Transaction cost in securities trading

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Transaction cost in Securities Trading

While trading in share market/ stock market, a person must be familiar with a term “Broker Commission”. It is an amount charged by stock brokers register under prevailing laws. Broker collects pre specified rate of commission in every transaction entered by a person in purchase / sell of securities. When trading in Nepalese share market, we all have been familiar with the news that we have an expensive transaction cost in trading securities. Most of us are unaware of the fact that all transaction cost paid by us are not broker commission and are not income of broker. Most of us never look at bifurcation of charges paid by us. If we look at bifurcation of charges paid by us and income of broker, we will find that expensive transaction cost is a result of various factors beyond broker commission and it is shared by various bodies beyond brokers.

What are the constituents of transaction costs?

Broker Commission

Broker commission is the amount of charges levied by broker company as per prevailing laws. If we look at prevailing laws, even broker commission is not 100% income of broker. Broker company shares 20% of broker commission income with NEPSE (Nepal Stock Exchange limited) and 0.6% with SEBON (Securities Exchange Board of Nepal) as regulatory fee. The rate of broker commission and income of broker, SEBON and NEPSE is illustrated as:

Transaction Amount
In trade of Equity Share
Rate of broker commissionShare of Income of BrokerShare of Income of NEPSEShare of Income of SEBON
Below 50,0000.40%0.30%0.08%0.02%
From 50,000 to 5,00,0000.37%0.27%0.07%0.02%
From 5,00,000 to 20,00,0000.34%0.25%0.07%0.02%
From 20,00,000 to 1,00,00,0000.30%0.22%0.06%0.02%
Above 1,00,00,0000.27%0.20%0.05%0.02%

Transaction Amount
In trade of Mutual Fund
Rate of broker commissionShare of Income of BrokerShare of Income of NEPSEShare of Income of SEBON
Below 50,0000.75%0.56%0.15%0.05%
From 50,000 to 5,00,0000.60%0.44%0.12%0.04%
Above 5,00,0000.40%0.30%0.08%0.02%


SEBON Fee

In addition to share of broker commission, SEBON also charges 0.015% of transaction amount as SEBON commission.

 

Depository Participant Charge (DP Charge)

DP charge is charged at a flat rate of R.s 25 per company traded per day. It does not vary with transaction amount and number of traded stock of single company. DP charge is shared fully by CDSC (CDS and Clearing Limited).

Capital Gain Tax

Capital gain tax is charged on gain amount on particular stock. It is charged at the rate of 5% if trader/investor have a holding period of more than 365 days and charged at the rate of 7.5% if trader/investor have a holding period of less than 365 days. It is fully deposited in Inland Revenue Department (IRD).

It is recommended to have an enough information about transaction costs for an investors prior to their investment.

For further information related to securities market and securities law of Nepal. Below links may be helpful :

https://sebon.gov.np



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