Investors reluctant to open demat account

KATHMANDU, Sept 20:

Though share transactions of commercial banks in demat mode is set to start in just sixteen days, very few investors have opened their demat accounts so far.

Nepal Stock Exchange (Nepse) and its subsidiary Central Depository System and Clearing Ltd (CDSCL) are planning to start paperless trading of securities of commercial banks from October 6. However, only 762 demat accounts have been opened as of Friday. Though there is no exact data, it is estimated that there are around 10,000 regular investors in the stock market.

CDSCL is a subsidiary of Nepse that provides one-window service for centralized depository, clearing and settlement services in the capital market. It acts as a central depository for various instruments (such as equity, bonds, and warrants) especially to handle securities in dematerialized form without physical movement of securities or execution of transfer.

Stock analysts attribute the lack of awareness which is keeping away investors from opening their demat accounts before CDS comes into operation. “The first and foremost requirement for paperless trading is the investor´s demat account. However, the investors preparation is not much encouraging despite much hype about the new system,” said, Anjan Raj Poudyal, former president of Stock Brokers Association of Nepal (SBAN). “Even active and regular investors have not opened their demat accounts. Nepse and CDSCL should work toward bringing them on board the new system through awareness and educational programs,” he added.

Raj Kumar Timilsina, president of Nepal Investors Forum, accused the brokerage firms for lack of interest among investors to open demat accounts.

“Investors have direct attachment with brokers and the brokers are also required to be the depository participant (DP) to open the beneficiary owner´s account. There are very few brokers who are the DP. Some brokers are even found discouraging investors who want to open the account,” said Timilsina.

There are only 11 depository participants while two are in the pipeline. However, Narendra Sijapati, president of SBAN, said brokerage firms are in the process of becoming DP. “Most of the firms are in the process of becoming DP. Application of those brokerage firms who have applied for DP at the Securities Board of Nepal (Sebon) is yet to be approved,” he added.

Officials of Sebon could not be contacted for comments.

According to officials of CDSCL, there wouldn´t be much problems even if investors do not open the demat account.

“Those investors who have to sell their scrips do not need to worry while those buying should have a demat account so that the shares automatically goes into the buyer´s account,” Subodh Raj Sigdel, CEO of CDSCL, told Republica. He, however, said they have been conducting awareness programs for investors regarding the process and benefits of opening the demat account.

Though CDSC was expected to come into operation some two years ago, it had hit snag time and again due to various reasons, including the reluctance of the listed companies to get membership of CDSC and register their shares for dematerialization.

Source: Republica