Nepse seeks deadline extension for full-fledged CDS operation

KATHMANDU, Oct 15: Nepal Stock Exchange (Nepse) has decided to postpone full-fledged implementation of electronic trading of securities yet again.

CDS and Clearing Ltd (CDSCL) has proposed to the Securities Board of Nepal (Sebon) -- the capital market regulator -- to postpone implementation of full-fledged operation of Central Depository System (CDS) for April 15 next year.CDSCL is a subsidiary of Nepse.

The implementation of CDS will introduce electronic form of shares trading and replace the existing paper-based trading.

CDS was expected to come into operation some three years ago. The system has already been inaugurated three times. But it is yet to start full-fledged operation due to reluctance of the listed companies in acquiring CDSCL membership among others.

According to Securities´ Central Depository Services Regulation, 2067 (2010), CDSCL will enforce the system of trading of securities completely on dematerialized form.

“Securities transactions on Nepse after six months from the commencement of the operations of CDSCL shall be in de-mat form only,” read the Article 34 of the regulation.
 
The regulation authorizes Sebon to defer implementation of CDS at its discretion.

The electronic trading of shares of companies of Banking group has already begun. The first electronic trading of securities was done on April 15.

The decision to defer full-fledged implementation of CDS has riled the investors. "Nepse and CDSCL have been postponing the plan for full-fledged operation of CDS time and again. This is happening because of the incompetence of Sebon, Nepse and CDSCL," Dipendra Agrawal, executive member of Nepal Investor Forum, told Republica.

Sebon officials have yet to take formal decision on extension of deadline for implementation of full-fledged CDS operation. "We discussed the issued on Tuesday. But nothing has been decided," Sebon Spokesperson Niraj Giri told Republica. He also said most of the speakers in Tuesday´s meeting said postponement was not a good idea. "We have invited the officials of Nepse and CDSCL for discussion on Wednesday. We will take decision only after consulting with them," he added.

But a high-level official of Sebon said the capital market regulator will be left with no option but to approve the deadline extension plan if the implementing company (CDSCL) shows inability to enforce CDS. "What if CDSCL say they cannot implement the plan immediately? Sebon will be compelled to extend the deadline,” the source added.

CDSCL has cited number of reasons for postponement of deadline for full-fledged operation of CDS. "As most of the listed companies have not acquired CDS membership for the admission of their securities for dematerialization, investors have not opened their beneficial accounts. Similarly, depository participants have not expanded their network across the country," CDSCL said in a statement. "Introduction of full-fledged electronic trading in haste will only make negative impact in the capital market.”

CDSCL has proposed a three-phase plan for full-fledged implementation of CDS. It plans to completely replace paper-based trading by April 15 next year.

Investors, however, do not buy CDSCL´s arguments. "The reasons cited by CDSCKL are not convincing. It is passing the buck on listed companies and investors to hide its incompetence,” Agrawal added.

Though Nepse has been setting the deadline for listed companies time and again, half of the companies are yet to begin process for CDSCL membership. According to CDSCL, only 59 companies out of 233 listed companies have become its members. Likewise, 59 companies are in the pipeline. Similarly, 2,262 beneficial owners´ demat account have been opened so far. It is estimated that there are around one million investors.

Source: Republica