GuruPurnima Special: First a teacher then the CEO of NEPSE- “We expect online trading to be ready within one month!” Interview with Chandra Singh Saud

Fri, Jul 27, 2018 11:19 AM on Interview, Latest, Stock Market,
GuruPurnim...

A teacher’s teaching is always significant in a student’s life. The profession of a teacher involves incalculable importance. On the auspicious occasion of Guru Purnima, Share Sansar could not find a better alternative than Mr. Chandra Singh Saud who started his career as a teacher and recently delivered a lifelong lesson for all the investors, employees and general public to fight for their justice being in the position of CEO at NEPSE.

On this backdrop, Ms. Dheerusha Tiwari interviewed Mr. Chandra Singh Saud on his journey, NEPSE’s future and Mr. Saud’s plans regarding it.

Born in Baitadi in 2026 BS; Chandra Singh Saud accomplished his district level education from Baitadi. In 2044, Saud attempted SLC from Mahendranagar, Kanchanpur. For his higher level education, he came to Kathmandu and did I.Com from Pashupati Campus, Chahabil, B com and MBA from Nepal Commerce Campus. From the time he came to Kathmandu, he has always been a teacher. He started his career as a school teacher. In 2051, he associated with Nepal Life Insurance in the officer level position. Despite being associated with other sectors, Mr. Saud did not gave up on his career as a teacher. In fact, in 2051, he started teaching in different colleges within the valley and still continues the profession. After this, he came across vacancy post for the position of CEO in NEPSE and got selected in the competitive process among the shortlisted candidates for the position. His career took a twist when the newly elected government revoked his new post within 9 months.

What was your reaction when your appointment got terminated? Did you see this coming with the election of new government?

 It was beyond the limit of my imagination. I did not come into NEPSE from a political influence rather it was solely determined by an open competition. Little did I know, there would be political influence in this position. If I knew about such interferences, I would have not joined NEPSE at the first place.

What motivated you to come back?

I consider it doing a right thing rather than something as a motivation. All of us who were revoked from the position came through a definite process of free competition. I was appointed in NEPSE after going through 3 to 4 different examination phases not through an overnight appointment. We have a contract agreement of 4 years with the associated company. So, it was an injustice to me and my pals. Government should rather distinguish between who came through political influence and those from free competition while taking such steps.

How will investors be benefitted from your comeback?

If I see from the viewpoint of an investor, it has just been 9 months since my appointment. Within these 9 months, I have amended at least 4 to 5 bylaws relating to margin lending, transactions, right shares issue etc. Prior to my appointment, the Software Requirement Specification (SRS) of only 5 models related to online trading out of 16 were done. As of now, I believe I have created an environment to vendors and all those involved to accomplish the SRS process of these models. Moreover, I will try my best for the accessibility of stock market to investors in all the regions of the country. I and my team also want to bring in other kinds of financial market instruments such as derivatives in NEPSE. I will further try to make an environment where the investor’s investment will be protected by distinguishing sectors such as sectors that protect investment of investors and sectors that don't.

Often heard statement in any trading floor “New Year 2075 came, Fiscal budget came, monetary policy came and all that remains is online trading.” Now, even online trading’s testing has been started, why do you think the market is not taking a bullish trend?

The first reason that I can attribute for the ongoing bearish trend is that the proportion in which number of investors should have increased in the market has not been increased as expected. Second reason could be the oversupply of shares and establishment of new insurance companies. Now, for investors, they have obligations to invest in right shares as well as the new companies. These investors have to sell the shares of old companies for the new ones. This led market towards bearish trend. Thirdly, the bank’s interest rate has increased. Our economy has an inverse relationship between stock market and banking system. Also, once the supply has increased, the market should have been able to increase the demand as well. However, this has not been possible. I believe, with the formal initiation of online trading, the demand will increase and gradually these shortcomings will be overcomed.

The other main reason is the diversification of capital of share market in other highly productive sectors such as agriculture, hydropower, etc. Those investments in hydropower is being used to bring equipment from outside Nepal. So, the capital has gone outside Nepal. This capital has not been able to come into channels of stock market. Furthermore, investors look forward for net profit of BFIs. After meeting the paid up capital requirement, although BFIs have been able to reach the mark of Rs 8 arba, they might not be able to increase their net profit in the same proportion. This further demotivated investors.

