However, some canny investors of the domestic stock market sell their shares within the second day of their purchase. The shares when transferred to their Demat account on third or fourth day of the trading, they immediately send them to settlement. This way, they have managed to earn big within a very short period of time.
Securities Board of Nepal (SEBON) has clearly banned such practice. Niraj Giri, spokesperson for SEBON said that such practice is illegal in Nepal and one is subjected to punishment if involved in such crime.
But many investors are still executing such practice and give argument of meeting settlement deadline. Such practice is rampant but regulatory bodies, market operators and broker companies have turned blind eye to the issue.
The issue is indeed serious, but also, investors could manipulate the system only because of a loophole existed in the online trading system developed by Nepal Stock Exchange (NEPSE).
The current online trading system itself can mitigate the problem, if only; NEPSE takes a one simple decision of turning the feature ‘DP HOLDING CHECK’ ON. Right now, such facility is available to brokerage companies only and they have kept the feature OFF. Keeping the feature OFF means investors cannot check whether the seller has adequate number of stocks available for sale or not.
Now if NEPSE directs brokerage companies to turn the feature ON, no one can submit sell order without having them in their own Demat account which will ultimately reduce closeout problem.
Investors have been raising the issue for a quite some time. They have been demanding to mend such loophole by removing such feature from the system.
Broker companies having been declining to turn the feature ON. As per them, turning the feature ON, the system will hangs up quite often and delays transaction.
Bharat Ranabhat, Chairman of Nepal Stock Broker Association suggested to repair the system that will not require to turn the feature ON or OFF by broker companies. “The system should be developed in such a manner that if the seller does not have adequate number of shares, the system itself should dictate and null the order,” he said.
Ranabhat claims that the closeout problem occurs due to shortcomings of NEPSE online system. He also clarified that the brokerage companies have been pointing out the problem to the concerned bodies time and again.
In the meantime, NEPSE clarified that the online system is capable of eradicate the closeout problem given that broker companies enable the feature ON.
An official at NEPSE suggest that the regulatory body should direct broker companies to keep the feature ON so that the problem get solved within minutes.
In between, domestic stock investors paid more than Rs 118.2 million fines in closeout in the eight months of the current FY. Meanwhile, few savvy investors earned million from the loophole.