Currently, stockbrokers can accumulate a sum equivalent to 0.7 percent to 1 percent of the amount generated from every share transaction as commission. Of this amount, 25 percent goes to Nepse, the country´s only stock market operator, as service charge. [break]
Earlier, Nepse used to share 20 percent of the amount it received with the Securities Board of Nepal (Sebon), the securities market regulator, says the report that will be made public on Friday. But following enforcement of a new regulation in 2008, Sebon has stopped accumulating this amount from Nepse and instead slaps 0.015 percent on every share transaction, the report adds.
"Despite this change, Nepse has not made any adjustment to its fee structure," the report says, reckoning bringing down Nepse´s service fee to 12.5 percent of broker´s commission as one of the ways to reduce stock transaction cost.
In line with reduction in service charge, the report also recommends that broker´s commission be limited to 0.7 percent of the share transaction cost.
Currently, brokers can collect commission of up to one percent of the amount generated from sales and purchase of shares worth up to Rs 50,000 and no less than 0.7 percent if the transaction amount exceeds Rs 1 million. Brokers can also charge a commission of 0.9 percent on share transaction of over Rs 50,000 but not exceeding Rs 500,000 and 0.8 percent on transactions exceeding Rs 500,000 but not exceeding Rs 1 million.
The report also recommends that commission on transaction of government and non-government bonds be limited to 0.1 percent and 0.5 percent, respectively. Currently, commission on government bonds ranges from 0.05 percent to 0.2 percent, while commission on non-government bonds stands between 0.4-0.75 percent.
The report also points out the need to reduce minimum service charge on share transaction to Rs 15 from Rs 25. And once the much-hyped central depository system comes into effect, stock brokers should not be allowed to collect commission more than once if they engage in sales or purchase of same shares on the same day, the report says, calling it "international practice".
The much-awaited report was prepared on the basis of interviews with stockbrokers, officials of Nepse and investors. The survey was conducted after the domestic stock market plunged over 70 percent from an all-time high of 1175.38 points in August 2008, erasing more than Rs 321 billion from the secondary market. One of the reasons for the lackluster performance of the stock market, despite relatively favorable macroeconomic conditions, according to many, is higher share transaction cost.
The survey also finds share transaction cost in Nepal to be much higher than in other countries, such as China, India, South Korea, Australia, Malaysia, Sri Lanka and Bangladesh, whose case studies were included in the report.
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