Debt Trading

LOLC Securities Limited facilitates corporate debt trading in Colombo Stock Exchange. The company has trained investment advisors who assist clients on carrying out transactions in the fixed income space through the stock exchange. Corporate debt market has seeing increased interest in recent times recording highest amount of debt issues in terms of capital raised and number of IPOs in 2013.

What are Corporate Debt Securities

Bonds issued by a company bearing coupon interest usually payable annually, biannually or quarterly on specific dates and the principal amount being repayable on a set date on redemption of debt securities. Corporations frequently issue corporate debt for capital requirements.

How to start debt trading in CSE?

There are two ways of investing in debentures. One way is to subscribe for the initial public offering of the debentures. You can get the information about the debenture from the prospectus issued by the debt issuing company. The information includes basic investment related information such as coupon rate (interest rate), maturity, interest paying cycle and other company information such as credit ratings, business nature, financials etc.

The other way of investing in debentures is to buy the listed debentures through the secondary market. Debentures are traded in the market just like equities and you can buy and sell the debentures through the market. The price and value of the relevant debenture will depend on the interest rates in the market and the risk profile of the debenture. Since interest rate and risk profile of the company in general does not change considerably in a short time period, the fluctuation of the price is considerably low compared to equities.
The Colombo Stock Exchange (CSE) has facilities for the secondary trading of Corporate Debt Securities. Participants have the luxury of carrying out the trading of Equity and Debt securities on a single trading platform.

What is Par Value / Nominal Value / Face Value in a debenture?

If you hear the terms par value, nominal value or face value, they all mean the same in corporate debt investing. It is basically the amount the bond holder will receive at the date of maturity. As these investments are fixed income instruments, most of the time this value is the same price you will pay at the date of issue. But there may be instances where instruments are issued at discount such as zero coupon bonds. E.g. – Treasury Bills.

But please note in secondary market selling you may not get the par value as price on the secondary can be low than par value (discount) or high than par value (premium) based on market’s expectations on the interest rates.

What is Issue Price in a debenture?

Issue price is the price at which the bond is issued at initial stage. This price is generally equal to the par value but there can be instances where issue price is less than the par value (for example in zero coupon bonds issue price will be less than the par value).

What is Coupon Rate / Coupon Payment in a debenture?

Coupon rate is simply the yield (the interest) you will get from the fixed income instruments. For example if you see a debenture with par value of Rs100 and coupon rate of 14%, payable annually, on the date of interest payment you will get Rs100 X 14% = Rs 14. 

In a situation where coupon payment frequency is higher than once a year you will get an appropriate portion of the coupon on the date of interest payment. For example in the same bond above, if the coupon payment is semi-annual you will get Rs100 X 14% X ½ = Rs 7 interest payment, twice a year.

What is TOM and SPOT in debt trading?

For debt securities investors have a choice of doing trades on two separate settlement boards.

• TOM Board - Settlement on T+1(Early Settlement)
• SPOT Board - Settlement on T+2(Normal Settlement)

Accordingly, cash settlement can be done on T+1 or T+2 and Debt securities settlement is on DVP (Delivery versus Payment) basis.
Participants also have the facility to do negotiated trades through the Crossing Board.