Financial Implications: Combined Issued Paid-up Capital of NPR 5.49 Arba of 18 Potential Broker Companies In Limbo after Finance Committee's Interference

The decision of the Finance Committee under the House of Representatives (HoR) to temporarily halt all processes related to broker licensing has significant financial implications.

As per the revised guidelines, there will be three types of licenses offered: general securities dealer, full operating securities broker service, and limited working securities broker service.

To obtain a license under the limited broker category, a company must have a paid-up capital of NPR 20 crores. Similarly, for a license in the full operating securities broker category, the company must have a paid-up capital of NPR 60 crores.

Meanwhile, the proposed capital requirement for the stock dealer license is NPR 1.5 Arba.

Currently, the Securities Board of Nepal (SEBON) has granted operational permission to 18 new broker companies in two separate phases, after meeting the necessary infrastructure requirements.

In the first phase, seven companies were granted licenses under the limited broker category. In the second phase, among the eleven companies, nine can operate as limited securities broker services, while Mega Stock Markets Limited can provide full operating securities broker services. Additionally, Nabil Securities Limited, the only applicant for a broker company with a dealer's license, had its application approved.

This had marked the first instance in the history of the capital market where even banks received approval to extend their services as brokerage houses.

Subsequently, seven of these companies have received a letter of intent (LOI) from the Nepal Stock Exchange (NEPSE) to commence operations. These companies have already established their offices and are preparing for formal operations.

The 18 companies have a combined paid-up capital of NPR 5.49 Arba. It is understood that the capital has been frozen for the last 8 months.

Furthermore, as per the amendments in the Securities Dealers (Stock Broker, Securities Dealer, and Market Maker) Regulations, 2064 (2008), Rule no. 2 has established the license cost for share brokers, categorized based on levels. For a broker license, the applicant must pay a minimum fee ranging from NPR 25 Lakhs to NPR 1 Crore. The securities dealer license will have the highest fee under the current proposal, costing NPR 1 crore, while the limited broker service will be priced at NPR 25 lakhs and the full operating securities broker service at NPR 50 lakhs. This provision presents an opportunity for the government to collect upfront revenue.

Additionally, brokerage houses will incur an annual renewal fee of NPR 1.5 lakh for limited broker service providers, NPR 3 lakh for full operating securities brokers, and NPR 5 lakh for stock dealer companies. These regulations ensure a steady annual revenue collection for the government as it seeks to expand its revenue streams.

See payment details for first-phase seven broker companies:

The seven broker companies which had received broker licenses in the first phase under the limited broker category and subsequently received approval from NEPSE have already made payments under seven different titles that has costed each company Rs. 31.05 lakhs and in total 2.17 crores by all seven companies.  

In the same manner, in the second phase among the nine companies which had received approvals under the limited broker category after meeting infrastructure pre-requisite have been obliged to make payments as follows:

Each of the nine companies have made payments worth Rs. 25.55 lakhs which amounts to Rs. 2.29 crores when combined for the nine brokers.

Similarly, Mega Stock Markets Limited had to make an up-front payment of Rs. 50 lakhs as full operating securities broker service approval. In addition, Nabil Securities Limited had to pay Rs. 1 crore up-front to receive approval as the sole securities dealer.   

Similarly, Himalayan Securities Limited, Century Securities Limited and Sani Securities Co. Limited (existing broker for upgradation) are to pre-pay Rs. 50 lakhs as set guidelines for full operating brokerage license. These three companies had applied to attain license under the full operating brokerage service and subsequently had received letter of intent (LOI)/preliminary license from SEBON, while Mega that had applied under the same category has received license certificate, final approval from SEBON. 

The remaining companies all of which have applied under the limited brokerage category, which have  received final license from SEBON have already submitted advanced payment of Rs. 25 lakhs as required. 

In addition, the new license awardees have potentailly set up offices, bought equipments as the licenses were awarded after evaluation of company's infrastructures. Moreover, definitely, new hirings have been conducted by the companies which further dampens the financial standing of the license awardees. 

It was only after a long-haul of 15 years that procedures to attain broker licenses had been carried forth. However, consequent to inefficiency of MPs the whole criteria is in limbo now.

READ ALSO: Navigating the Future: Examining the Role and Benefits of New Brokers

The Finance Committee of the Federal Parliament has issued a directive to halt the issuance of new stock exchange and broker licenses, contradicting the Supreme Court's order. The Supreme Court's decision on 29 Chaitra 2079 had opened the door for new companies to obtain licenses.

The decision has brought much flak to the concerned authorities.

READ HERE: "No Committee is Above the Decision of the Honorable Supreme Court" - MP Hari Dhakal Remarks On Ongoing Conspiracy To Hinder New Broker Licenses

See paid-up capital figures of 18 companies here: