“We started submitting the applications for clearing membership of CDSC from Sunday,” informed president of Stock Brokers Association of Nepal Narendra Raj Sijapati.
Earlier, brokers were not keen on taking up the clearing membership until CDSC and the regulator — Securities Board of Nepal (Sebon) — decided to accept a bank guarantee, instead of cash, on behalf of the brokerage firms to cover cases of default or delay in settlements. Clearing and settlement bylaws of CDSC had asked brokers who are meant to be clearing members of central depository system to deposit Rs one million in cash as collateral with CDSC.
“As Sebon and CDSC revised the rule, we have all decided to submit the applications before the end of this week. As of today, 33 brokers have submitted applications,” informed Sijapati.
CDSC — that is supposed to electronically clear and settle dematerialised shares traded at Nepal Stock Exchange — requires clearing members who electronically transfer dematerialised shares belonging to investors stored in a demat account at DPs. DP is an agency that holds the dematerialised shares on behalf of shareholders — it is basically a bank to store investor’s demat shares.
Brokers are deemed best suited to work as a DP. They place and execute orders for share trading and then transfer the traded shares once CDSC starts full operation, thus, if they start working as DP, the electronic transfer is supposed to be faster as the investor will get all the services at a single place.
However, most brokers are not eligible to work as a DP. According to the CDS Regulation-2068, a DP needs to have a net worth of Rs 10 million to get a licence. This requirement has limited their chances of working as a DP since the net worth of most of the brokerage firms is not that much.
“We have requested Sebon time and again to revise the net worth provision so that all brokers can be eligible to be a DP, but it has so far not shown any initiative,” according to Sijapati.
According to Sijapati, if brokers are not allowed to be DPs, share trading will take a longer period than at present. “After CDSC comes into operation, brokers cannot place orders without confirmation that a seller’s demat account has the offered number of shares so the seller at first needs to present confirmation so it will take a longer time and complicate the goal of swift transaction,” he explained. At present, there are 10 DPs licensed by CDSC including two commercial banks.
“We have proposed revision of the regulation to incorporate brokers as DPs,” informed Sebon director Niraj Giri. According to him, brokers might be provided with an interval to meet the net worth criterion.
CDSC which was officially inaugurated in the beginning of last fiscal year is still far from coming into full operation due to the absence of listed companies with dematerialised shares.
-THT
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