Digitization has become a necessity in Nepali Stock Market
CDS and Clearing Ltd (CDSC), a subsidiary company of Nepal Stock Exchange Limited (NEPSE) that provides centralized depository, clearing, and settlement services, has approx. 3.5 million users registered on its ‘MeroShare’ website as of December 2021, according to the CDS and Clearing Ltd (CDSC) website. This means that if a company issues an Initial Public Offering (IPO), 3.3 million users will be able to apply for it online, rather than having to travel to the company’s headquarters.
Also this week, the NEPSE reported that there are 923,000 users registered in its Trading Management System as of the end of the week (TMS). As a result, on any given Sunday, all 923,000 users could log into the TMS website, resulting in a website crash. TMS and MeroShare have both crashed in the past as a result of high user traffic, and many users have expressed their dissatisfaction with the consequences.
It has been more than a year since the launch of online securities trading in Nepal’s primary and secondary markets, which took place on November 6, 2018. The introduction of an online initial public offering (IPO) application system eliminated the need to stand in line for hours in capital offices to manually fill out the necessary forms. Furthermore, TMS provided users with the convenience of buying and selling stocks, as well as making and receiving payments, from the comfort of their own homes, rather than having to travel to broker offices and banks.
“Anyone who claims that online trading has not benefited them is completely deluded,” says veteran investor Nirmal Pradhan, according to the news agency. Pradhan believes that online trading has attracted a large number of new investors to the market, which has resulted in a significant increase in trading volumes.
Prayas Dulal, a business analyst who recently completed his first year as a trader in the stock market, is of the opposite opinion. As a result of reviewing numerous online videos, resources, and tutorials for trading, Dulal believes that both TMS and MeroShare are extremely basic, even primitive. In Dulal’s opinion, “on days when an IPO is launched or an allotment is made, we are unable to log in to MeroShare.” “I used to get nervous when I sold shares but didn’t have time to complete my Electronic Delivery Instruction Slip (EDIS) in time to avoid closing out my account and incurring penalties.”
Manil Shrestha’s views on the online trading system are more in line with those of Pradhan, who has been an investor for a long time and is a frequent trader. Shrestha, who has been closely following the market since 2003, believes that securities trading in Nepal has advanced by “leaps and bounds” in recent years. Before the advent of TMS, traders were forced to rely on brokers to buy and sell stocks, either by physically visiting the office or by communicating via phone calls and text messages. Any lapse in communication resulted in losses, and there were numerous instances of human error.
“With the online system, you can take advantage of opportunities immediately and avoid letting anything derail your momentum,” Shrestha explains. Concerning the brief failures of both TMS and MeroShare.
Shrestha acknowledges the issues and believes that more can be done to improve the situation. “A high volume of traffic in both MeroShare and TMS causes the system to become clogged. It is possible to make this better by increasing their bandwidths,” Shrestha says. “However, these high-volume trades that cause TMS to crash occur approximately 15-20 times per year. So, how feasible do you think it will be for NEPSE to maintain high bandwidths throughout the year?”
Despite the fact that the current system is not designed to handle a large number of users, SEBON, the government-established securities market regulator, is aware of the problem. In an announcement, Ajay Dhungana, Assistant Director for Research at SEBON, says, “We have requested that both NEPSE and CDSC conduct system audits and upgrade their capacities.” As a result, we cannot build systems that cover the entire country and must instead upgrade systems based on the best estimates of future growth in the number of users. While investigating the various anomalies and glitches that have been observed in the system, Dhungana believes that they may have been caused by an unexpected increase in online users during the Covid-19 pandemic and lockdowns.
“We have made some major upgrades in the last two to three months and have resolved 80 percent of our issues,” says Kanchan Sapkota, Head of Operations at CDSC, the NEPSE subsidiary responsible for managing MeroShare. “We have made some major upgrades in the past two to three months and have resolved 80 percent of our issues,” he adds. We are also planning a significant upgrade of our system this year in order to accommodate the large number of users who have registered with us and to make the system even more advanced.” Sapkota points out that, despite these improvements, glitches cannot be completely eliminated. In terms of the issues relating to EDIS, Sapkota explains that MeroShare is not solely responsible. MeroShare is a collaborative effort involving a number of different parties, including the users themselves, NEPSE, and the brokers. If any of them fails to act in the proper manner, it can cause a problem throughout the system,” Sapkota explains.
NEPSE’s company secretary and information officer Murahari Parajuli says the exchange is also working on upgrading the system, and he speaks on behalf of the company. NEPSE is attempting to have the brokers construct and operate the TMS in order to relieve itself of its load. Brokers can select from a variety of TMS operation modes that are currently available, as long as they meet the requirements set forth by NEPSE. “We have already amended some bylaws to make this possible, and we are awaiting SEBON’s approval before moving forward with the project,” Parajuli explains.
He goes on to explain that, despite the fact that NEPSE is frequently held responsible whenever a problem occurs in the system, there is more to the story than meets the eye. TMS is a platform that NEPSE manages, but it is the responsibility of the associated brokers to maintain their own servers. As Parajuli points out, “the vast majority of brokers acquire thousands of clients and collect commissions from them, but they do not expand their server capacity or upgrade their data center.” “As a result, in the end, everyone concludes that NEPSE is to blame for any shortcomings in the system.”