BBS 3rd year
CHAPTRR: 5
ANCILLARY FINANCIAL SERVICES
Meaning (concept) of Ancillary financial services.
It refers for the complementary or auxiliary services provided to financial market participants to facilities
financial transactions in the financial system of an economy are called ancillary financial services. I.e.
The financial services provided to savers units, Investors units, and issuers of financial securities falls
under in it. Which broadly consisting of the following services:
- Securities issuance services.
- Securities custody services.
- Account keeping of financial transactions.
- Transfer of ownership of financial securities.
- Securities brokerage services.
- Securities dealer’s services.
- Financial analysis of institutions.
- Investment research.
- And portfolio (Investment) management services.
Institutions providing ancillary financial services
[Based on data up to the end of 2080 B.S. Chaitra.]
- Merchant bankers / Investment bankers (29)
- Depository participants (127)
- Securities brokers (90)
- Securities Dealers (2)
- Credit rating agencies (3)
- Deposit and credit guarantee fund (1)
- Credit information bureau (1)
Investment banking industry / Merchant bankers:-
Financial intermediaries licensed by the securities exchange board for the purpose of facilitating the
issuance and sales of shares and bonds are called investment banks. I.e. an investment bank is a
financial intermediaries unit that assists in collecting capital from the primary and brings the savings of
the sever units to the user units. Currently 29 investment banks are providing ancillary financial services
in Nepal. Where, some of them are Siddhartha capital, Nabil investment bank, citizen investment trust
etc. are operated in Nepal.
Note: - In accordance with the provisions of section 116 of security exchange act 2063 B.S. under the
security business regulation 2064 B.S., the provision for granting permission for capital and ownership of
business operations and other aspects have been made.
FUNCTIONS OF INVESTMENT BANKERS:-
Mainly the functions of investment bankers are classify as traditional and modern functions which are,
a) Underwriting shares and debentures.
I. Consultancy regarding issue of financial securities.
II. Collection and registration of documents.
III. Underwriting financial securities.
b) Investment (portfolio) management services.
c) Equity sale.
d) Merger and acquisition.
CLASSIFICATION OF INVESTMENT BANKS:
The following are the classification of investment banks on the basics of area of operation and required
minimum paid-up capital as under:
- Securities underwriter/merchant banker Rs7 crores.
- Portfolio manager Rs5 crores.
- Issue manager Rs5 crores.
- Share register Rs3 crores.
- Issue manager Rs3 crores.
CDS and clearing limited: [CDSC]
CDS: Central depository system.
CDSC is Nepal’s only and first securities Depository Company. Which is the subsidiary of Nepal securities
exchange board (SEBON). It has been operating since 2067 B.S. this company has given responsibility to
NEPSE for central depository operation, clearing and settlement services.
Mainly the CDSC deals with issue of securities, collections of securities applications, allotment of
securities, clearing and settlements.
NOTE: - since, the application system of the company for primary issue and additional shares issue has
been converted in to CASBA system and implemented. It has become possible for the issuer to distribute
shares in the short time as the investor applies through Mero share.
CASBA: Centralized application supported by blocked amount.
ROLES AND FUNCTIONS OF CDSC:
The following are the roles and functions of CDSC under the provision of securities exchange act 2063
B.S.
- To establish, operate and manage the securities deposit system.
- To prepare and implement the necessary rules, regulation and guidelines for the operations of
depository member, guarantee, issuer, share registrar, and transfer agent. Along with direct and
guide them.
- Expelling fraudsters and bad business man.
- Financial guarantee and prompt transfer of the funds.
- Determining and approving fees and commissions to be charge by CDSC participants.
- Dematerializing physical securities of beneficiaries and depositing them in Demat account.
- Facilitates transactions management by upgrading the central depository and accounting
system.
- Enhance the financial literacy required by investor.
Depository participants (DP’S):-
These are the agents appointed by CDSC for opening Demat accounts to the beneficiaries. I.e. they are
the representatives appointed by CDSC. This includes Investment banks, stock broker, banks and
financial institutions. In Nepal, by the end of 2080 B.S. 127 Depository participants are getting
permission from CDSC to open Demat accounts on behalf of depositors.
Functions of Depository participants:
The following are the functions of DP’S under the provision of securities exchange acts.
- To open Demat account for beneficiaries.
- To identifying the beneficiaries in accordance with the norms of CDSC and providing the
necessary information.
- Filling of securities in electronic medium.
- To transfer the securities from the Demat account as per instructions received through written
and electronic means.
- Complying with SEBON and CDSC guidelines and other information issued.
D) STOCK DEALER OR SECURITY DEALER:
A securities dealer is an organization licensed by securities board to maintain a stock of securities that
facilitates the transactions of buying and selling securities on its own account from the secondary
market. The business of securities traders in Nepal started from 2064 B.S. stock dealer are free to
determine securities buying and selling price by theirs own selves. Where the selling price sated by them
is known as Ask price and the price at which they buy is called Bid price. The difference between Ask and
bid price is said to be dealer spread (i.e. Dealers profit).
For the balancing the market demand and supply of securities transaction in the capital market,
securities traders sell stocks when there is a shortage of securities and buy such securities when the
supply of the securities in the market is high than that of demand at the same time so, they are called
market maker. Currently, Nabil securities limited and Nagarik stock dealer are operated in Nepalese
financial market. The stock dealer carry out the following functions:
- Buying and selling securities by their own accounts.
- Accesses the liquidity in to the financial markets.
- Making markets in securities.
- Underwriting financial securities.
- Providing investment services to investors.
E) Securities Broker:
Securities broker are the agent or intermediaries of financial system of an economy that facilitates for
trading of stock in financial market, which are the licensed under the provision of securities exchange
act 2063 B.S. by SEBON. These are also known as stock broker or simply Broker.
Securities broker are those financial institutions that facilitates for the buying and selling of financial
securities in secondary market and over the counter market on behalf of their customers and on
customers account. I.e. they trade securities on customers account only after getting directions by
customer either by written or by electronically and they charges fees and commission as indicated and
determined by CDSC. Currently 90 broker companies are operated in Nepal till 2081 end of Ashad.
Roles and functions of stock broker:
I. To provide competitive brokerage services to their customers.
II. To implement/execute buying and selling order received by their customers.
III. To provide investment advice and information (but not advice for selection) to their investor.
IV. To provide details of securities transactions as per demand by customers.
Types of securities Broker:
- Floor broker
- Full service broker
- Discount broker
- Online broker.
Major consideration of selecting suitable stock broker:
- Good-will
- Services Quality
- Types of services
- Used technology and level of technology
- Accessibility
- Service charges and fees
- Other services etc.
