Wed, Apr 11, 2018 10:14 AM
“Being a Chief Executive Officer at CDS and Clearing Limited, my only goal is to provide product and services that makes a difference in the common people’s life. If I’m not able to make their life easier and things simpler then it is waste of both time and money”
-Dev Prakash Gupta, CEO of CDS and Clearing
Previously under 9 and half crore debt, CDS and Clearing was fighting just to exist. But within 2 and half year of Mr. Dev Prakash Gupta’s tenure it has gone through a sea of change. Not only the company is in profit, they have 3/4 crores after profit in reserve already. The swift implementation of ASBA and the transition to CASBA, the introduction of Mero Share and allotment of IPO in mere 37 hours, all these has left people spell bound.
We had been considering India as our benchmark to access how far beyond we are in the race of development, but the recent undertakings of CDS and Clearing has surpassed those ceiling creating new heights of its own.
When asked who we can thank for the endeavor, Dev sir humbly expressed that if it weren’t for his dedicated team, all this would have been impossible. “Unlike how we picture a government company would perform, my team has stayed here till mid-night and sometimes even till 2 AM in the morning. Exhaustion was there but the goal always motivated us”, says Mr. Gupta. He said that his prime motto is to enable people to apply for shares at the luxury of their home. He, personally, had never applied for IPO before the full implementation for CASBA.
In this backdrop, Rachit Agrawal and Aakriti Thakali of ShareSansar caught up with Mr. Gupta to talk about the story behind the scenes and the future plans in pipeline. The excerpts of the interview is:
The burning topic currently in the market comprises multiple mention of Investor Identification card. How legit are the rumors and if they are true, when can we expect to have our Investors ID card?
They aren’t rumors, we have been working on this project currently and is in development phase. As soon as the development phase concludes; hopefully within two weeks or so, we are going to move towards testing it. The decisions after that depends on how the testing will go. It’ll help us determine market acceptance and ease of use. Since that result isn’t certain yet, I can’t pinpoint a date when the Investor ID will be operational.
What are the benefits of Investor ID card?
The benefits are multi-dimensional. So to list it out we have:
- Proper statistics can be maintained regarding the investors. Example: number of active traders, passive or long-term investors, their KYC information etc.
- Each will have a unique identity like a citizenship card or voters ID.
- This will also aid in Central storage of data, which in longer run will help in speedier data availability.
- This will also help in eliminating data redundancy.
- Since NEPSE requires all investors to fill KYC and the same customer also fill KYC form at bank, this system can help in cross check and eventually will help in maintaining uniformity of information.
What triggered your motivation to fully implement CASBA in such short time frame?
From the beginning our primary goal was to minimize hassles for the investors. There’s a famous saying, “Rome wasn’t built in a day” and we’re well aware of it. We were planning to gradually digitize the entire capital market.
Our first target was to get rid of long queues for share application. And the first step we took was the introduction of Application Supported by Blocked Amount (ASBA). The application went well but our target wasn’t fulfilled. After ASBA, the number of collection centers increased. This didn’t eliminate the problem of long queues, it just dispersed the crowd. People still had to stay in line to apply for IPO and FPO, just in different places.
The long queue wasn’t the only problem, the number of invalid applications were surprisingly high too. When the application was submitted, there was no provision for on the spot verification if the given information was correct. The investors filled the form and went home to relax after a day of standing in line, but in the end if one digit was written wrongly or was entered into the system incorrectly by the person processing the form, then all the efforts went in vain. In addition, there was no way for the investors to know if they weren’t allotted or their form was rejected in the first place.
This made us more eager and motivated to implement CASBA. We successfully developed the system in just 60 days, it’s a record time. However, market acceptance and common consensus among all the parties involved was hard to achieve. It took us almost 6 months to fully implement CASBA. What I learned personally was, the market always needs to be pushed if you want things to happen. A catalyst was what we needed, we couldn’t find one so we became it. We pushed.
We have seen the implementation of CASBA in IPO and Rights issue. What we want to know is its prospects in Auction.
Regarding auction, we will discuss this with SEBON and if needed prepare working procedure. After completion it’ll first be sent to SEBON for approval. In addition to the working procedure we will have to figure out a lot of things like the legal hurdles, technical hurdle and other challenges. Our aim to include all listings, IPO, FPO and auction, into one system and I believe this will take our system to international level.
To be specific about the auction, I don’t even think it’s necessary. If any company after issue has surplus shares rather than conducting auction they can come straight to us. We’ll list those shares here and then in NEPSE and they will be directly traded from the market. This will (1) eliminate the hassle of going through multiple auction (2) create more accountable results than the auction, because for auction it takes a lot of time and when the final results are published it can’t be ensured that it’s 100% fair (3) The company can get the market value for the share, which will of course be higher than the issue price.
