Rise in share trading leads to settlement backlog

- RAJESH KHANAL, Kathmandu
Rise in share trading leads to settlement backlog

Aug 11, 2014-

Investors in the stock market are yet to receive a total of Rs 475.6 million for the shares they sold as their brokers have not finished clearing the transactions. As of Monday, a total of 2,815 share transactions remained to be cleared by the brokers, said an official of CDS and Clearing which deals with the settlement of share transactions. Stock brokers said they had fallen behind in clearing the transactions due to the massive rise in trading. The clearing is conducted at CDS and Clearing.

Nepse has suspended stockbrokers failing to complete the settlement in time. The trading body had barred four broker companies from conducting business last week too. As per Stock Transactions Clearance Bylaw 2012, brokers are required to settle the share transaction within three days from the day of transaction. Murahari Parajuli, deputy spokesperson of the Nepal Stock Exchange (Nepse), said they took action against most of the stockbrokers in the last few weeks. Due to the many suspensions, the Nepse index along with the volume of share transactions have tumbled in the last few days from last month’s highs. The absence of a fully online system of settlement and the stockbrokers handling huge orders have been blamed for the delay in sellers getting their money and buyers their share certificates.

Parajuli said that brokers accepting new orders without first clearing old transactions might be one of the reasons behind the backlog.

According to Nepse regulations, a stockbroker can carry out transaction worth up to 50 times the amount of money they have deposited at Nepse. “However, citing the bullish trend in the secondary market, many brokers were found to have increased the limit by depositing more money at Nepse to enable them to conduct more transactions,” he said. Stockbrokers, however, blamed the situation on the paper-based settlement mechanism that CDS has been implementing. “The paper-based clearing system has created a large mismatch among brokering firms when they submit their documents to CDS due to the large volume of transactions,” said Narendra Raj Sijapati, president of the Nepal Stockbrokers’ Association.

Nepse recorded the highest ever single-day transaction of Rs 1.2 billion on July 22. “Since that date, brokers have been hard-pressed to clear their transactions on time.”

According to CDS officials, it has a capacity to clear 1,800-2,300 transactions daily. However, the number of transactions has surged to 3,000-5,000 daily after Nepse provided multiple login access to the brokerage firms.

Published: 12-08-2014 09:50

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