Investors could miss out on dividends

KATHMANDU, NOV 10: 

A delay in clearing and settling share transactions during book closure season might lead to investors missing out on dividends. 

Unlike expectations, CDS and Clearing Ltd (CDSC), which has taken the responsibility of clearing and settling traded shares, has not helped in speeding up the process. In the last two weeks, CDSC has cleared and settled less than half of the traded shares.

CDSC has not been able to settle transactions within four days of trading. According to data available at CDSC’s website, it has so far settled and cleared share transactions of about 620,000 unit shares among 1.5 million units that were traded till November 6. 

“New operation mode that requires both selling and buying brokers to present documents simultaneously has delayed the whole settlement process,” pointed out president of Stock Brokers Association of Nepal Anjan Raj Paudyal. 

Amidst all the delays regarding settlements, investors might lose out on dividend distribution. Only investors who have received share certificates within seven days of the book closure of a company are eligible for dividends. 

“If an investor has bought shares before book closure but the settlement is not undertaken within seven days of the cut-off period, then the investor does not have the right to claim the dividend,” said Paudyal.

CDSC started manual settlement of share transactions from October 30 for shares traded since October 17 –– just before Dashain vacations. 

The responsibility was transferred to CDSC to make settlement and clearing services quicker for investors. Nepse, that handled clearing and settlement, was never able to complete the process within three days from trading as mandated in its bylaws. CDSC’s new operation mode was supposed to make the whole process faster as the presence of both selling and buying brokers simultaneously would make share transfer and cash settlement faster.

“If my and the counter broker’s timing do not match then settlement will be delayed for weeks,” expressed Paudyal. A buyer may have already deposited the amount and the broker may have the voucher which needs to be submitted for clearance, but if the selling broker delays submitting the documents for share transfer, then CDSC does not accept any document from buying broker. 

“There are 48 brokers, and it is not possible for a broker to manage time with the remaining 47,” he added. Earlier, in line with clearing and settlement bylaws of Nepse, it used to slap a penalty and suspend the trading of any broker who delayed settlement by not submitting documents or money, but now the provision is not implemented. 

Brokers have already held discussions with the board of CDSC and Nepse regarding the difficulty.

Source: THT