We should also understand that the index that was 1800 before 2 years has now decreased to 1100-1200. This can’t be said as a major decline because investors have also consumed bonus shares.

In current situation, FPOs are not getting subscribed. How the private company having more than 1 arba capital get confidence to issue shares among general public? How viable is that? 

I don’t think there is any IPO that has been undersubscribed. But yes, FPO has been undersubscribed. This is mainly because the FPO pricing is almost equivalent to market price of secondary market. And moreover, in Ashar, investors have to fulfill margin call obligation, interest, tax, etc. so, FPO subscription might have been delayed rather than being unsubscribed. Even NMB could subscribe its FPO at the end. I think this is a concern of the authority responsible for pricing.

As for private companies, they will definitely be motivated. In context of Nepal, the trend to commercialize business activities by issuing shares from public is very limited. In other economies, it is easier to collect capital from general public and invest in commercial activities. This trend has not been set in Nepal yet. Once few private companies above 1 arba capital will come into the market, the trend will be set and other companies will also enter the market.

Recently, SEBON has released its market policies and program for FY 75/76, on which it mentioned about need of another stock exchange? Also, in monetary policy, NRB has paved way for commercial banks to initiate broker services as well. How will NEPSE take both these steps for the development of the market?

NEPSE works as a platform for secondary market. If NRB and SEBON require a new stock exchange, we do not have any authority to speak on that. If the country requires another stock exchange, then the work should be taken accordingly. However, the concerned authority needs to understand the status of stock market in Nepal and reseacrches should be conducted in te related field.

I am positive regarding banks performing broker services. If the banks are eligible for the broker service, there won’t be any problem.

With banks opening broker house, won’t the small brokers be facing pressure?

There obviously will be pressure. Not all 50 brokers have required amount of transactions. So, all the brokers must be more professional from now onwards. The concentration should be on advertising, marketing and attracting investors. Broker service is a business so, it depends upon you on how you will attract the investors.

NEPSE has instructed all brokers to install the IT infrastructure for online trading which cost around Rs 1.5 crore. Do you think it’s feasible and all brokers are capable of injecting such huge amount? What if they are unable to create such infrastructure on time?

What we have done is simply to protect investors’ data and  to sustain the business of broker offices. All that we wish is the infrastructure developed by broker offices should sustain over time. The broker should be confident that the infrastructure will sustain for at least 4 to 5 years. So, for this we specified a limit of infrastructure. We did so because we are concerned about their business equally. I understand not all brokers will be able to meet the standardized infrastructure at once but they can do it gradually in phases integrating the conventional method. Also, they can use cloud for data base if they are not able to get the infrastructures right now. However, it also depends upon how many investors do the broker offices want to serve and how they want to take their services.

When will the most awaited online trading come into application formally?

During my revoke, the UAT work had been disturbed for a while. When I attended office on 1st of Shrawan, we went out of the valley on 5th Shrawan for UAT. We expect online trading to be ready within one month. Once all the works related to UAT is accomplished, the online trading will go live.

What are the features of online trading?

The main feature is that you can trade, buy and sell shares from your home. You don’t need to visit broker for every purchase and sales.

Also, you can view investment history such as which institutions’ shares has been bought and sold, how much has been bought and sold, who bought and sold these shares, etc. Due to this reason, the investors will be able to make a sound investment decision. This is likely to eradicate all sorts of dominance of big players.

The investors can also view whether they have enough bank balance while buying shares. They can also observe whether they hold shares they want to sell. The broker office will provide a limit amont to the investors. Investors will remain within this limit and trade. Also, the problem of close out will also not occur frequently with the initiation of online trading.  

Will there be any risk associated with online trading?

The advancement of science and technology has brought a lot of benefits worldwide. We cannot ignore that it has together brought limitations too. So, it can be impled even with online trading. Our main focus is on anti-cyber hacking, data security for risk mitigation. As per the information available to me, as of now, there will be no such major risks to investors through online trading. Yet, I am concerned about a Data Recovery Centre. For example, at times of natural disasters like earthquake, we need a mechanism to recover those data. So, we will try to establish a data recovery system for the protection of investors’ data.

