DBAN's Memorandum to SEBON: Proposals for Capital Market Reform

Dhitopatra Brokers Association Nepal (DBAN) submitted a memorandum to the Securities Board of Nepal (SEBON) on Tuesday. President Sagar Dhakal, on behalf of the association, presented the memorandum to Board President Ramesh Hamal in the presence of the working committee members.

In the memorandum, they requested amendments to certain issues within the Securities Traders Membership and Supervision Regulations, 2079, as passed by the Board of Directors of Nepal Stock Exchange Limited (NEPSE) and submitted to SEBON. In the current situation, the memorandum argues for passing the regulation with amendments only, as it is believed to have a negative impact on the capital market, potentially restricting its development and expansion.

In sub-regulation 3 of regulation 27, there is a provision to extend the existing 3-day suspension of brokers to 15 days. The brokers argue that such a lengthy suspension would adversely affect investors, and as a result, they request the abolition of this system, proposing instead the imposition of cash fines on the company or the company's officials.

Likewise, the memorandum highlights efforts to implement code of conduct points 10 and 11 in schedule 9 of the regulation. These points would require members of brokerage companies to obtain prior approval from NEPSE before trading shares in their own or their family's name. The memorandum advocates for the complete cancellation of these points, suggesting that if business were conducted solely through the company, it would assist regulatory bodies in their oversight and supervision work.

Currently, investors face a 20 percent penalty in case of a close-out. To address this issue, the memorandum requests the introduction of a minimum 30-minute auction market period after the regular market session to manage close-out problems. Furthermore, it calls for the cancellation of instructions regarding the limitation of 2 demat accounts implemented by the Securities Board, suggesting that demat accounts, an essential risk management tool, should remain open according to investors' needs.

Considering the Securities Board's review of broker commission structures, the memorandum requests the separation of commissions paid by investors to various regulatory bodies from broker commissions. It also seeks clarification regarding the commission or fees applied to customers' bills.

Additionally, the memorandum proposes the implementation of a provision allowing investors to open demat and business accounts from home or abroad through video Know Your Customer (KYC) procedures. It also urges the Securities Board to align the KYC process with the national identity card system established by the Ministry of Home Affairs of the Government of Nepal, which is affiliated with the recently initiated Central KYC program by CDS and Clearing Limited (CDSC), with the permission of the Securities Board. The association has formally requested these actions from the Securities Board.