Experts suggest reform in capital market to meet int'l standards

By A Staff Reporter Kathmandu, Aug. 5: Share market stakeholders have said that the Securities Board of Nepal (SEBON) should be transformed into an autonomous regulatory agency with accountability. 

There are 579 institutions in the capital market that are under the regulation of the SEBON but the regulating body has just 71 employees. 

This is one of the major constraints in implementing major reforms, said Chairman of the SEBON at an interaction on long-term reforms in the capital market organised by the Nepal Association of Financial Journalists (NAFIJ) on Thursday. 

He urged all not to jeopardise the process of book building – a tool to invite real sector industries to the capital market. He maintained that the book building is an important tool to create a balance in the market. 

According to him, there should be an expedited reform process including the adoption of latest technology to develop the capital market in the country to meet the international standards. 

Hamal informed that automated surveillance system, digital file tracking, and strengthening of the technological footing of the Nepal Stock Exchange (NEPSE) are the priorities of the SEBON. 

Likewise, he is planning to establish a capital market institute within his remaining 17-month tenure. The institute would be developed in the model of the National Institute of Securities Market (NISM) of the Securities Board of India (SEBI). 

“Our efforts are to win the confidence of the investors for the capital market. We exist because of that confidence. The early reforms at the NEPSE would boost their confidence. We are lagging in digital system so it should be the priority,” he said. 

Executive Director and Chief of Economic Research Development of the Nepal Rastra Bank (NRB), Dr. Prakash Kumar Shrestha said that the capital market demands the highest risk-understanding compared to other investment sectors. 

“Of late, we have seen an overwhelming attraction to the share market. This is good but this is not for all. Only those who can analyse the companies and risks before making an investment should invest in the share market,” he said. 

President of Merchant Banker Association of Nepal, Mekh Bahadur Thapa, stressed on effective implementation of the existing policies rather than announcing new policies. 

“We have been hearing about the reforms at the SEBON and NEPSE for the past many years but the situation has not been changed so far,” he said.

According to him, in order to make the capital market less risky, product and revenue diversification are the important options. 

President of the Stock Brokers Association of Nepal, Santosh Mainali suggested formulating policies by considering the net worth of the brokers, not the capital. 

According to him, of the total transactions through the brokers, 70 per cent are on credit and if the brokers did not pay Rs. 5, the settlement couldn’t be made and the brokers would be punished. “Settlement couldn’t be made even by selling the shares of the investors that made transactions on credit,” he said. 

Mainali lamented that while everyone has set eyes upon the commission of the brokers, SEBON has been collecting more commission than NEPSE. He maintained that the broker’s commission is the lowest in the South Asian region. 

He criticised the capital market regulator for taking about 14 months to approve the establishment of broker’s branch. “In the future, we need to work to expand the geographical presence, resource of revenue and number of investors. Likewise, inviting international strategic partner could also be an effective step,” he said. 

Acting Manger of NEPSE, Niranjan Phuyal, said that the higher weightage of the financial sector, about 80 per cent, in the capital market has created risks for the investors. 

He said that the capital market should help in generating the low-cost capital. Likewise, off-market trading of shares could help in maintaining liquidity, he said. 

Phuyal suggested to unbundle the CDS and Clearing Limited into two companies - Central Depositary System, and Clearing Company Limited - where the former should be an autonomous company while the latter should be kept under the NEPSE. 

He also said that margin lending should be managed by the brokers. 

Similarly, Deputy Executive Director of SEBON, Narayan Prasad Sharma, emphasised on the adoption of robust technology at the NEPSE and enhancement of market monitoring to check the malpractices.