How has your journey been since the inception of joining CDS and Clearing as CEO? Has your past experience in IT helped you in your new post?
Yes it definitely has given me added advantage. Being a Computer Science Engineer and having a Master and M. phil. degree in finance that too in capital market have been my major asset. This has helped me see the broader picture from both perspectives.
When we first started, the major hurdle we faced was to establish a connection between our system and Banks’ system. The solution to this came from my experience working in the banking software development in India. While working there as a programmer I learned that when a bank enters a new customer into the system, a code is generated. That was an integral part or a benefit that wasn’t being utilized in Nepal. So I took that as the base for creating the entire system.
Out of total 1,213,670 BOs with demat, how many have already subscribed to Mero Share?
Around 3 lakhs active users and I believe in Nepal this is the highest number of online users.
There are 190 registered companies in CDS and Clearing’s system. Till date we have around 3 Billion unit of shares already dematerialized from these companies. How many are still in Physical form?
Out of total, 72.8% are already dematerialized. The remaining 27.2% which are in physical form are mostly promoter shares.
Apart from shares, we also have other financial instruments like bonds and debentures. However, very seldom do we hear about them. In average only 3 to 4 transactions for bonds occur in a fiscal year. What do you think is the reason behind them?
The major reason is Lack of marketing of these instruments and awareness among the investors. These instruments are listed in NEPSE and are tradeable, however only banks are the primary users of the bonds. The individual investors aren’t aware of the benefits associated with it.
Why aren’t the government Bonds dematerialized?
They aren’t dematerialized as NRB looks after it, other than that the corporate bonds are dematerialized and are tradeable. However we also have approached government to dematerialize the government securities too and once it’s done I think there will be more transactions on that field too.
Implementation of CASBA and Mero Share has opened up ways for many potential investors outside the Valley too. What kind of response have you received?
We are well aware of the fact that most people outside the valley don’t have much idea regarding the capital market. So for that, we’ve already organized 12/13 awareness programs in places like Surkhet, Dang, Lamahi etc. In our programs we’ve given more priority to MeroShare because it will help us reach a wider audience as every other person now has a smart phone plus it renders higher ease to investors while applying for various IPO, FPO and right issues. Once they get the CRN code from the bank then via MeroShare they can apply shares at the comfort of their home.
From those programs you mentioned, what kind of responses have you received?
The level of appreciation is very high. In case of acceptance they don’t have a choice because CASBA is mandatory.
What about those who don’t even have an idea of what a share is?
Yeah there are many people who have no idea what share is, but despite financial illiteracy the popularity is very high. Even with no knowledge of how it works they apply for IPO. Recently I had a training session at Nepal Police Training Center, and about 800 people over there wanted to invest in IPO despite having no extensive information regarding capital market. So I extended my stay there by a day and with RBB I helped them fill the forms.
As per data published during IPO results, there is huge number of rejected applications due to duplicity in demat number, etc. what steps is CDS and Clearing taking to amend this situation?
Yes we’ve acknowledged that problem and necessary steps have been taken. Like I said, earlier a lot of applications were rejected because of slight mistakes in information filling, where the applicants themselves had no idea that their application was rejected. So after the full implementation of CASBA on-the-spot verification of information filled can be done. This minimizes a lot of errors.
However, even after in CASBA like in Aarambha Micro Finance’s allotment there we still few rejected applications. Those applications were mostly duplicated. It wasn’t error it was rather the same person applying from two different BOIDs with slight change in information or spelling of name. We have developed a software that tracks as KYC information and finds such duplicated applications.
Progress of online trading and its effect in share market?
I have no idea regarding that. But I believe they are working very hard. As far as I’ve been told, by Jestha they’ll finish the UAT (Users Acceptance Test) and soon it’ll be operational.
Do you think brokers need to upgrade themselves with information technology and human resources in terms of meeting expectation of investors once online trading commences in NEPSE?
We are giving clearing and post-trade settlement coaching and training about the system to the brokers time and again regarding Capital Gain Tax calculation and input but now they don’t even need to do that—the system will do itself all in case of demat shares. I think they are working hard to provide professional service but they lack qualified manpower.
Your views on participation of NRN (Non-Resident Nepali) investors/FDI in NEPSE?
System-wise we are ready. I guess you have already seen our KYC form. We already have option there for individuals, NRNs, institutional investors, foreign institutional investors etc. Basically we have everything ready. What we need now is policy that opens our doors to foreign investors.
However, opening door from our side won’t be sufficient as we would also need to make our house strong or else they won’t be interested to come in. For example, why would a NRN of a foreign investor want to invest in a market that swings just because of manipulation of few players? So we first need to be internationally trustable and for that we will need to affiliate with internationally accredited organizations. Once we make our system equivalent to the international standard, then we can expect investors outside our boundaries to participate in our market. First, because they’ll be able to access it and second because they would be able to trust our market. Currently, since we are working on national standards we haven’t been able to gain trust from the foreign investors.
