Three Investor Associations Submitted Six Point Capital Market Reform to SEBON

Three investor associations have jointly submitted a six point policy reform proposal to the Securities Board of Nepal (SEBON), calling for changes to make the capital market more transparent, competitive, orderly and investor friendly.

The Nepal Investors Forum, Nepal Capital Market Investors Association and Share Investors Association Nepal have asked SEBON to review existing trading and regulatory arrangements, particularly those affecting the free sale of shares purchased in the secondary market, promoter share transactions, IPO and promoter share structures, price adjustment, margin trading and settlement procedures.

The associations have called for the 15 day advance notice requirement for selling shares legally purchased from the secondary market to be reviewed. They said ordinary investors should be allowed to sell their shares freely without unnecessary time or quantity restrictions. For large sales by promoters or strategic investors, they suggested keeping an advance notice requirement where the sale exceeds 5% of shares, while reducing the existing notice period for promoter share sales from 15 days to seven days. They also proposed handling large share sales through a separate offer-for-sale or block trading system.

They have also proposed reviewing the IPO and promoter share structure based on a company's nature, capital, business and risk. The associations have suggested maintaining a minimum 30% public shareholding through IPOs, gradually bringing other promoter shares into public trading while protecting the stake required by key founders and strategic investors, and studying whether up to 50% of shares could be made publicly tradable in suitable companies.

On bonus and rights shares, the associations have called for consistency between the Nepal Stock Exchange (NEPSE) and CDS and Clearing Limited (CDSC) in price adjustment and cost calculation. They have proposed linking NEPSE's adjusted base price after book closure with CDSC's records, applying a single method to calculate the cost of bonus shares, and taxing investors only when there is an actual capital gain.

The associations have further called for common minimum standards for margin trading across all brokers. They have suggested setting margin requirements according to a share's liquidity, price movement and risk, limiting high borrowing against highly risky shares, and providing investors with clear information about the possible gains and losses before they use margin trading.

They have also urged regulators to make the share and fund settlement process faster and more technology-based. The proposal calls for a study to gradually shorten the existing T+2/T+3 system, improve direct and automated coordination among CDSC, NEPSE, brokers and banks, and prepare for a T+1 or shorter settlement system as technology allows.

Finally, the associations have called for broader regulatory reform focused on equal treatment, transparency and investor protection. They have urged SEBON to consult NEPSE, CDSC, Nepal Rastra Bank, brokers, listed companies and investor representatives before introducing reforms.

Six Points Submitted to SEBON

1. Review the 15 day advance notice rule:
2. Review IPO and promoter share structures
3. Ensure consistent price and cost adjustment for bonus and rights shares
4. Introduce common and risk based margin trading standards
5. Shorten the settlement period (T+1)
6. Carry out broader regulatory reform:

The associations have asked SEBON to study the six proposals on a priority basis and hold discussions with concerned stakeholders and investor representatives before moving ahead with practical and implementable policy reforms.