Will the number of brokers remain same even after full implementation of online trading?

The number will remain same. Yes, they will provide username and password to investors in rural areas so, the operation will escalate.        

Information disclosure system of listed companies is very weak, still many companies disseminate information to general public after many days. This has created chances of insider trading. What can be done by NEPSE to minimize this risk?

You are totally right on this issue. We have also received a lot of feedbacks from different sources on the same. For this, we have started working on it. After the new software will be ready, we will update our website. For example, we have planned to provide login ID to the listed companies. The companies will upload all their financial information on the site on their own. We will further supervise whether or not the information has been updated timely.

Moreover, if you access the website today, you will find few changes. For example, a new section “Education” has been added. The update of the information in this section is being done since the day I have been on this seat. The challenges are many organizations have not completed their AGMs, some do not provide information timely. To be honest, this will take time and we are continuously working on it. Once the online system is initiated, the next thing we will do is information disclosure of the listed companies in NEPSE. We have also formed a team of three people whose sole duty is to supervise and update these information.

What is taking so much time to control insider trading?

I will be very honest with this one. In Nepal, finding the root cause or major people involved in insider trading is very difficult. We need supporting documents that justify insider trading is done. However, when we have doubts regarding if companies are involved in insider trading, we make sure, we ask them and warn them regarding such activities. I believe there are fewer cases of insider trading compared to few years ago.

How do you view the monetary policy for stock market? Positive aspects and negative aspects?

Monetary policy is not solely for stock market. Even if the provisions are not related to share market, it directly or indirectly affects the stock market. As far as I am concerned about the positive and negative aspects of share market, this might not be the right time to comment on it.

What are the upcoming developments in Nepalese secondary market?

NEPSE has few challenges so, first and foremost, these challenges are to be overcome.

Firstly, online system should be fully live among investors without any interference. Secondly, alternative instruments related to stock market such as financial derivative especially futures, instruments related index, foreign exchange, contract agreement, etc. should be brought in. For this, we have already established a team to research on instruments that will be feasible in the Nepalese market. The feasible instruments considering the market will be launched. Thirdly, NEPSE’s restructuring has to be taken ahead. this is something which has been talked about a lot but no efforts have been made. NEPSE wass established with the equity of NRB, Rastriya Banijya Bank and Nepal Government. The capital of NEPSE is only Rs 30 crores. So, the capital should be at least Rs 1 arba. Post the restructuring, certain equity will be provided to government, retail investors, employees and institutional investors. This will make a check and balance system. This will make stock market more transparent, accessible and efficient for investors.

Will NEPSE open its gateway for the foreign investors anytime in the near future?

I don’t think bringing in foreign investors is within our power. We are an institute that should provide platform to the foreign investors. I believe, online is the platform. If you ask me personally, I don’t think bringing foreign investors will take the market in an uptrend. The foreign countries have specialized a lot in technologies and trading. They are far more professional than our local investors. At this point, bringing in foreign investors might risk the investment of our investors. These foreign investors can take away allthe investment of our local investors to foreign countries. So, these things are to be studied very cautiously before implementing.

Now that you are CEO at NEPSE but there might have been time when you were an investor? Any investing story as such?

I have always been affiliated with the capital market of this country since 2045/46. I have watched the market very closely. Although I might not be someone associated with secondary market, I do have experiences of primary market. I applied 10 units, 20 units and even 100 units in IPOs.

I still rejoice when I remember buying Standard Chartered’s shares at Rs 9500 and sold it at around Rs 4 lakhs. This amount helped me add one more floor in my apartment. This took time from 5 to 7 years, yet it is a memory to cherish. And, I am well awared this is not possible in today's market.

What are final words for investors?

Please invest looking at your capacity rather than rumors. I comprehend that the market is bearish but it is the nature of market. As an investor, one should understand this takes time so, he/she should have patience. Make sure, you define a base or target on your investment and plan accordingly. Understand your investment objective. Distinguish yourself as a long or short term investor. Diversify your portfolio. Sooner or later, you will be able to overcome your stress and risk.

Share Sansar extends its gratitude to Mr. Chandra Singh Saud for his valuable time. We hope NEPSE reaches a greater height under his leadership.