CDS and Clearing Limited is full time member of international organization like Association of National Numbering Agency which is an ISO mandated institution and Asia Pacific Group of Central Securities Depositories.
In addition, I think we also need to be more specific in case they want to transfer their earnings back home.
Most of the BFI’s have already implemented the IPS cheque clearing system so is there any chance of reducing a settlement cycle from T+3?
System wise we are ready but the hindrance is the type of ecology we have in our share market. For example I place an order via phone today and for the rest of the day I do nothing, while broker executes the order. Then I give the cheque to broker the next day, which s/he will settle at bank and only the other day the final settlement happens.
However, once the online trading begins, the settlement can be done in T+1 day.
Why is bonus/ right issue taking so long time to get listed in NEPSE. Where do you think the problem lies?
I think the problem lies in lack of strict implementation of the rules. As you know most companies have finished their AGM way back and the bonus and right shares haven’t been deposited in the investors’ accounts yet. If the rules were to be made stricter with definite deadlines and specified penalties in case on non-compliance, then I believe we can get desired results.
SEBON is doing the needful in its implementation. The trend here is first they announce the endorsement even before the approval from SEBON and AGM. The action takes place much later.
My personal view is that the announcement before approval from AGM and SEBON is unnecessary. Have you ever heard such announcements in India or any developed countries? Even in our own country, have you ever seen Standard Chartered Nepal announcing before approval? No. Because that’s not necessary.
For the issuance of right shares we have even prepared a proposal. Under that proposal, once the right shares is announced, it gets listed with us and then can be listed in the NEPSE. After that the shareholders who want to exercise the right will buy it from the market at Rs 100 and the unexercised excess shares will be sold to general public at market price. No hassle of conducting auction and re-auction plus the company will be getting market price, which will of course be higher than the issue price.
Recently, there are talks that commercial banks should also be given broking license. What is your take on this matter?
My opinion is, if we can reach a wider audience then why to hesitate. But we also have to consider the fact that the brokers have been supporting the market since the inception of NEPSE. So my take on this matter is, the first priority must be given to brokers. If they are willing and able they should be given the first priority to reach all 77 districts of our country. The success behind the Demat is rooted in access. We were able to reach 74 districts in just two years and that made it easy to implement. So if Brokers can increase their access and network, they should be given a chance. And if they are unable or uninterested, the commercial banks should be given the broker license.
Finally, what else do you have under your sleeve for us?
As of now we’re working on four projects. They are:
The main idea behind this is to avoid data redundancy and eliminate the unnecessary hassle of filling the exact same information every time an individual wants to acquire a service. For example, while issuing a SIM card we need to fill all our information on a form, the same information needs to be filled while opening an account in bank, opening a demat account, a brokers account, while issuing a drivers’ license, basically every time.
In addition to that, if you go to NTC or NCELL today and ask them to find out how many SIMs have been issued under your name I’m pretty sure they won’t be able to find out. So the point of this system is, once the information for an individual is entered it won’t be necessary to fill the same information elsewhere.
If every entity uses our KYC system, the individual’s details will already be there and the bank can add account number, the DP can add Demat number, the Yatayat office can add license number, telecom service provider can add phone number and in same manner all information can be centrally stored. You have a drivers’ license right?
Yes I had to stay in queue from 3 AM to get it.
And that too to fill a form. So if Yatayat integrates into our system that line isn’t even necessary. Based on a click they can pull all your information from our system and you’ll need to just attend the exam and trial.
So from our system, the customers will have an ID and all the agreed partied will have access to our system and from that ID information can be retrieved and utilized. This on one hand reduces the time and cost involved for all parties. Second the information will be readily available upon requirement. The government will have a secure position in law enforcement as the entire history of one person will be at one place.
- National Academic Depository
The national academic depository is dematerialization of the academic certification. Currently if you want to enroll in foreign universities, you need to authenticate your certificates. First you’ll need to go to the notary and then you’ll need to go to the Education Ministry where of course there will be queue again.
So this system will provide a mechanism where all the certificates will already be dematerialized directly from the issuing institution like the colleges or universities. However this will come only after the full implementation of KYC.
This too will be dependent on the implementation of the KYC system. So once that runs on full-fledged basis, we’ll be working toward e-voting.
You mentioned you had four projects. What is the last one?
Let’s not talk about it right now. It’s going to be a surprise. It’s ambitious but if we receive enough support from government and involved parties, it’s going to be a success. Fortunately, we have a very experienced and enthusiastic Finance Minister. In fact he is my former teacher so I have great hopes.