Central Depository lacks participants

KATHMANDU,DEC 30 : 

The regulator– Securities Board of Nepal (Sebon)– has given green signal for the nation’s first depository to start operation but the operation might not get started any time soon due to absence of depository participants. 

Sebon’s executive board approved the Central Depository System and Clearing Company Ltd (CDSC)’s bylaws, on Wednesday, paving the way for the operation of Nepal’s eagerly awaited central depository. However, depository participants, an integral part of central depository, are yet to be appointed.

Earlier, the board has refused to approve the CDSC bylaw with the present provision for expenses as mention in their bylaws that will translate as expensive transaction for the investors. “The regulator approved the company’s bylaws after it revised its fee and commission structure in comparison to the ones proposed in the earlier drafts,” informed Niraj Giri, director of Sebon.

“CDSC will start the operation after granting membership to the depository participants. Later it will be introducing online transaction as well,” he added. 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. The operation of central depository will require depository participants (DP) that will hold the investor’s records in a dematerialised form. DP will act like bank for the securities while CDSC is going to be the clearing house that will settle the account after each share transactions. 

According to the CDS Regulation–2068 any banks and financial institutions, securities businessperson– brokers and merchant bankers, asset management companies among others. The DP need to have Rs 10 million as paid up capital to get license. 

“Most of the brokerage firms do not have that much paid up capital, brokers should be allowed a time frame to increase their paid up capital meanwhile working as DP,” pointed out Anjan Raj Poudel, president of Stock Brokers Association Nepal (SBAN). 

However, he also said that brokers are not showing their interest due to limited scope of operation. “Increasing capital will only lead to freezing of funds since all we do is place order. The regulator does not allow us to offer margin lending, portfolio management and consultation,” he expressed.

Source: THT