SEBON releases Securities and Commodities Market Policies and Programs for fiscal year 2075/76; Insider trading to be substantially controlled after implementing online trading

On Ashad 25, 2075 SEBON (Securities Board of Nepal) organized a press meet releasing the Securities and Commodities Market Policies and Programs for fiscal year 2075/76. The entire policies and plans had been segregated in two parts, where the first part summarizes the progress achieved so far and the second part focuses on the plans for the upcoming fiscal year of 2075/76.

After the release of policies book, the Board was questioned regarding their efforts to stimulate market demand for securities. With the fiscal year coming to an end a total of approximately Rs 450 crore worth of right and bonus shares have been added to the market in this fiscal year alone. So to stimulate the demand side too, SEBON has taken following steps:

• Intensive investor awareness programs in regional level
• Frequent interaction with NEPSE to bring in online trading system to increase outreach

Similarly, the plans for upcoming fiscal year includes:

• Interaction with all the market participants (investors, merchant bankers, brokers) every 3 months regarding any complaints or issues
• Training program organized every 15 days based on specific topics. The invitation will be open for everyone.
• Creating a system to let Citizens Investment Trust (CIT) open a subsidiary which can work as a dealer. This will stimulate the demand in positive direction

Similarly the other issues presented were:

Insider trading

The problem of insider trading has been in the system for as long as the system has been here and although steps have been taken nothing subsequent has happened. But recently SEBON has penalized two parties with an amount of Rs 10 lakh under the money laundering act. Upon questioning about insider trading, the officials at SEBON replied that they are currently working on a mechanism to track such anomalies. They stated, “In developed capital markets, they have a huge database of all transaction based on which they have created a system which tracks each individual investors’ investing pattern and flags him/her in case of suspicious activity and based on that investigation is carried out. However in our exchange that wasn’t possible till now, but as soon as the online trading system kicks in we can also create database and proper backup system through which we can track insider trading.

Providing broker license to banks

Providing broker license to banks can actually widen the horizon of secondary market of Nepal as they will be reaching to all parts of the country. However, as mentioned by SEBON, the major factor that is in question is the probability of Conflict of Interest. As all of the banks are listed companies, providing brokering license to them might not be a good idea. So the current proposal regarding this states, “The banks can’t perform broker functions from their branch rather they’ll have to open up subsidiary. In addition they’ll be only executing orders of the clients and won’t be dealing on behalf of its parent organization.” However agreement of NRB is still pending on this one.

Bringing in NRN (Non-Resident Nepali) Investors into the market

The talk of bringing in NRN has been held for long but there has always been one or other problem that freezes the process. Answering the same concern, official at SEBON replied, “We’ve already formed a committee that is working on the procedural framework for bringing in the NRN. The issue that has been holding us is that when NRN’s invest foreign currency will be coming in and after the investment the inevitable question is how much profit they can repatriate and at what intervals. Until and unless these concerns are addressed the NRNs won’t start investing. We have been waiting for the FITA act that will address these issues.”

Performance of Mutual Funds

In the recent period, we have seen that most Mutual Funds (MF) have hoarded their money in banks rather than investing in stock market and not just that the MF schemes also haven’t been fully subscribed. In such situation how do the MFs justify the quota provided to them. Addressing the issue the reply was, “When the MFs first came, they were given quotas with the hope that they would function as institutional investor rather than a market maker. And up until the liquidity shortage their performance was good. The problem mentioned was seen only after the liquidity shortage started. So we’ve already warned the MFs holding more than specified percentage in banks.”

The full document released by SEBON is attached below: