CDSC for bank guarantee instead of cash deposit

POST REPORT KATHMANDU, JULY 18 CDS and Clearing (CDSC), formed to carry out clearing and settlement of share trading done online, has asked the Securities Board of Nepal (Sebon) to implement a bank guarantee system instead of making a cash deposit in order to encourage more companies to become clearing members. Currently, a company wishing to become a clearing member has to deposit Rs 1 million in cash. CDSC said the provision has discouraged companies to work as clearing members. Only two firms have obtained licenses to become clearing members so far. Two stockbrokers, Divya Securities _ Stock House and Nepal Investment _ Securities Trading, have acquired licenses to become clearing members from CDS. Usually, stockbrokers work as clearing members, and there are a total of 50 stockbrokers in Nepal. The broker firms have been demanding an amendment to the current provision saying that they are unable to deposit Rs 1 million in hard cash due to their small paidup capital. CDSC’s Chief Executive Officer Subodh Sharma Sigdel said they had sent a proposal to Sebon two weeks ago seeking an amendment to the current provision. “The proposal on bank guarantee provision was made to attract a greater number of stockbrokers to work as clearing members,” he said. “Based on the requests from brokers, we have come up with the plan.” According to Sigdel, the move was initiated after holding consultations with banks. “If a clearing agent fails to settle a transaction within three days from the date it was made, CDSC can recover the amount from the bank guarantee of such companies,” he added. CDSC started digital clearing and settlement of securities transactions in mid-April. The paperless system allows processing to be done in an easier and faster way compared to the manual system which normally takes at least three days to transfer ownership of shares after a sale. The system has also aimed to compel brokers to become members of CDSC to act on behalf of their clients. Sigdel said that the reluctance of brokers to become clearing members had impeded the pace of digitalization of the clearing system. The proposed amendment to the provision could encourage brokerage houses to obtain clearing licenses. Meanwhile, 14 companies have come to an agreement with CDSC for dematerializing stocks. So far, the autonomous government body has provided Depository Participant licenses to nine companies while it has registered 561 share certificates for dematerialization. The cash deposit provision has discouraged companies to work as clearing members