Sebon to set up Investors Protection Fund
KATHMANDU:
The capital market regulator is preparing the regulations to establish Investors Protection Fund (IPF) protect the interest of investors.
“The fund will provide monetary compensation to the investors in case they lose money due to some technical failure of the stock exchange or if the trading member defaults on payment,” said director of the Securities Board of Nepal (Sebon) Niraj Giri.
However, he clarified that it does not mean that a fund will be created to compensate the losses of investors incurred through trading as it is wrongly assumed by many.
“If we need to allow brokers to carry out margin lending to the clients then the Investors Protection Fund will be required to compensate the investors in case the brokers default,” he pointed out.
The existence of Investors Protection Fund will be indispensable once the regulator permits the brokers to undertake margin lending to clients. Under the margin lending, the brokers give partial loan to client in order to cover a larger investment than one’s capital could directly cover.
The broker places the buy order on the behalf of clients even if the client furnishes only a portion of total amount required to purchase the shares.
It is common practice in around the world but Sebon yet have not allowed the brokers to maintain such margin accounts for their clients.
Currently, the investors borrow from financial institutions pledging shares in their possession which is popularly referred wrongly as ‘margin lending’ in Nepal. It is a normal loan against shares.
The Investors Protection Fund will compensate the investors incase broker defaults on payment on the behalf of the client resulting in cancellation of order or investors incurring losses due to some technical failure of the stock exchanges’ or brokers’ trading system.
“The stock exchange and brokers will contribute small percentage of the transaction fee,” Giri added.
In most of the countries, the regulator has made it mandatory for the stock exchanges to create Investors Protection Fund.
“There is need of Investors Protection Fund to protect the investors from losses arising due to error on the part of other stakeholders,” said president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Poudel. He pointed out that investors and brokers had borne losses when the buyers have defaulted on payment and even provided cheques that bounced.
“Setting up of such fund might make the regulator less rigid to allow brokers to maintain margin account for the clients,” he said, listing out the benefit of margin lending as opposed to loan against shares provided by financial institutions. However, the government has not yet allowed the margin lending.
KRX visits Nepse
Experts from Korea Exchange (KRX) visited Nepal Stock Exchange (Nepse) and discussed steps to modernise it. The team also held high level meeting with officials of Finance Ministry and Securities Board of Nepal. It emphasised on starting online trading and strengthening Broker Back Office system. KRX has provided technical assistance to Vietnam, Cambodia and Laos.
Source: THT
The capital market regulator is preparing the regulations to establish Investors Protection Fund (IPF) protect the interest of investors.
“The fund will provide monetary compensation to the investors in case they lose money due to some technical failure of the stock exchange or if the trading member defaults on payment,” said director of the Securities Board of Nepal (Sebon) Niraj Giri.
However, he clarified that it does not mean that a fund will be created to compensate the losses of investors incurred through trading as it is wrongly assumed by many.
“If we need to allow brokers to carry out margin lending to the clients then the Investors Protection Fund will be required to compensate the investors in case the brokers default,” he pointed out.
The existence of Investors Protection Fund will be indispensable once the regulator permits the brokers to undertake margin lending to clients. Under the margin lending, the brokers give partial loan to client in order to cover a larger investment than one’s capital could directly cover.
The broker places the buy order on the behalf of clients even if the client furnishes only a portion of total amount required to purchase the shares.
It is common practice in around the world but Sebon yet have not allowed the brokers to maintain such margin accounts for their clients.
Currently, the investors borrow from financial institutions pledging shares in their possession which is popularly referred wrongly as ‘margin lending’ in Nepal. It is a normal loan against shares.
The Investors Protection Fund will compensate the investors incase broker defaults on payment on the behalf of the client resulting in cancellation of order or investors incurring losses due to some technical failure of the stock exchanges’ or brokers’ trading system.
“The stock exchange and brokers will contribute small percentage of the transaction fee,” Giri added.
In most of the countries, the regulator has made it mandatory for the stock exchanges to create Investors Protection Fund.
“There is need of Investors Protection Fund to protect the investors from losses arising due to error on the part of other stakeholders,” said president of Stock Brokers Association of Nepal (SBAN) Anjan Raj Poudel. He pointed out that investors and brokers had borne losses when the buyers have defaulted on payment and even provided cheques that bounced.
“Setting up of such fund might make the regulator less rigid to allow brokers to maintain margin account for the clients,” he said, listing out the benefit of margin lending as opposed to loan against shares provided by financial institutions. However, the government has not yet allowed the margin lending.
KRX visits Nepse
Experts from Korea Exchange (KRX) visited Nepal Stock Exchange (Nepse) and discussed steps to modernise it. The team also held high level meeting with officials of Finance Ministry and Securities Board of Nepal. It emphasised on starting online trading and strengthening Broker Back Office system. KRX has provided technical assistance to Vietnam, Cambodia and Laos.
Source: THT
