Task Force Formed by FM Recommends Removal of Rs. 25 Crore Margin Loan Cap; Submits Comprehensive Capital Market Reform Report

The task force formed by Finance Minister Rameshwor Khanal to review Nepal’s capital market challenges has submitted its report, recommending sweeping reforms across the immediate, medium, and long term. A key highlight of the report is the proposal to remove the current Rs. 25 crore single-borrower limit on margin lending by banks and financial institutions, a restriction long debated in the market.

According to the report, the reforms aim to strengthen investor confidence, modernize the market structure, and align regulatory practices with international standards.

Immediate Reforms Proposed

The task force has outlined several short-term measures, including:

• Removing the Rs. 25 crore margin loan limit per borrower,

• Revoking the rule that restricts banks and financial institutions from investing in listed companies’ shares and bonds for less than one year,

• Allowing interest payments on margin loans due by Ashwin-end 2082 (October 2025) to be paid by Poush-end (January 2026) without penalty,

• Introducing margin trading through licensed stockbrokers,

• Standardizing ISIN issuance by CDS and Clearing Limited,

• Maintaining NEPSE’s current index as an all-equity index while developing a free-float benchmark index and revising circuit breaker rules,

• Clarifying that capital gains tax on non-business share transactions is a final tax,

• Simplifying the process of obtaining tax clearance certificates,

• Requiring companies to deduct and pay dividend tax on bonus share distributions,

• Allowing investors to open multiple beneficiary accounts,

• Making NEPSE’s company classification system more objective, with 100% cash margin required when trading “Z” group shares,

• Establishing an investor grievance mechanism,

• Ensuring timely investigation of securities-related offenses,

• Conducting investor literacy programs through training and workshops.

Medium-Term Reforms Proposed

For the medium term, the task force has recommended:

• Restructuring NEPSE through capital expansion via IPO,

• Amending tax laws to allow deductions for investments in collective investment schemes,

• Reviewing existing securities allotment rules,

• Revising the minimum 10% capital issuance requirement for IPOs,

• Introducing an SME trading platform,

• Regulating pre-IPO fundraising activities, particularly those conducted through social media,

• Establishing policies for NRN investments and repatriation in foreign currency,

• Operationalizing a Settlement Guarantee Fund and auction market,

• Making the book-building system more effective for realistic pricing,

• Developing uniform standards for IPOs and rights offerings,

• Phased release of promoter shares by amending lock-in rules,

• Allowing insurance subsidiaries to operate as securities traders,

• Improving the Trading Management System (TMS),

• Reviewing rules for the trading of promoter shares of banks, financial institutions, and insurers,

• Reducing costs for investors to make participation more efficient.

Long-Term Reforms Proposed

The long-term vision of the report includes:

• Enacting specialized legislation for securities market operation, trustee laws, securities offenses and penalties, investment advisory, and research analysis,

• Bringing in strategic partners to restructure NEPSE,

• Introducing international-standard trading systems,

• Enabling intraday trading, short selling, equity derivatives, and securities lending and borrowing,

• Establishing systems for government and institutional bond trading,

• Introducing right renounce trading for rights shares,

• Amending the Insurance Act to remove existing restrictions on life and non-life insurers cross-holding shares.

The report emphasizes that implementing these recommendations will not only address current challenges but also transform Nepal’s capital market into a more stable, transparent, and globally competitive platform.