KATHMANDU, Jan 15: Nepal Stock Exchange (Nepse) is all set to start full-fledged implementation of the much-awaited dematerialized form of share trading from Sunday. With the central depository system (CDS) coming into full operation, the stock market will completely replace the current paper-based trading system with the dematerialized form of trading.
Unlike earlier when the physical certificate-based trading system was being used, investors will no longer have to produce physical share certificates for trading their shares. Trading and share ownership transfer will now be done through a digital process thereby ending the practice of blank transfer of shares in the stock market.
"From Sunday, the physical securities-trading system will come to an end. Shares of only those companies who are members of CDS in a dematerialized form can be traded," Dev Prakash Gupta, the chief executive officer (CEO) of CDS and Clearing Ltd (CDSCL), says. "The buying investor's account will be debited with the shares of seller's demat account in a digital way which will render physical certificates obsolete," he adds.
146,092 demat accounts have been opened by the investors while 299.46 million units of shares are in demat form, according to CDSCL data.
CDSCL is a subsidiary of Nepse that provides a one-window service for centralized depository, clearing and settlement services in the capital market. It acts as a central depository for various instruments (such as equity, bonds, and warrants), especially to handle securities in dematerialized form without physical movement of securities or execution of transfer.
Though efforts to implement the new system started five years ago, in line with the Nepse's plan to modernize securities trading in the country, full-fledged implementation was postponed again and again owing to reluctance of many listed companies to dematerialize their shares, lack of awareness among investors and dillydallying of Nepse itself, among other reasons.
The electronic trading of securities was first conducted only on April 15, 2014, followed by a phase-wise implementation of the system. Phase-wise implementation began from trading of shares in demat form of companies in the Banking group in December 2014. Still, the full-fledged implementation process dragged on until the Securities Board of Nepal (Sebon) -- the regulator -- itself took the lead to enforce the new system and issued its 'final' deadline to listed companies to get membership of CDSCL to dematerialize their shares.
The Securities' Central Depository Services Regulation, 2067 (2010) requires full-fledged dematerialized form of share trading within six months from the commencement of operations of CDSCL. Sebon made amendment to the provision on its discretion following requests from Nepse, CDSCL and other stakeholders.
The new system will also end a long process for investors to get their share ownership transferred.
"Earlier there used to be a long process to transfer share ownership after trading. It used to take 15 days to two months to get ownership of share transferred. With full-fledged implementation, the buyer's demat account will be credited immediately and ownership will be transferred within T+3 days," Priya Raj Regmi, the president of Stock Brokers Association of Nepal (Sebon), says, referring to the shorthand for trade date plus three business days when securities transactions must be settled. "Since the essence of the securities market is all about liquidity of securities, the demat system now provides liquidity to investors within four days," he added.
SHARE TRADING OF 62 LISTED COMPANIES TO BE 'SUSPENDED'
While the dematerialized form of securities trading is going to displace paper-based trading from Sunday, 62 companies are yet to come on board the CDS process. According to data from CDSCL, 170 out of the 232 listed companies have acquired membership of CDS. This means 62 companies are yet to become members of CDS for the admission of their securities for dematerialization. CDSCL has published the list of 170 companies whose securities trading are eligible from Sunday. "Those companies who do not come to the CDS will be suspended from the trading from Sunday. Once they get the membership, their share trading will resume," CDSCL CEO Gupta says.
Of those 62 companies, trading of shares of around 22 companies had already suspended previously due to their entering into merger and acquisition processes or because of failure to pay listing fees to Nepse.
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