Central Depositary System

In the context of global, central depositary system is not new to stock market. But in the case of Nepal, it is regarded as the innovation in the stock market. The CDS provides its services within an online computer system with Participants having direct online access to the system. Trades are settled within a rolling T+3 settlement cycle on a strict Delivery versus Payment (DvP) basis.  Final and irrevocable transfer of funds occurs through the central bank with same-day funds on settlement date. The CDS has established a Guarantee Fund to guarantee the settlement of transactions in the event of a default by a Participant.  The Fund is managed by a Business Conduct Committee that monitors operations relating to risk management.

Central Depositary System in Nepal

            Several activities have already taken place in order to substitute the present paper versus payment settlement system by an independent electronic computerized central depositary system. The formation of a three member committee by the government under the chairmanship of the Securities Board of Nepal is regarded as key in the process of adapting the CDS.

The story of Central Depositary System and clearing turned true after the formal inauguration of the Central depositary on 31, March, 2011 by Yuvraj Khatiwada. At the same time the software was handed over by Ambassador Rakesh Shud from Embassy of India which was prepared by Tata Consultancy. Operation of CDS system will open the new era in capital market of Nepal as it will wipe out inconsistency and manipulation in stock trading as every transaction and executer can be easily traced out. The safety, security of physical holding to electronic medium will eliminate thefts, interceptions and subsequent.

The capital market regulator has expressed hope that the operation of central depository company will change the face of the secondary market. Since the operation of Central Depository System (CDS) will displace manual share transfer with automated system allowing the hassle free participation of investors outside the valley in trading due to easier settlement, moreover CDS is supposed to promote securities market in the cities outside the capital where despite the presence of brokerage services the difficulty of share transfer and settlement has discouraged the transaction.
            As per the website of the Security Board of Nepal, Earlier, the board had refused to approve the CDSC bylaw and directed it to revise the fee structure as the transaction would have been expensive affair for the investors. The current fee structure is determined at minimum threshold so that company will be at break-even point.