The Central Depository System (CDS) that is going to be brought in operation soon is going to make the share transaction expensive for the investors. “There is a possibility of transaction cost being higher in the automated system than it is at present in the manual system,” said Shankar Man Singh, managing director and chief executive officer (CEO) of Nepal Stock Exchange Ltd (Nepse).
Nepse is currenly under process to establish the first CDS company ? Central Depository System (CDS) and Clearing Company Ltd ¿ as its subsidiary. “Including all the charges the cumulative transaction service charge might be near five per cent,” he said. However we have not yet determined the exact charges as we are still working on the bylaws of the company, he said.
The investors need to pay 0.7 per cent to one per cent brokers commission, 0.015 per cent Securities Board of Nepal (Sebon) commission, five rupees ownership transfer charge for buyers, apart from capital gain tax, at present. “The capital gain tax that could not be adjusted in case of buyer selling shares in less price than the buying price ? during the slack time ?but has to pay if earns profit. Coupled with the new charges, it will make the CDS transaction more expensive than at present,” said market analyst Rabindra Bhattarai.
“The service charge might be higher but efficiency and swiftness that CDS will bring will balance the higher service charge,” Singh countered. The CDS company with the paid-up capital worth Rs 300 million is being established with grant provided by the Indian government. The grant has also been capitalised as equity. Also, the grant worth Rs 147.2 million from India has already been used to procure software for the system. The government had passed the CDS regulation in October. Then Nepse registered the company in November in partnership with 17 commercial banks and Citizens Investment Trust (CIT). But a dispute between the Nepse and commercial banks resulted in Nepse alone establishing the Central Depository System (CDS) and Clearing Company Ltd.
The CDS will bring in hassle-free and swift ownership transfer along with instant liquidity. Thus, the implementation of CDS is supposed to be able to wipe out inconsistency and manipulation in stock trading making the Nepali secondary market more transparent.
Source: Republica(Published by Octron on January 11, 2011)
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