Standardization of Services and the Democratization of the Nepali Stock Market

Sudarshan Kadariya

Finanacial and Accounting Professional,

Cox and Kings Global Services (CKGS) USA 

For comments: Su.kadariya@gmail.com

A tourist might have a problem in choosing a restaurant if there is no visibly posted rating of the restaurants. If Grade A is considered as the highest quality and Grade C is the lowest quality of the restaurant for its overall food and services quality, it will be difficult for Grade C restaurant to survive. The rating system is available in our hotel industry, we also have some credit rating agencies in the context of the financial market. As per Webster Dictionary, the rating is "an appraisal of the value of something" or "standing or position on a scale".

There are still so many other areas where the rating is required. What would happen if there is such grading system for education, finance and investment, healthcare and other services we use in our daily life?

In the financial and investment services sector, this should be the right time to discuss the need for standardization of the rating system. The rating helps to maintain the quality of the service provided and motivates to upgrade. For instance, currently, there is no clarity and widely accepted standard for various designations such as who is considered as a financial analyst? Who are financial market experts? Who are considered as Pundits? Who is Guru? Who are advisors? Who are considered as financial reporters? Is there any guideline on how to be a financial analyst? How one can be an advisor? What should be the benchmark of achievements to be considered as Pundits and Gurus? Is there any specific licensing requirements or certification requirements to introduce you to these designations? etc. All these are unsolved questions in our financial industry as of now. We hope to have them answered soon from the concerned authorities. We expect this discussion will not point blame on anyone but encourage stakeholders to open up and start public discussions.

In simple terms, the increased openness is called democratization. In the developed stock market, investors have easy online access of financial market and they can start investing with no minimum funding requirements, with no skills barriers and with some innovative platform, the services are 100% free. Investors can buy and sell financial instruments with no cost in the stock market for whatever the amount they have and would like to invest. The free access to the public and no cost of buying and selling is an example of the democratization of the western financial market. The benefits of democratization in the stock market is the increased number of investors with easy access to the stock market. Increased investment would increase the investment activities results in the overall economic expansion. Currently, we are in a situation where the Nepal Stock Exchange is testing its online trading system. The successful trading system should simplify the complex nature of the stock market mechanism and we expect online system would bring some sort of stock market democratization in Nepal as well.

In one aspect, online trading will democratize the financial market i.e. the access to buy and sell stocks will be possible in our figure tips for more and more investors. On the other side, are we prepared to reap the benefits of the online trading system? The democratization of the financial market will also increase the risk of the excessive trading activities for many stock investors which indicates that the future of Nepali stock market will be more volatile.  The beginner investors will face some challenges and possibly they will lose money through trading play but the professional or the institutional investors might prepare to adopt the changes in the market mechanism. There will be a direct play of individual investors’ psychology and it will immediately replicate in the stock prices due to the direct access of the market in your pocket and/or in your devices.

In the meantime, the financial market community should expect to have some strong regulatory measures on certain misconducts. For instance, willful wrongdoing, trading malpractices, insider trading, information leakage, etc. We hope to have some systematic procedures to implement and necessary regulatory mechanisms to control the frequently re-occurring man-made wrong handlings, malpractices, and the intentional wrongdoing for the sake of making quick money from the market manipulations.

Bottom line:

The discussion concludes that there is an urgent need of financial and investment services standardization along with various designations commonly used in the Nepali stock market such as market expert, advisor, analyst, educator, pundit, guru, etc. We need a mechanism to suggest who can use these titles. Also, the effects of the technological advancement have finally reached out in our stock market, the current and the upcoming changes in the stock market will certainly increase the access of the market to many small investors and the companies willing to work in the financial market industry. We expect, going forward, a typical Nepali family who always see investment opportunities in the saving accounts, land, and building, gold, and silver, would also start to see opportunities in the stocks and bonds, mutual funds and debentures. Also, we hope, the online trading system will help to increase the range of financial and investment products and help to attract new investors both from inside the country and Nepali living abroad would get the opportunities to invest in Nepali businesses through the stock market in Nepal.