CDS & Clearing Ltd to conduct clearing and settlement of securities
KATHMANDU, Sept 11: Central Depository System (CDS) and Clearing Limited is all set to start work related to clearing and settlement of securities, which includes ownership transfer of securities like, stocks and bonds, and payment settlement.
The task, which is currently being conducted by Nepal Stock Exchange (Nepse), may become the responsibility of CDS and Clearing Limited as early as September 17, if things go according to plan, Subodh Sharma Sigdel, CEO of the state-owned company, said.
The transfer of responsibility, however, should not mean works related to clearing and settlement of securities are being automated.
“Automation of the entire system from trading to clearing and settlement of securities is our ultimate goal. But for now only the location where these jobs were being performed will be changed. Works related to clearing and settlement will continue to be performed manually as in the past,” Sigdel said.
Works related to clearing and settlement include ownership transfer of securities, process of informing the company whose securities are being traded and payment settlement between parties that are purchasing and selling the securities.
These tasks, which have to be performed within next three days of security transaction, are currently being performed manually by Nepse.
“To automate the entire process, Security Clearing and Settlement Regulation first needs to be promulgated,” Sigdel said. “We then need to identify a way to slap capital gains tax (CGT) on security transaction once the system is automated.”
On enactment of Security Clearing and Settlement Regulation, the Securities Board of Nepal (Sebon), the secondary market regulator, has expressed commitment to expedite the process, Sigdel informed. “So we can expect the bylaw to be introduced anytime soon,” he said. “But the task of automating the process of CGT collection is taking quite some time.”
CDS and Clearing Limited had previously outsourced the work of automating its system to an Indian company. The software provided by the firm, however, does not automatically deduct the tax amount on securities sold on profit.
Following this, the idea of replacing CGT on security trading with transaction tax was also floated. But the government is not keen on introducing transaction tax fearing it might dampen investor sentiment as such taxes have to be slapped even if securities are sold on losses.
“Since calculation of CGT immediately after change of hand of securities is almost impossible - as it requires capturing second-to-second price fluctuations on the share market - we are currently mulling over either slapping CGT on closing price of securities or collecting CGT voluntarily from brokers at the end of the fiscal year,” Sigdel said.
Nepal seeks membership of ACG
Central Depository System (CDS) and Clearing Limited is seeking membership of Asia Pacific Central Securities Depository Group (ACG), an umbrella body of securities depositories and clearing organizations operating in the Asia Pacific region.
The membership of the 30-member group will be confirmed on September 21 during a meeting scheduled to be held in Indonesia, according to Subodh Sharma Sigdel, CEO of CDS and Clearing Limited.
“The confirmation will provide us a platform where we could share information with securities depositories and clearing companies of relatively developed markets and help us get international recognition as well,” Sigdel said.