CDSC automated op hits another setback

KATHMANDU:

Automated operation of Nepal’s only central depository of shares, which was scheduled to begin from today, has hit yet another roadblock.

CDS and Clearing Ltd (CDSC), which has put most of the necessary components for automated clearing and settlement of shares traded, had announced that it was ready for real time operation following the brokers’ participation as clearing members.

However, the supposed automated operation could not take off, as brokers have not yet provided bank guarantee. The clearing members are required to place a bank’s guarantee that the brokerage firms will have

sufficient cash to cover the cases of default or delay in settlements.

“The CDSC would have started to settle and clear the transaction of dematerialised shares from today, but the clearing members had some difficulty in presenting bank guarantee papers, so the new service could not be launched,” informed CEO of CDSC Subodh Sharma Sigdel.

“Had everything worked out, we could have started to settle the trading of demat shares electronically,” he added.

Brokerage firms were at first apprehensive about taking up the clearing membership of the central depository. Earlier, brokers had strong reservations regarding the Clearing and Settlement Bylaws of CDSC, which required them to keep Rs one million cash idle with CDSC.

To appease the brokers, CDSC amended its bylaws and decided to accept bank guarantee on behalf of the brokerage firms to cover defaults or delay in settlements.

According to brokers, the process of acquiring bank guarantee is taking a bit longer than expected. “The bank wanted all board members present while submitting the documents required in obtaining the bank’s guarantee of settlement,” informed president of Stock Brokers Association of Nepal (SBAN) Narendra Raj Sijapati.

“It will take a while for all 50 brokerage firms’ four to five board members to be present and get all the documents approved,” he added.

The brokers have approached clearing bank for the stock trading — Bank of Kathmandu — to be the guarantor of clearing members.

“We also want CDSC to be operational soon so that our workload can be minimised and traders will also get better services,” pointed out Sijapati.

“The brokers have decided to encourage the clients to open demat accounts that will, in turn, put pressure on the listed companies to get their shares registered at CDSC for demat trading,” he added.

Only dematerialised shares can be electronically transferred even if brokers begin their work as clearing members, which electronically transfer dematerialised shares belonging to the investors stored in demat account at Depository Participants.

There are mere 6,392 units of shares held in demat accounts of their owners, while only 16 listed companies have registered their shares to get dematerialised.

CDSC’s inability to promptly start its automated operation and lack of participation of listed companies in registering their share units at CDSC has discouraged an ordinary trader to open a demat account to store the shares by incurring additional expenses.

Operation of CDSC will make share transfer swift and timely, while it will remove the necessity of keeping physical share certificate in place, making share trading and settlement possible within four days.

Source: THT