What is impeding share transactions from outside the capital?

ShareSansar, July 11:
 
Stock Brokers’ Association, which had been intensively lobbied for remote work stations, is itself now hesitating to carry out share transaction from outside the capital due to glitches in the existing system of trading – forget about upgrading the system.

“We were the ones to press the authorities to pave the way for us to start trading shares from outside the capital, says President of the Brokers’ Association Narendra Sijapati. “But the way things have transpired over the recent months, we are not in the mood to go for remote working stations even if NEPSE urges us to do so at this point. We have even stopped discussing this issue with them.”

Sijapati went on to explain why they are hesitant.

“We are struggling to execute the orders due to the limited system. And then there are hoards of issues related to clearing and settlement,” he says.

“CDS is far from being fully function. We all have seen how they are not being able to clear the settlement of transaction of handful of demat scrips,” he adds. “Now tell me how can you expect us to go outside the capital when we are struggling to settle the growing volume of trade in the capital itself.”   

Time and again trading in physical share has been affected due to server-related problems of NEPSE. Now even the transactions of limited number of dematerialized scrip have been affected due to another technical snag of the stock exchange.

Share investors and brokers alike complained earlier this month that the Central Depository System and Clearing Limited (CDSC), a subsidiary of NEPSE, has failed to clear the transactions even in T+3.

Around three to four thousand transactions of demat shares are being carried out under the CDS system a day.

“A lot of investors have been hit hard as they have not been able to settle the transaction at this time of the year when they have to pay interest for marginal lending,” says Sijapati.  “This has adversely affected the entire market and investors’ sentiment.”

On the other hand, CDSC, which had been bragging about its capacity to handle transaction of all the listed companies, squarely blamed NEPSE for the humiliating situation.

The clearance was delayed due to some problems with NEPSE’s trading software, according CDSC’s Chief Executive Officer Subodh Sharma Sigdel.

He went on to add that they have encountered the technical glitch as they have to rely on NEPSE’s software to settle the transactions.

NEPSE spokesperson Shambhu Panta admitted that the problem surfaced after the trading data forwarded by NEPSE to CDSC got “corrupt.”

Whatever the problem, this has not only exposed the unpreparedness of NEPSE and CDSC when it comes to carryout transactions even in T+3, but also their hollow promise that we can have full-fledged CDS operation in near future.

Only a few months back when the market was heading toward the bull, stakeholders – both investors and brokers -- were quite upbeat about the prospect of trading from the remote working station.

By December first week, ABC Securities Nepal Private Limited (Broker # 17) even started trading from Dharan, a financial hub for the large parts of eastern hilly districts of the country.
 
The Remote Work Station in Dharan saw a trading of 19,905 unit shares through 57 transactions worth over Rs 1.39 crore on the first day itself.
 
With the establishment of the RWS, the investors of Dharan and surrounding areas were happy, and so were other stakeholders that it will also help boost the market depth by giving access to new investors.
 
In an interaction with NEPSE and Sunsari Chamber of Commerce and Industry jointly following the inauguration of the RWS, investors and bankers had a lot of queries regarding settlement and clearing durations of NEPSE and requested for simplification of Signature Verification where the process is centralized in Kathmandu Valley only.
 
They also requested NEPSE to ask the listed companies to provide application forms for shares auctions and also to send dividends and bonus shares directly to shareholders' addresses through courier until CDS becomes fully operational.

But the RWS could not gain much momentum after that following series of technical snags and lack of will on the part of the authorities to expedite the CDS and upgradation of the trading system.

“Even today if the regulator and NEPSE are to become really serious about the upgradation of the system and full operation of CDS, we have them within a few weeks,” concludes Sijapati. “But they just lack that will for some reason.”

Chairperson of Nepal Investors Forum Raj Kumar Timilsina, however, says that the brokers also need to get proactively involved in pressing for the CDS.

“It all depends on the brokers and the authorities concerned. It’s been six years since we have been hearing that the CDS will come into implementation shortly. If the brokers start to get proactively involved in this, and if the stock exchange issues a directive to the listed companies to compulsorily demat their stock within a stipulated time period, say 30 or 35 days, then it can be implemented immediately,” Timilsina says.

“For this the regulator should take the lead. But why the regulator is not doing remains a mystery for us,” he adds. “Why are they not coming boldly to ask the stakeholders for mandatory implementation of CDS, which is so good for the stock market.”

Implementation of CDS will end many of the problems such as those related to lost and theft of share certificates, duplicates certificates, and complications of share ownership transfer, and will lead to shortened and efficient clearing and settlement processes.