CDS to have negative impact on share market

KATHMANDU, MAR 30: 

The much-hyped about central depository system (CDS) which has been projected as a single shot cure to the ailing share market is not only turning out to be a costly affair for investors but also to new companies who want to be listed at the share market.

The expensive fee — which comes to around Rs 4 million including all the charges for banks like Janata Bank, Mega Bank, Commerz and Trust Bank, and Civil Bank who have to issue shares — might wipe out the benefits of introducing the central depository system in the capital market and may not be profitable for them to be listed at a time when the share market is performing poorly.

On one hand, the government wants more real sector companies to be listed, but on the other, the central depository system bylaw is making it a costly affair to be listed.

Companies not only need to pay about Rs 500,000 more annually to allow the secondary trading of their shares but also have to pay Rs 2 per unit share, apart from the listing fees of Nepse and Sebon.

According to CDS and Clearing (CDSC) bylaw, listed companies with a paid up capital exceeding Rs 2 billion have to pay 0.015 per cent listing charge and companies with a paid up capital between Rs 1 billion to Rs 2 billion need to pay 0.025 per cent of their paid up capital as listing fees. Besides that the companies have to also pay Rs 50,000 to Rs 500,000 depending on the size of their paid up capital. 

The companies already have to pay 0.20 per cent of issued capital to Securities Board of Nepal (Sebon) at the time of registration and pay anywhere between Rs 15,000 to Rs 50,000 to Nepal Stock 

Exchange (Nepse) as listing fee based on their issued capital. In addition, companies have to pay an annual listing fee of up to Rs 50,000 to get their shares traded at the Nepal Stock Exchange.

For the upcoming listing of Janata Bank, it has to pay Rs 562,000 in order to get its shares listed for share trading and transfer. There are chances that the end investor might be burdened with the responsibility to pay the fees as there is no binding clause for the companies preventing them from transferring the cost of listing to the investors. 

“CDSC bylaw was endorsed by the regulator after being assured that if any provision causes any difficulty for the smooth operation of the capital market then the laws will be revised,” said director of Sebon Niraj Giri, adding that CDS is supposed to be a facility and incentive for listed companies and investors.

Earlier, Sebon had refused to approve the company’s bylaw due to the provision for expenses mentioned in their bylaws that will translate to expensive transactions for investors. 

The bylaw was finally endorsed by the regulator after much haggling with CDSC in December end.

Already, investors need to pay 0.7 per cent to one per cent as broker commission, 0.015 per cent as Sebon commission, five rupees ownership transfer charge for buyers, apart from capital gain tax, at present. 

Now after the introduction of CDS there will be added cost of maintaining an account at CDSC’s Depository Participants. But the finance ministry is mulling over reducing transaction cost at Nepse to encourage more trading. 

CDSC will dematerialise the physical scrip promoting multiple transactions a single day therefore contributing in transaction volume that has gone down to around Rs 20-30 million. 

At present, it takes about two months for the share ownership transfer after the order placement thus it is very difficult for the investor to sell shares immediately after the purchase.

Source: THT