NEPSE Employee Union Provides 8 Reasons Why Opening of a New Stock Exchange is not a Right Decision

Through a formal press statement, NEPSE Employee Union (NEPSE EU) has provided their justifications and viewpoints on the ongoing debate over the opening of a new stock exchange. They contend that NEPSE itself needs to be upgraded, strengthened, and reformed rather than a new stock exchange being created.

NEPSE EU prefers not to open a new stock exchange for the following reasons:

A wave of mergers around the world:

The number of stock exchanges around the world has been dropping since the 1980s. There were 26 stock exchanges in India, dozens in Canada, and hundreds in the United States. Most of them have since merged with one another. Four stock exchanges now control the majority of Europe. To use the same trading mechanism, many exchanges have joined forces.

Pakistan, a neighboring country, has constructed a stock exchange after determining that it did not require three and the regulatory body there started the merger procedure. It is utterly incorrect for Nepal to proceed in the opposite direction when there is a global wave of stock exchange mergers. It is illogical and unfeasible to discuss launching a new stock exchange in a tiny economy like ours and permitting even individual enterprises to invest in stock exchanges.

Size of the economy:

Bringing another stock exchange to a country with a small economy like ours is not scientific and practical. The United States (USA) has a gross domestic product of $20.89 trillion, followed by China's $14.72 trillion, Japan's $5.06 trillion, Germany's $3.85 trillion, Britain's $2.67 trillion, and India's $2.66 trillion.

At this time, Nepal's domestic product is Rs. 48.51 Kharba. This means that Nepal's GDP will be 1000 times less than the above countries, i.e. $ 38.20 billion only. Among the above countries, there are only 2 stock exchanges in America and India and only 1 in all other countries. Only 1 stock exchange model (structure) in Europe has gone ahead.

In such an environment, only Nepal to travel back and forth, and adding another stock exchange is deliberately not good for the country.

Capital market sensitive area

By expanding the number of banks, financial institutions, telecommunications businesses, insurance companies, or any other comparable organization, competition in the market is increased. But adding more numbers won't increase pricing competitiveness in this case.

For instance, a company's price will vary if it is listed on both stock exchanges. The Stock Exchange will offer a platform for trading securities on the secondary market. How many are there, and where are they? It's unrelated to that in any way. The goal of the stock exchange is to establish a setting where investors can rapidly buy or sell shares whenever they desire. It will mandate that its service members use a broker. Saying that the service will improve or speed up with the addition of a new stock exchange or just more people is as absurd as saying that more paddy will result from more beggars.

The number of stock exchanges is not the determinant of capital market development:

There are only about 110 to 120 entities that may be referred to as stock exchanges out of the 200 countries in the world. There are between 60 and 70 stock exchanges where securities are regularly traded. These statistics also demonstrate that the development of the capital market is not determined by the number of stock exchanges. The capital market would have grown if there were numerous stock exchanges. If the unattainable information we have been given—that two stock exchanges contributed to the growth of the capital market—had been accurate, everyone would already be aware of it.

The stock exchange is not a commercial organization like a bank, insurance, or telecom:

The operation of a stock exchange is not a solely business activity with a profit motive as the primary goal. The stock exchange serves as both a regulatory agency and a pure market operation. Because of this, stock exchanges are referred to as "frontline regulators."

To protect investor rights, stock exchanges keep an eye on listed companies. They control, supervise, and monitor brokers. In such a tightly controlled environment, there is zero competition. There is no competition in the stock exchanges around the world as a result of this regulatory component built into the system. By equating the stock market with businesses like banks, insurance companies, and telecom companies, one is merely attempting to cast doubt on the validity of the stock exchange.

Let's open more stock exchanges, there will be more competition:

According to the argument, if there are two exchanges, there will be competition, and competition will increase market efficiency. Players from two distinct terrains compete, and someone else sets the prices. What type of awareness of the economy is this? A broad economic principle is that in order for there to be true competition, there must be a large number of market participants and an ongoing atmosphere of price negotiation between buyers and sellers. Competition does not exist when both the quantity of market participants and pricing is set. It does not increase market efficiency. Why are there only two if it's supposed to be a competition?

NEPSE: The hen that lays golden eggs for the government:

NEPSE is the best institution out of the 44 public institutions that are currently in operation. It is an important resource for the government. The government's initial capital investment of around 50–60 lakh rupees has been enhanced by NEPSE to 1 Arba paid-up capital through ongoing income. It is the top organization that provides the best return on investment for the government. It has been giving the government cash dividends every year in the range of 50 to 167 percent. Even the private sector is envious of NEPSE's financial situation and development at this point. Foreigners also desire partnerships.

Does the Securities Board have enough resources to regulate two stock exchanges?

NEPSE currently lists 240 organizations. This number is declining as a result of ongoing mergers and acquisitions involving listed companies including banks and other financial institutions, insurance firms, hydropower companies, etc. What effect will the capital market's fragmentation have on stock exchange operations that should be integrated, such as pricing of financial instruments (price discovery), risk management, capital mobilization, and institutional governance? Do the Securities Board's resources, which must be used to oversee one stock exchange, allow it to regulate two stock exchanges?