CDSC fails to get members to start full operation

KATHMANDU, APR 22:

Due to the absence of clearing members, and only a few registered companies and dematerialised account holders, the full automated operation of CDS and Clearing Ltd (CDSC) will not start any time soon.

Though finance minister Shankar Koirala inaugurated Nepal’s only central depository for full operation last Monday, it is futile for an investor to expect automated clearing and settlement of share transactions.

There are seven listed firms that have registered their shares for dematerialisation out of the 226 listed firms, seven depository participants, 254 demat account holders and 6561 units of dematerialised shares while there are no clearing members so far.

Clearing members are brokers who must take membership from CDSC and obtain the authority to electronically transfer dematerialised shares belonging to investors stored in demat account at depository participants. In the absence of clearing members, automatic clearing and settlement is not possible.

“Brokers are not yet ready to become clearing members in

the absence of companies registered at CDSC and dematerialised shares,” said immediate past president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Paudyal.

Clearing members are supposed to deposit Rs one million at CDSC in case of default or delay in settlement, according to the recently released Clearing and Settlement Bylaws of CDSC. Though the annual registration renewal fee is low at Rs 1000, brokers are not excited about joining CDSC due to the deposit clause.

“There is no guarantee that CDSC will start operations as announced, so no broker is willing to deposit money at CDSC for an indefinite period,” said Paudyal, adding that there will not be many shares to be transferred as there are only seven listed companies and about 6,000 units of dematerialised shares.

The inauguration of CDSC held on April 15 is the third formal inauguration promising speedy operation of Nepal’s only central depository that will work as a powerful portion for the capital market. The first was held on March 31, 2011, after the regulator had granted the Letter of Intent (LoI). After obtaining the LoI, CDSC started working on its bylaws and Securities Board of Nepal (Sebon) started working on CDS Regulation. The second inauguration was held on July 16, 2012, when it started the job of central depository by opening dematerialised accounts.

Both companies and investors are not ready to dematerialise shares due to the persistent delay in CDSC’s operation. Moreover, dematerialisation is a costly affair for both the entities and dematerialised shares need to be once again converted to paper scrips for trading in the existing system.

CDSC had started clearing and settling a few dematerialised shares from beginning of April as a trial which was apparently a success. Back then clearing was done through brokers because it was a trial, but for the real clearance of traded shares, a clearing member is indispensable.

“We are optimistic that brokers will soon take clearing membership from CDSC as many of them have already assured us that they are in the process of applying for membership,” said CEO of CDSC Subodh Sharma Sigdel.

“As for bringing more listed companies to get their shares registered, we have sought the help of Sebon and Nepal Stock Exchange to convince the companies,” he added. CDSC has fixed a flat rate of Rs 25 for dematerialised share transfer irrespective of the quantity transferred by amending the CDSC bylaws and it has also revised the annual fee for listed companies to make it more attractive.

Source: THT