Long wait for online trading in NEPSE: a small step of technology, a giant leap for entire economy
Fri, Jan 19, 2018 11:21 AM on Latest, Exclusive, Featured, Stock Market,
- Manil Maharjan
Nepal is relatively a young member in the league of countries with stock exchanges and the same holds true in terms of technological advancements this country has had so far in its secondary market. The youths have grown up in the families in which their parents/grandparents entered the share market by racking up share certificates, and investors might still remember those parents/grandparents maintaining and carrying a big folder which used to be a storehouse of stack of share certificates. With the physical share certificates, there was also a higher risk of them being lost/damaged and, therefore, the investors were forced to preserve such a heap of papers as if they were testimonial papers of Bighas of land.
But gone are such days with the introduction of semi-automated trading system by Nepal Stock Exchange. Demat accounts have been made mandatory in every kinds of share transactions, however, the old-day hassles in few other key issues are still the same. Investors are still required to visit their share broker offices or at least to give them a call (telephone line gets busy, unfortunately, most of the times) in order to buy and sell their shares, collect one’s payment after the sales and so on.
With the cutting-edge technology surfacing through the world, Nepal Stock Exchange has promised fully automated online trading system to Nepali investors. The semi-automated trading system still needs a much bigger revamp before the only stock exchange of the country could see a smooth transition to a fully automated trading of the shares. However, Nepal Stock Exchange has recurringly been pushing the self-imposed deadlines to kick off the online share trading. Unfortunately, this ever-pervasive lingering working style has placed Nepal in the tail end position as most of our South Asian neighbors have already taken a giant leap by introducing fully computer-based and smartphone-based trade infrastructures.
Below, we have tried to fit the picture of our own journey to online share trading to the bigger picture of the world in general and with that of South Asia in particular. The views of Mr. Chandra Singh Saud, General Manager of NEPSE, has helped in framing a larger picture of where we currently fit into those broader pictures.
1969 and ECN Technology of USA
The age of computers brought a revolution to the stock trading industry. It took several decades to fully develop, but it began with the first digital trading system known as an ECN (electronic communication network) in the USA. An ECN could display real-time data for bid and ask amounts allowing brokers to more quickly and easily match up sellers with interested buyers. The technology caught the eye of several companies that began developing software that could work with the ECN to automate trades with less work from a human broker.
It was in 1982 that the first online trading program became publicly available. It was called NAICO-NET and was offered by the company called North American Holding Corp. It was the first online, electronic consumer trading platform for buying and selling stocks, creating mutual funds through a PC. It was terminal based and PC’s could connect to the platform via an application from anywhere in the world. The client subscription base rose rapidly and there is no turning back since then.
Internet Trading in India
We might be surprised to know that stock trading in India began in the year 1855, when five stockbrokers gathered under a banyan tree in Horniman Circle, Mumbai, and started trading in stocks by investing princely sum of Rs.1 each, thus laying the foundation of what is today the world’s 11th largest stock exchange.
The Securities & Exchange Board of India (SEBI) approved the report on Internet Trading brought out by the SEBI Committee on Internet Based Trading and Services in January 2000. Internet trading in India is taking place through order routing systems, which routes client orders to exchange trading systems for execution. Thus, a client sitting in any part of India is able to trade using the Internet as a medium through brokers' Internet trading systems.
1995 was another watershed year for Bombay Stock Exchange (BSE). From a traditional open floor trading system, it upgraded to a sophisticated electronic-based trading system. Given the eagerness of the brokers to embrace the new system, this transition took place in just 50 days.
With the advent of smartphones and their increasing usage for accessing the internet, online trading on mobile phones, or ‘smartphone trading’, became increasingly popular among investors. This eliminated the need for the investor to depend on his or her laptop or desktop for buying and selling stocks online. Since its launch in 2010, India has become one of the world’s biggest mobile based stock trading market.
