Paper-based trading limiting stock market’s growth potential

Paper-based trading limiting stock market’s growth potential

Even 22 years after its establishment, Nepal Stock Exchange (Nepse) is still largely involved in paper-based trading of securities.

Though Nepse has been planning to completely replace the paper-based trading for the past three years, the plan has been moving at a slow pace due to reluctance of listed companies to become member of the Central Depository System and Clearing Ltd (CDSCL) and failure of Nepse and CDSCL to convince investors to open demat accounts, among other reasons.

CDSCL is a subsidiary of Nepse.

Out of 245 listed companies, only 77 companies have become members of CDSCL so far. Because of lusterless attitude of listed companies, Nepse has postponed full-fledged implementation of dematerialized shares trading to April 15. It had originally planned to start full-fledge implementation from October 15 last year. CDSCL, however, has already begun dematerialized shares trading of some of the listed companies, mainly commercial banks.

Likewise, Nepse´s plan of installing the fully automated online trading (AOT) system is also yet to bear fruit. Because of the failure of Nepse to install AOT system, stock brokers have been settling transactions manually.

“Nepse officials have been making commitment to do this and that for ending traditional paper-based trading since the past many years. However, they have not translated commitments into action,” Shivam Nepal, an investor, told Republica. “Due to the failure of the Nepse to implement AOT and CDS, the market has not been able to realize its full potential,” he added.

Securities Board of Nepal (Sebon) — the capital market regulator — estimates that average daily turnover in Nepse can climb to Rs 1 billion if the much-awaited CDS and the automated trading of securities start full-fledged operation.

The average daily turnover currently stands at around Rs 250 million. Similarly, the talks on privatization of Nepse have also failed to make any headway. The government owns 58.6 percent stake in Nepse, while remaining shares of the country´s only stock exchange are held by Nepal Rastra Bank (NRB), NIDC and stock brokers, among others.

Meanwhile, speaking at a ceremony held in the capital on Tuesday to mark the anniversary of Nepse, Finance Minister Ram Sharan Mahat underscored the need to bring real sector companies into the secondary market. “The current instruments being traded in the capital market are also not enough. We can introduce more instruments rather than only the shares of listed companies for robust growth,” he added.

Source: Republica