Automation leads to Nepse boom, But CDS a must

After the automation of the Nepal Stock Exchange (Nepse), the transaction amount has increased by over three-fold whereas share transaction has also seen a rise.
"The transaction amount before the automation on August 24, 2007 used to be at around Rs 30 million on an average per day but after automation, it has increased by over three-fold to Rs 100 million," said Rabindra Bhattarai, president of the Securities Research Centre and Services (SRCS) that has conducted research on 'Impact of Automation in Nepse'.
"There used to be 81,000-units of shares traded per day on an average but now it has gone up after automation to 1,30,000-units," said Bhattarai, releasing the findings of the research here in the Valley today.
Share transactions in Nepal started formally on February 12, 1994. For about 13 years, the brokers traded shares through 'Open Outcry System' -- where brokers shout to quote the price of the shares they want to buy or sell for their clients.
The sole secondary market -- Nepse -- took a big step forward to modern-day trading practice and brokers started trading through the Wide Area Network (WAN) -- an extended service for brokers -- after Nepse was automated.
The brokers' started trading from their offices and they need not go to the Nepse floor. That has increased their efficiency, making them transact more at the click of a mouse.
"The number of transactions also witnessed an increase to 746 per day on an average from the earlier 484 transactions daily," Bhattarai, who is also a share analyst, said adding that the number of brokers, however, has not increased.
Some stock market pundits claim that it is due to the increase in number of listed companies and their shares that has helped increase the transaction number and amount. "The encouraging increase can only be justified as the impact of the automation that has shown similar results in other countries like India," Bhattarai argued.
The Indian share market has also registed a remarkable growth in number of transactions and amount after it was automated in 1994.
SRCS has studied the transactions -- of 328 trading days before the automation and 355 trading days after automation -- using a hypothesis method of analysis based on average, standard deviation and per cent tools.
The research has, however, observed a very unusual pattern as well. "The daily average change rate before automation was 0.2275 per cent but after automation it has come down to 0.0041 per cent," Bhattarai said, explaining that the reason might be due to entry of a large amount of Nepal Telecom (NT) shares and the 50 per cent plunge in Nepse after the Maoist government that brought an unfavourable policy was formed.
Politics has very little impact on Nepse, according to the earlier research of SRCS. "Still, the policies of the government can make a difference," Bhattarai said adding that the government or the political parties have little or no impact.
For growth of the capital market, the centralised trading in Kathmandu, lack of a completely computerised system of share trading and Central depository System (CDS) are major obstacles, said the research. "If the government wants to develop the capital market, these three are the areas where it has to immediately work," suggested Bhattarai.