Scenario in other SAARC countries
In 1998, the Dhaka Stock Exchange (DSE) was automated. Within a few years, trading on the exchange shifted from an open outcry system to an automated trading environment. On the other hand, Pakistan at the Karachi Stock Exchange embarked into online trading system of the stocks and securities from the year 2002.
In Sri Lanka, the automation of the Exchange commenced in 1991 with the installation of a central depository and an electronic clearing and settlement system for share transactions. The trading activity was automated with the installation of the Automated Trading System (ATS) in 1997. Likewise, the Royal Securities Exchange of Bhutan Limited, RSEBL inaugurated an online system called Integrated System to trade in stocks and securities from April 2012.
Facets in online trading:
Online trading system in the stock market is expected to take the country’s stock market to a new height as the share transactions will then take place without hiccups of current semi-automated and earlier manual systems. Unlike the present situation that requires one to visit the brokerage firm time and again, an investor can perform his/her share transactions without the physical presence at the broker. An investor needs to get a personalized user id and password from his/her broker which s/he can use to log in using computer/mobile from any place with internet access for the trading. Following the online transaction, the dematerialized shares will be debited/credited and the cash flow to and from the account holder’s bank account after every transaction will take only with some clicks and taps.
Mr. Chandra Singh Saud visualized such a phase of share transaction in NEPSE as the game-changer. He is of high hopes that the introduction of online trading platform will be a new dawn to our share market and seems optimistic that YCO (the software company currently working to develop software of online trading) will meet the deadline of June 18 2018, thereby, enabling NEPSE to begin fully automated transaction from the new fiscal year.
“The SRS documents have already been approved and sent back to YCO for its re-consideration. We are hopeful that all other tasks including coding for the software are being conducted simultaneously by YCO to meet the deadline”, explained Mr. Saud quite optimistically.
With regards to the days of settling transactions and the sellers receiving cash for their sales, Mr. Saud explained that it is a kind of issue that needs to be dealt by CDSC, NEPSE, banks and other regulators. “Currently, we are seeing the clearance process taking place within 3 working days. We can further discuss with all the related parties to ease this process further so that the transactions can be settled more promptly”, explained the CEO Saud.
Benefits after online trading
Mr. Saud also hinted that NEPSE can consider adding some more features of margin trading as Securities Board of Nepal has cleared the way through its recent directives for the same. Apart from the new features, Mr. Saud highlighted following as few of the distinct benefits that the stock market will see after introduction of online trading:
With the cutting-edge technology surfacing through the world, Nepal Stock Exchange has promised fully automated online trading system to Nepali investors. The semi-automated trading system still needs a much bigger revamp before the only stock exchange of the country could see a smooth transition to a fully automated trading of the shares. However, Nepal Stock Exchange has recurringly been pushing the self-imposed deadlines to kick off the online share trading. Unfortunately, this ever-pervasive lingering working style has placed Nepal in the tail end position as most of our South Asian neighbors have already taken a giant leap by introducing fully computer-based and smartphone-based trade infrastructures.
Below, we have tried to fit the picture of our own journey to online share trading to the bigger picture of the world in general and with that of South Asia in particular. The views of Mr. Chandra Singh Saud, General Manager of NEPSE, has helped in framing a larger picture of where we currently fit into those broader pictures.
1969 and ECN Technology of USA
The age of computers brought a revolution to the stock trading industry. It took several decades to fully develop, but it began with the first digital trading system known as an ECN (electronic communication network) in the USA. An ECN could display real-time data for bid and ask amounts allowing brokers to more quickly and easily match up sellers with interested buyers. The technology caught the eye of several companies that began developing software that could work with the ECN to automate trades with less work from a human broker.
It was in 1982 that the first online trading program became publicly available. It was called NAICO-NET and was offered by the company called North American Holding Corp. It was the first online, electronic consumer trading platform for buying and selling stocks, creating mutual funds through a PC. It was terminal based and PC’s could connect to the platform via an application from anywhere in the world. The client subscription base rose rapidly and there is no turning back since then.
