CDS operation: Where has the preparation reached so far?

ShareSansar, September 22:

Nepal Stock Exchange (Nepse) and CDS and Clearing Ltd (CDSCL) have been saying that they will implement the demat form of share trading from Ashoj 19 for the stocks of the commercial banks in the first phase while the full-fledged operation will begin from Kartik 6.

The stock exchange and its subsidiary are even under the legal pressure to begin the much-touted paper-less technology by Kartik 6.

Central Depository Service Regulation 2010 clearly spells that the ‘securities transactions on Nepse after six months from the commencement of the operations of Central Depository Company shall be in de-mat form only.’

Since the operations of CDS begun for the first time begun on Baisakh 2, the full-fledged operation should start from Kartik 2.

However, has the preparation for the full-fledged operation of the demat form of trading completed? While checking the updates regarding the works done so far for the implementation of the CDS, it does not look much encouraging.
 
ONLY FEW HAVE DEMAT ACCOUNTS

The investors seemed less interested in opening their demat accounts.

According to the data of the CDSCL, only 784 accounts have been opened so far while it is estimated that there are 15,000 plus regular investors in the secondary market.

This lukewarm response to the investors is attributed to the gross negligence from the part of the CDSCL, Nepse and capital market regulator Sebon.

“The awareness among the investors is lacking. The concerned stakeholders should run the educational program to encourage the investors to open their demat accounts since the first and foremost part of the paper-less trading is the demat accounts of the investors,” former president of Stock Brokers Association of Nepal (SBAN), told ShareSansar.

However, CDSCL officials argue that the investors not opening the demat accounts do not halt the process of the demat form of trading that they plan to start from Ashoj 19. “The sellers do not need to have the demat account immediately, but the buyers should have it.

So the trading will not be halted just because all the investors do not have their demat accounts,” said CDSCL CEO Subodh Raj Sigdel.

He, however, dismisses the accusation that the CDSCL was doing nothing to encourage the investors to open the demat accounts. “We are appealing the investors to have their demat accounts plus we are also holding the awareness program. An interaction with the investors is scheduled for this week,” he added.

While the awareness is also lacking among the investors, leaders of the investor also point out the inconvenience for the investors to open the demat account.

He also accused that the brokerage firms are discouraging the investors to become the beneficial owner rather than encouraging them to open demat account. “Many brokers who fear that the implementation of the CDS will inhibit them from the insider trading are discouraging the investors to open the demat account saying that the CDS was still unsure,” he accused.

HALF OF THE LISTED COMPANIES RELUCTANT JOIN CDS DESPITE LOOMING DEADLINE

The ultimatum of the Nepse to the listed companies to take the membership of the CDSCL for the admission of their securities has still gone unheeded.

 More than half of the listed companies are yet to begin the process of taking the membership of the CDS thought the full-fledged implementation date set by the Nepse is not even a month away.

While 25 companies are already the members, 77 other are in the pipeline. This means that there are 124 companies which are still to apply for the membership.
According to Nepse, there are a total of 226 listed companies.

Nepse spokserperson Shambhu Prasad Pant said that the companies should come on board the demat form of trading within the deadline of the Nepse. “Those failing to get the membership will have to face the action,” he warned.

The Nepse, in its statement issued on Bhadra 19, had warned the companies to get their shares dematerialized within 21 days. Nepse had also said that the listed companies who do not get their shares dematerialized within 21 days will be delisted from the trading. The deadline expires on Friday.

Even some banks whose shares trading will begin from Ashoj 19 do not seem to bother to even start the process of acquiring the membership. While Nepal Investment Bank Ltd applied for the membership yesterday, Nepal Bank Ltd is still out of the process.

“We will hold a meeting among the stakeholders once the deadline is over and decide what to do with those companies who do not come to the CDSCL until the deadline period. Personally, I am not in favour of extending deadline time and again unless there is compelling reasons for the companies to not apply for the membership,” he said, lamenting on the reluctance of many companies to join the CDS.

“It’s really embarrassing that some companies have not even shown interest or made inquiry for the CDS membership.”


FEW DPs FOR OPENING BENEFICIAL ACCOUNT

“While speaking practically, it’s the brokers with whom the investors are close and are in regular touch. Had the brokers taken the membership of the Depository Participant (DP), many investors would have already opened their demat account,” said Raj Kumar Timilsina, president of Nepal Investors Forum (NIF).

Narendra Sijapati, president of Stock Brokers Association of Nepal (SBAN), however, said that the brokers were positive to become the DP. “We are ready to become the DP and many have already started the process to take the membership. Some applications of the brokerage firms to become the DP are still pending at the Sebon,” he added.

Only 11 firms have become the DPs while two other are in the pipeline. “The problem is so serious that some companies who have taken the DP are turning away the investors citing lack of connectivity,” Timilsina added.

OTHER ATTEMPTS FOR THE CDS IMPLEMENTATION

In a bid to resolve the problems related to the CDS implementation, Nepse has formed 'Demat Implementation Team'.

According to Nepse Spokesperson Pant, the team comprising representatives from brokerage firms, Nepse and CDSCL will prepare the procedures as well as sort out the problems related to the implementation of the CDS.

"The team has been asked to recommend the solutions for the problems seen in the implementation of the CDS," said Parmeshwor Bhakta Malla, who is a member of the team represenating brokers.

Despite challenges, the authorities and other stakeholders say that they are committed to implement the CDS as per the plans. "CDS will come into operation as per the plans and we are working on full swing toward making it happen," Nepse spokesperson Pant added.

It is estimated that the average daily turnover in the bourse will at least reach Rs 1 billion daily from the current daily average of Rs 500 million.