Mythical Reality of Central Depository System (CDS)
05, Apr 2011

Story of Central Depository System and Clearing turned true after the formal inauguration of the Central Depository System and Clearing on 31 March, 2011 by Yuvaraj Khatiwada. Software of the CDS system was also handed over by Ambassador Rakesh Shud from Embassy of India which was prepared by Tata Consultancy.

Indian government has provided the technical support of IRs 92 million which has been approved during the visit of ex Prime Minister Madhav Kumar Nepal to India by Central Depository Services (India). Nepal Stock Exchange has signed MoU with Central Depository Services Ltd (CDSL) to install software for CDS system in Nepal. Later Nepal Central Depository and Clearing Ltd was established with holdings of 51% by Nepse, 15% by Citizens Investment Trust (CIT) and rest by commercial banks viz. Nepal Investment Bank, Bank of Kathmandu, Himalayan Bank, Kumari Bank, NIC Bank, Standard Chartered Bank, Laxmi Bank and Kist Bank. Despite Nepse registered another company named as CDS and Clearing Ltd with paid up capital of Rs 300 million as dispute among the stake holders picked regarding the issue of capital infusion.

Operation of CDS system will open the new era in capital market of Nepal as it will wipe out inconsistency and manipulation in stock trading as every transaction and executer can be easily traced out. The safety, security of physical holding to electronic medium will eliminate thefts, interceptions and subsequent misuse of certificates while the flow of securities will also boost due to instant transfers. Hence the transparency level of trading in this platform will be more secure, clear and easy.

However,

Dependency showed by the authorities starting from drafting of regulation of CDS; sending drafts to Indian Central Depository Serviced Ltd and Securities Board of India for comments; market survey from two different teams of Nepal Stock Exchange and Securities Board of Nepal has already indicated the expertise level and bureaucratic conflict over here. In future, it can be expected that different trainings and studies can enhance the literacy level for addressing and accommodating the problem of Nepalese mud.  

Nepse automated trading was started on Aug 24, 2007 however clearance and settlement of transactions are still done manually. General Acceptance of electronic medium for booking keeping of securities is questionable as large segment of population is still out of the modern internet facilities and technologies. Similarly, the terms and other situation regarding the dematerialization are still unknown to the concern brokers also.

Technical self sufficiency and further advancement can be the big issue as the next phase of up gradation will be online trading which is very essential for modernization of the capital market of Nepal. Since the hardware and software are prepared by the counterparts, it will be costly to hire the necessary workforce all the time while preparing technician available here for further can be the right option.

Despite of the establishment of CDS and Clearing, Depository Institutions are still not in action and likely to face the Regulatory Hassel during the establishment of Depository as there is no Depository Act and regulation which will legally allow accepting monetary deposits from the individuals.

Since CDS company will be operate as per the Securities Act, 2006 and can open branches in different parts of the country. The services and settlement can be available from different places. It will collect Rs 3 per transaction from the investors hence the Transaction Cost can be higher in this system than it is at present system.

Operation of CDS system, the eagerly awaited automatic system can boost the transaction for sure which can come into operation from next fiscal year. Besides, demo trading and interface introduction program along with awareness program are also expected. Stock market is the barometer of the economy, hence better performance of the capital market amid shabby micro and macro economic situation is a nothing but a wrong guess. 




Source:
Bikram Chitrakar (nepalsharemarket.com)
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