Internet Trading in India
We might be surprised to know that stock trading in India began in the year 1855, when five stockbrokers gathered under a banyan tree in Horniman Circle, Mumbai, and started trading in stocks by investing princely sum of Rs.1 each, thus laying the foundation of what is today the world’s 11th largest stock exchange.
The Securities & Exchange Board of India (SEBI) approved the report on Internet Trading brought out by the SEBI Committee on Internet Based Trading and Services in January 2000. Internet trading in India is taking place through order routing systems, which routes client orders to exchange trading systems for execution. Thus, a client sitting in any part of India is able to trade using the Internet as a medium through brokers' Internet trading systems.
1995 was another watershed year for Bombay Stock Exchange (BSE). From a traditional open floor trading system, it upgraded to a sophisticated electronic-based trading system. Given the eagerness of the brokers to embrace the new system, this transition took place in just 50 days.
With the advent of smartphones and their increasing usage for accessing the internet, online trading on mobile phones, or ‘smartphone trading’, became increasingly popular among investors. This eliminated the need for the investor to depend on his or her laptop or desktop for buying and selling stocks online. Since its launch in 2010, India has become one of the world’s biggest mobile based stock trading market.
Scenario in other SAARC countries
In 1998, the Dhaka Stock Exchange (DSE) was automated. Within a few years, trading on the exchange shifted from an open outcry system to an automated trading environment. On the other hand, Pakistan at the Karachi Stock Exchange embarked into online trading system of the stocks and securities from the year 2002.
In Sri Lanka, the automation of the Exchange commenced in 1991 with the installation of a central depository and an electronic clearing and settlement system for share transactions. The trading activity was automated with the installation of the Automated Trading System (ATS) in 1997. Likewise, the Royal Securities Exchange of Bhutan Limited, RSEBL inaugurated an online system called Integrated System to trade in stocks and securities from April 2012.
Facets in online trading:
Online trading system in the stock market is expected to take the country’s stock market to a new height as the share transactions will then take place without hiccups of current semi-automated and earlier manual systems. Unlike the present situation that requires one to visit the brokerage firm time and again, an investor can perform his/her share transactions without the physical presence at the broker. An investor needs to get a personalized user id and password from his/her broker which s/he can use to log in using computer/mobile from any place with internet access for the trading. Following the online transaction, the dematerialized shares will be debited/credited and the cash flow to and from the account holder’s bank account after every transaction will take only with some clicks and taps.
Mr. Chandra Singh Saud visualized such a phase of share transaction in NEPSE as the game-changer. He is of high hopes that the introduction of online trading platform will be a new dawn to our share market and seems optimistic that YCO (the software company currently working to develop software of online trading) will meet the deadline of June 18 2018, thereby, enabling NEPSE to begin fully automated transaction from the new fiscal year.
“The SRS documents have already been approved and sent back to YCO for its re-consideration. We are hopeful that all other tasks including coding for the software are being conducted simultaneously by YCO to meet the deadline”, explained Mr. Saud quite optimistically.
With regards to the days of settling transactions and the sellers receiving cash for their sales, Mr. Saud explained that it is a kind of issue that needs to be dealt by CDSC, NEPSE, banks and other regulators. “Currently, we are seeing the clearance process taking place within 3 working days. We can further discuss with all the related parties to ease this process further so that the transactions can be settled more promptly”, explained the CEO Saud.
Benefits after online trading
Mr. Saud also hinted that NEPSE can consider adding some more features of margin trading as Securities Board of Nepal has cleared the way through its recent directives for the same. Apart from the new features, Mr. Saud highlighted following as few of the distinct benefits that the stock market will see after introduction of online trading:
- people from every small towns and villages can enter stock market
- transaction via smart phones will make the work of share trading more handy to people
- demand for shares will see a significant surge thereby pushing the market to upward trajectory
- strong base and motivational factor for NRNs to inject their capital into Nepalese share market
