Central Depository Service
What is CDS?
CDS refers to Central Depository Services. Simply, it is a facility or service provided by the Central Depository Company.
What services you may get of Central Depository Services (CDS)?
It is the service of taking the custody of the listed securities from the concerned securities owners and dematerializes (de-mate) the physical form of financial securities, i.e. to convert the physical shares, bonds, debenture into an electronic form, and maintaining the securities account.
What is Central Depository Company (CDC)?
It is simply a company established under the security board; in case of Nepal, the company established under SEBON, rules and regulation to carry out central depository services i.e. CDS.
Who is playing the role of Central Depository Company in Nepal?
CDS and Clearing Limited (CDSC) situated at Shikhar Biz Centre, Thapathali , Kathmandu is the Central Depository Company of Nepal. The company was established under the company act, which is promoted by Nepal Stock Exchange Limited (NEPSE) in 2010, to provide centralized depository, clearing and settlement services in Nepal.
People get it wrong thinking CDS and CDSC as same. Well, CDS is not CDSC; CDS is a service provided by CDSC which includes dematerializing (de-mat), rematerializing (re-mat) of securities, clearing and settling of transactions and maintaining de-mat account.
Requirements to establish CDC
The body corporate holding ownership of Central Depository Company shall have the qualifications as follows:-
(a) Completion of five years minimum from the establishment of the company,
(b) Net worth not less than paid up capital,
(c) Should have been in profit for the last three years.
Charges to be paid to SEBON to establish CDS
1. Application fee NPR 25,000
2. License fee NPR 500,000
3. Annual fee 300,000
Power, functions and duties of Central Depository Company:
The power, functions and duties of the Central Depository Company shall be as follows:
(a) To establish, operate and manage Securities Depository System.
(b) To establish electronic means of communication with all its depository participants, issuers or Registrar and Transfer Agent stock exchange, its clearing house or clearing corporation and such other entity as may be required to be connected and as decided by Central Depository Company.
(c) To make bye laws and operating instructions for conduct of Central Depository Company and depository participants/ Issuers/ Registrar and Transfer Agents.
(d) To issue guidelines / directions to depository participants/ Issuers/ RTAs for the conduct of business by way of circulars / communiqués.
(e) To enter into agreements with the depository participants / stock exchange its clearing house or clearing corporation / issuers/ Registrar and Transfer Agents before admission of a Depository Participant or securities of an issuer.
(f) To operate through a network of Depository Participants registered with the Board.
(g) To de-mat the securities deposited by the Beneficial Owner into electronic form and to convert de-mated securities in physical certificate as per the instructions of the Beneficial Ownerthrough the Depository Participant.
(h) To prescribe deposit, fees, charges for Depository Participants issuers and Registrar and Transfer Agents
(i) To maintain a register of Beneficial Owners and provide the same to the issuers at regular intervals as may be decided by the Board to enable the issuer reconcile total securities (physical and de-mated) issued.
(j) To make available an effective electronic deposit service to Depository Participants, RTA, and issuer.
(k) To make available the facility to record mortgage / pledge / freeze of securities in Depository Service.
(l) To make available the necessary support to other organizations related with securities i.e. Depository Participants, Stock Exchanges, Clearing Corporation or Clearing House of Stock Exchanges, Stock brokers, with the approval of the Board.
(m) To admit, supervise, monitor, suspend and / or terminate the membership of Depository Participant,
(n) To make arrangement for safe keeping of data of all securities kept in the Depository,
(o) To open an electronic account for the Beneficial Owner through Depository Participants and to make available the details relating to the account as per the demand of the concerned party,
(p) To establish and operate the system to effect transfer of securities in the Depository,
(q) To prescribe an upper limit for the charges / tariff to be levied by the depository participants to the Beneficial Owners.
(r) To freeze securities in the Beneficial Owner’s account or freeze the account of the
Beneficial Owner upon receiving instructions/ orders from competent authorities, subject to receiving such the competent authority provides details of the Beneficial Owner’s account from the competent authority as specified in the Bye-laws / operating instructions of the Central Depository Company.
(s) To make available other services as mentioned in the Memorandum of Association of Depository Company.
(t) To take adequate measure including insurance to protect the interest of the Beneficial Owners against risks likely to be incurred on account of its activities as a Central Depository Company
(u) To indemnify any loss caused to the Beneficial Owner due to the negligence of the Central Depository Company or the depository participant and to recover the same from the depository participant where the loss is caused due to the negligence of depository Participant
(v) To cause an inspection of its controls, systems, procedures and safeguards annually and forward the copy of the report to the Board
(w) To appoint a compliance officer and provide adequate freedom and powers of its compliance officer for the effective discharge of its duties.
Functions not to be carried out by the Central Depository Company:
The Central Depository Company shall not perform or cause to perform the functions as follows:
(a) To assign or delegate to any other person its functions of the depository service, without the prior approval of the Board.
(b) To disclose confidentiality relating to a beneficiary account except otherwise prescribed by the law.
(c) To render investment advice about any securities to its clients
