Sebon fails to protect minority investors

KATHMANDU:

Securities Board of Nepal (Sebon) seems to have failed to make the capital market a secure place for minority investors.

Delay in resolving the ongoing Nepal Bangladesh (NB) Bank’s share transfer row is just another example of the regulating body’s inability to take strong steps to protect the investors.

Although there is little doubt that Nirmal Pradhan and his associate Shankar Shrestha sold 200,000 units of shares unlawfully, Sebon is reluctant to take any concrete steps against them. The shares worth Rs 120.4 million are stuck in blank transfer state since past one year despite the buyers paying for them.

“If the shares that the investors had bought aren’t transferred to their names, Sebon will have failed its duties,” said President of Nepal Investors Forum, Raj Kumar Timilsina. Sebon had not even taken the case seriously until the brokers decided to stop executing orders from Pradhan and orders for shares of NB Bank to put pressure on the regulator to take action in favour of investors, back in February.

Securities Act 2006 has a clear provision that identifies fake or false trading as criminal offense.

It has recognised any transaction that does not see the change in actual ownership, even if the purchase or sale of securities is done directly or indirectly, as false trading.

In February, Sebon formed a probe panel to investigate the case, and barred Pradhan and his associates from stock trading but nothing more has been done to ensure that buyers get what they paid for. Although the probe panel had submitted their report two months ago, the regulator has not disclosed the findings yet.

“There are enough laws to penalise the misconduct in the capital market — only problem is lack of enforcement,” said Shurbir Paudyal, former chairman of Sebon, adding that large number of offences seen in the capital market at present is that of non-compliance due to the regulator’s failure to take hard decisions.

It is Sebon’s job to protect some half a million minority investors that are buying and selling shares in the market, which houses assets worth more than Rs 800 billion.

This is not the first time that Sebon has refrained from taking a strong stance. In September 2012, an underwriter to initial public offering of Lotus Investment Finance refused to purchase unsubscribed shares. Civil Capital that was managing and also underwriter of the issue worth Rs 80 million did not want to buy shares worth Rs 40 million in spite of signing the contract, but offered to return the subscribed Rs 12 million to investors and annul whole offering. Later, a group of investors came to the rescue of finance company to buy the shares.

Although Civil Capital had violated the contract and went against the regulation that clearly states the responsibility of an issue underwriter, Sebon did not pursue tough action against the company.

“We need to be assured that Sebon is here to make things right if anyone is bending the rules and to restore confidence in the market,” pointed out Timilsina.

Moreover, Nirmal Pradhan — considered to be one of the biggest investors in the market at present — had run into trouble with Sebon earlier too. In late 2011, Pradhan’s investment company — Rajdhani Investment Fund — was found to have been running mutual fund-like schemes without being eligible to run such business.

Sebon only ordered the company to halt operations without pursuing any further action.

Despite all this, Sebon’s Chairman Baburam Shrestha claims that Sebon has been doing everything possible to protect investors.

“In many cases we have acted promptly, but sometimes we have to take things slow to make sure investors’ investment is not harmed,” he said, adding that in case of NB Bank’s share transfer case, they have to first ensure that buyers get the shares they paid for.

Most importantly, Sebon has been unable to flag down the rampant insider trading in stock trading at present. The price movement prior to dividend announcement of the listed companies or before they announce merger plans indicates information leakages but the regulator has so far been turning a blind eye to it.

“The biggest problem is our lack of resources,” defended Baburam, adding, “If we had larger number of expert staff, we could become more proactive.”

Share buyers still in the lurch

Although deadline to settle the Nepal Bangladesh Bank’s share transfer row will be up tomorrow, the buyers have yet to be transferred some 200,000 units of the bank’s shares they had purchased a year ago from Nirmal Pradhan and Shankar Shrestha.

The duo is accused of unlawfully selling the shares to some 600 investors back in May 2013 and the latter are yet to receive the share certificates.

“The last trading day before the deadline of May 2 was on Wednesday since today was a public holiday, but none of the brokers received any such orders from the duo,” informed Narendra Raj Sijapati, president of Brokers Association of Nepal (SBAN). However, Nepal Stock Exchange (Nepse) and Sebon had received a document from Pradhan and Shrestha saying that they handed over the shares to the investors.

“We have received the letter, but we are yet to verify it,” informed Baburam Shrestha, Sebon’s chairman.

Back in April 3, Pradhan and Shrestha had committed to provide the exact number of the shares to the buyers within next 30 days.

Source: THT