Committee urges CIT to set up autonomous market maker unit

KATHMANDU, AUG 10:

A committee formed to prepare an action plan to make the Citizen Investment Trust (CIT) play the role of a market maker in the capital market has recommended that it set up an independent and autonomous unit. A market maker helps to stabilise the stock market from sudden fluctuations by purchasing and selling shares on a large scale.

The committee has also suggested mobilising Rs 4 billion in order to function as a market maker. The committee headed by Nabaraj Adhikari, head of the planning and development department at the Securities Board of Nepal (Sebon), submitted its report to the CIT recently.

CIT’s executive director Rishi Ram Gautam said the report has sought a separate unit within the CIT and a team of experts with international exposure which it lacks currently. “Similarly, the report has pointed out the necessity for Sebon to prepare a market maker guideline in order to regulate the operation and upgrade the infrastructure of the Nepal Stock Exchange (Nepse),” said Gautam.

The report has also pointed out that the government, regulator and other stakeholders are required to play a more pragmatic role in helping the CIT operate as the market maker.   

Although the CIT is authorised to operate as the market maker and Sebon as the regulator, there is no regulation yet to regulate the operation of the market maker.  Considering the sensitive nature of the capital market, the report has pointed out the necessity of such a guideline, according to Gautam.

Once the report is endorsed by the CIT board, it will be sent to the Finance Ministry for final approval. The ministry will then ask Sebon to prepare the guideline.  

Meanwhile, the report has termed Nepse’s existing infrastructure inadequate for market making operations and suggested upgradation. “While operating as a market maker, the firm should be able to quote buying and selling rates at once,” said Gautam. “The existing infrastructure doesn’t allow this.”

The report has also urged the CIT to ask help from the Finance Ministry to arrange  the required funds. A meeting of representatives from the CIT, Rastriya Beema Sansthan (RBS), Nepal Telecom (NT) and Employee Provident Fund (EPF) and finance secretary Krishna Hari Banskota held at the Finance Ministry on Feb 26 had decided to give the responsibility of market maker to the CIT. The other institutions agreed to invest in the trust. “However, no talks have been held since then,” said Gautam. 

The report has advised the CIT to purchase securities of companies with a good net worth and high earning per share in order to minimise losses. The market maker in the capital market is a firm that accepts the risk of holding a certain number of shares of a particular security in order to facilitate trading in that security. Experts say that a market maker can give much needed stability to Nepal’s capital market which at times has been very volatile.

Source: The Kathmandu Post