March 16- Dipute has soared between Security Board of Nepal (SEBON) and Nepal Stock Exchange (NEPSE) regarding borker-dealership. SEBON accuses NEPSE of not co-operating to grant broker-dealership to  Citizen Investment Trust (CIT). Broker-dealers are allowed to trade securities on its own account as well as on behalf of the client.  'The Trust has sent a request soliciting broker-dealership but NEPSE has not given its recommendation yet which is causing the setback', informed a source at SEBON.

However, NEPSE source has denied it attributing the delay in recommendation to techincal problem. Sitaram Thapaliya, General Manager of NEPSE says, 'recommendation is not an issue, but due to lack of infrasturcture for such arrangment is the problem.’ He explained that absence of a separate window (digital space for trading) required for broker-dealer is the main cause of the delay and work is progressing to create such an window.

SEBON source claims that NEPSE is delaying the recommendation as NEPSE wants to give such dealership to existing stock brokers.

'As the brokers have been given two log-in facilities, it should not be aproblem to give one log-in facility to CIT. After that it will be enough if daily inspection is carried out to ascertian whether CIT is trading on its own account only’, argued the SEBON source.

Board source also argues that as there are about 5 thousand transactions taking place on NEPSE, the proposed broker-dealer may carry out a maximum of 500 transaction which may not need electronic monitoring. Monitoring of so few transactions can be done even manually, goes the argument. Most of the high-officials of the Board share this argument.

But NEPSE source argues that as D-mat trading is already started, manual clearing might be problematic.

Meanwhile, CIT wants to get market experience by obtaining broker-dealership before starting to function as market maker or institutional investor.

Can a Stock Broker be a Dealer as well?

In many other countries, stock borkers themselves function as broker-dealers.  In Nepal, though, due to low capital base of the brokers and issues related to transperancy, the Board and a numbe rof investors view that the stock brokers should not be given such duties. 'Presently there are complaints that the stock brokers are giving higher priorty to transact deals on shares held by themselves on their own or their friends and families if there is higher price gained in the transaction. Thus if they are given the freedom to trade for themselves, they may act in more irresponsible manner in the transactions of shares of general investors,’ argued the Board source.

NEPSE has  taken actions against Arun Securities for their irresponsible behaviour in transactions of shares held by general investors. Investors point out that such irresponsible behaviour of the brokers will get further encouraged once they get such permission.  They view that as the brokers now have only Rs. 2 million as paid up capital, they should not be given dealership now. But this can be reviewd later when their capital increases, they argue.

Meanwhile, on Tuesday, the Board has issued directive to NEPSE to adopt internationally practiced technologies. The directive states that the directive is issued because internationally recognized ‘tested’ system is required in order to attract foreign investors and non-residence Nepalis in the Nepali capital market.