Nepse to operate trade guarantee fund, start auction trading

Published On: August 25, 2016 08:19 AM NPT By: Sagar Ghimire  | @sagarghi

KATHMANDU, Aug 24 : The Nepal Stock Exchange (Nepse) has forwarded its draft on securities-listing bylaws, trade-guarantee fund bylaws and auction-trading working procedure to the Securities Board of Nepal (Sebon) for approval.

While the securities-listing bylaws is an updated version of an earlier one, the other two are new and aim to ease the clearing and settlement process even when there is a shortfall of cash payment or securities during the trading process. 

According to of Nepse officials, the bylaws will come into effect after the capital market regulator Sebon approves them.

Following the enforcement of the Trade Guarantee Fund Bylaws, there will be a fund that will help reimburse the seller brokerages or investors whenever there is a shortfall in payment from the buyer.

“When buyers fail to meet their obligation of payment, there could be a shortfall of payment to the sellers, thereby hindering the process of clearing and settlement. Once the trade guarantee fund comes into operation -- after the bylaws are approved by Sebon, the fund will reimburse the seller. Later, the buyer brokerage will have to repay the fund and possibly also a penalty,” Murahari Parajuli, the deputy spokesperson at Nepse, says. 

The auction trading working procedure will allow the auction trading of securities so that any deficit of shares from the seller can be bought and provided to the buyers.  

“Sometimes, there could be a shortfall in the number of shares that a seller has and what they sell to the buyer. This also creates difficulty in the overall trading process. The auction trading, which operates normally before the regular trading hours, will help in the trade of such shares,” Parajuli explains. 

The new bylaws and working procedure have been drafted in the wake of a rising number of complaints about shortfall in securities or payment either by the brokerage firms or clients, sometimes due to human error and sometimes with the intent of fraud. The recent rise in turnover in the market has increased such occurrences. 

So far, Nepse has been suspending the broker for a week and restricting it from trading if it defaults on payment or in handing over securities, and allows it to trade only after it clears its dues. 

Sebon officials say the bylaws and the working procedure will be approved as soon as possible after studying them.

“There is a real need for a trade guarantee fund and an auction market since the exchange market is all about a guarantee to the client that the settlement will be completed on time,” Niraj Giri, the spokesperson of Sebon, says. “We have been pressing Nepse to bring the draft on the fund and auction trading procedure. The board of directors of Sebon will come to a decision once they have carefully studied it,” he adds. 

The decision to set up a trade guarantee fund and auction trading has elated brokers. “With the turnover rising rapidly, we have been facing problems of timely delivery of shares and payment due to human error or ill intention of clients. Nepse has been suspending the brokerage firms from trading for a week in such cases,” Bishnu Raj Ojha, managing director at Dipshikha Dhitopatra Karobar Company Ltd, says. “The trade guarantee fund and auction trading process will resolve those problems and smoothen the trading process,” he adds.

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