Sebon plans to amend CDS regulation soon

KATHMANDU:

The capital market regulator is moving towards amending the regulation to incorporate brokers as depository participants (DPs) to make central depository fully functional.

Securities Board of Nepal (Sebon) has decided to put necessary framework in place to allow most of the existing stock brokers to be eligible to work as DPs of Nepal’s only central depository — CDS and Clearing Ltd (CDSC). The ineligibility of most of the brokers to work as DPs has threatened to disrupt smooth operation of CDSC, which is yet to start its fully automated clearing and settlement of traded shares.

“Coming meetings of Sebon’s board will discuss best course of action so that brokers’ demand can be met for CDSC to soon start automated settlement,” said spokesperson for Sebon Niraj Giri.

According to the CDS Regulation-2068, a DP needs to have Rs 10 million net worth to get a licence. Since the net worth of most brokerage firms is below the required amount, they do not qualify. Stockbrokers have been pressurising the regulator to reconsider the net worth requirement since the regulation was put in place. However, of late, they refused to take up licence for clearing member prompting the regulator to take concrete action.

“Sebon’s board will also decide on whether to slash the net worth amount to an acceptable level or provide brokers a timeframe to reach the prescribed amount of Rs 10 million, as brokers have suggested,” pointed out Giri, adding that the regulator has prioritised the issue to hasten the operation of CDSC.

CDSC is supposed to electronically clear and settle the dematerialised shares traded at Nepal Stock Exchange (Nepse), thus making share trading swift and hassle-free. To be fully functional, CDSC requires listed companies with dematerialised shares, shareholders with dematerialised accounts, DPs that hold dematerialised shares on behalf of the shareholders like a bank to store the investor’s demat shares, and clearing members that transfer the demat shares belonging to the investors stored in demat account at DPs based on the transaction.

“If brokers work as DPs, the traders will get one-window-service for share transaction,” said immediate past president of Stock Brokers’ Association of Nepal Anjan Raj Paudyal.

“Brokers will take buy or sell orders, then execute the orders and transfer the shares as per the order in a few steps. But if brokers are not DPs, trading will take a longer period because a broker has to make sure that the seller’s demat account has the offered number of shares,” said Paudyal, adding it might actually take longer than the current manual clearing and settlement.

A bank or financial institution, stock broker, registrar and transfer agent, custodian or such other entity as may be prescribed by the board from time to time can work as DP, according to the regulation. At present, there are 10 DPs licensed by CDSC, including two commercial banks.

As a protest, brokers have even stopped applying for the clearing membership at CDSC. Though CDSC is fully capable to start automated clearing and settlement, it is currently undertaking manual settlement due to minimal presence of listed companies with dematerialised shares.

Source: THT