company (like Dialog or John Keells) and buy shares directly.

• You must first open a Central Depository Systems (CDS) account.
• The CDS is like a “bank account for shares.” It is a computer system (a subsidiary of the CSE) that electronically records who owns what shares.
• When you buy shares, they are credited to your CDS account. When you sell, they are debited.

4. The Intermediary: The Stockbroker

You cannot open a CDS account by yourself. You must open it through a licensed stockbroker firm.

• The broker is your agent and your gateway to the market. They are the only ones with access to the CSE’s trading system.
• You will choose one of the many registered stockbroker firms in Sri Lanka to open your account with.
• Once your CDS account is open, this broker will execute all your buy and sell orders.

5. The Companies: “Listed” Companies

The “products” for sale on the market are shares of listed companies. These are public companies (e.g., Commercial Bank, Hayleys) that have completed an Initial Public Offering (IPO) to sell a portion of their ownership to the public to raise money (capital).

6. The Trading Process: How to Buy and Sell

This is how a trade happens in the “Secondary Market” (where investors trade with each other):

1. You Decide: You decide you want to buy 100 shares of “Company X” at LKR 50 per share.
2. You Place an Order: You contact your stockbroker (by phone, or more commonly, through their online trading app) and give them the order.
3. Broker Enters the Order: Your broker enters your “buy” order into the CSE’s Automated Trading System (ATS).
4. The “Match”: The ATS is a giant order book. It looks for a “sell” order for Company X at LKR 50.
5. Trade Executed: When the system finds a matching seller, the trade is executed instantly. The 100 shares are moved from the seller’s CDS account to your CDS account, and the money is moved from your account to the seller’s.

7. How Performance is Measured: The Indices

How do you know if the market is “up” or “down” for the day? You look at the indices.

• All Share Price Index (ASPI): This is the main index. It tracks the average price movement of all the companies listed on the CSE.
• S&P SL20: This is a more focused index. It tracks the performance of the top 20 largest and most liquid (most frequently traded) companies in Sri Lanka.

In summary: You (the investor) open a CDS account with a broker to buy and sell shares of listed companies. These trades happen on the CSE’s electronic platform, which is regulated by the SEC.