Securities Board of Nepal mulls lowering stockbrokers’ commissionsMove is expected to attract more people to invest in the stock market.
Rupesh KC told the Post that “an increased trade volume on the Nepal Stock Exchange has prompted the regulator to rethink brokerage commissions.”
“Also, the implementation of a full-fledged online system has also helped reduce the administrative cost of brokerage companies substantially, so the regulator has planned to revise the rate to attract more investors in the secondary market,” said KC.
Currently, SEBON allows brokerage companies to charge 0.4-0.6 percent of the total trading amount as commission. However, investors have been urging the government to lower the rate of brokers’ commissions.
Nepal Stock Exchange had launched a new platform named ‘NEPSE Online Trading System’ last November, providing direct access to individual investors and allowing them to invest in shares themselves. YCO, a vendor company, developed the online software for the Nepal Stock Exchange. The system has replaced the traditional system of stock trading which needed a lot of paperwork.
Currently, brokers can charge 0.6 percent commission on a trading amount of up to Rs50,000; 0.5 percent on the trading amount of Rs50,000-500,000; and 0.4 percent if the trading amount exceeds Rs500,000.
SEBON had previously slashed the brokerage commission rate from 0.7-1 percent in July 2016. Following the regulator’s move, stockbrokers, as a mark of protest, had halted trading for a day on the Nepal Stock Exchange.
Stockbrokers told the Post that even at the existing commission rates, they have been struggling to manage their costs.
“The transaction volumes have shrunk given the bearish trend in the market. The brokers are having a hard time meeting their operating costs,” said Bharat Ranabhat, president of the Stockbrokers’ Association of Nepal.
According to Ranabhat, with the implementation of the online system, stockbrokers have to bear the extra cost.
“Depending on transaction volume, a broker pays at least Rs50,000 per month in fees for access to the data centre being operated by YCO,” said Ranabhat.
Ranabhat added that the stockbrokers also have to pay a levy charge to the regulator. “Out of their net profit, brokers pay 15 percent TDS (tax deduction at source) to the government, 20 percent to Nepal Stock Exchange and 0.6 percent to the board.”
SEBON has formed a four-member panel to study the rationale of revising the commission rates of brokerage companies.
According to SEBON’s KC, the regulator has stepped forward to implement the 58-point recommendations made by the Ministry of Finance last December, which suggested the regulator introduce policies to ensure better transparency in the secondary market and address its multiple structural and operational issues.
The ministry in its recommendations had also advised the board to enforce the rule for brokerage companies to spend one percent of their net profit on investor literacy.
SEBON has also formed a separate committee to draft a trustee act to streamline the pool of money being handled by mutual funds.
“Citing a growing number of fund managers, the board has felt the need for a separate act to regulate the business,” said KC, adding that the act will set the standard for fund managers to mobilise the pool of money collected from investors.