Stockbrokers can undertake transactions worth 50 times their security deposits parked at the domestic stock exchange from now on, provided they are also clearing members at the central depository.
Issuing a circular today, Nepal Stock Exchange (Nepse) said it has raised the limit for brokers so that they can accept large orders placed by investors.
Earlier, brokers were allowed to undertake orders of up to 20 times their security deposit at the stock exchange. In case they crossed the limit, they used to be suspended by the stock exchange operator until transactions of their clients were settled and cleared.
"At present, the stock exchange is seeing transactions of over Rs 300 million per day. But we are receiving orders for over Rs one billion worth of securities per day.
If the earlier provision had been kept intact, processing
of these orders would have been impossible," pointed out president of the Stockbrokers Association of Nepal Narendra Raj Sijapati.
The brokers have to deposit certain amount at the stock exchange either in the form of cash or bank guarantee to cover cases of default or delay on settlements.
"The total deposit placed by brokers at the stock exchange ranges between Rs 70 million to Rs 100 million," said Sijapti.
Stockbrokers and Nepse have now entered into an agreement to increase the limit after brokers complained about the cap placed by the stock market operator. However, the latest change will only apply to those brokers who have taken clearing membership from CDS and Clearing Limited.
So far 28 out of 50 operating brokers have taken clearing membership from CDSC.
CDSC, whose job is to clear and settle the dematerialised shares traded at Nepal Stock Exchange (Nepse) electronically, requires clearing members to electronically transfer dematerialised shares belonging to the investors stored in demat account at Depository Participants (DPs).
DPs are agencies that hold dematerialised shares on behalf of shareholders. In other words, they are basically banks that store investors' dematerialised shares.
"Though, more than half of the brokers have taken the membership, we have decided not to deposit any guarantee amount at CDSC until the Securities Board of Nepal revises the regulation to accommodate brokers as DPs," added Sijapti.
According to the CDS Regulation-2068, a DP needs to have Rs 10 million net worth to get an operating license. This provision has limited brokers' chance to work as a DP since most of the brokerage firms cannot meet the requirement.