KATHMANDU, March 3: The government is planning to introduce a new financial safety mechanism to protect investors in the secondary stock market.
To this end, the Ministry of Finance (MoF) has recently enforced the ‘Second Five-Year Financial Sector Development Strategy’. The strategy proposes establishing a Central Counterparty (CCP), which will act as an intermediary in the equity market by becoming the buyer to every seller and the seller to every buyer.
According to analysts, the system is designed to minimise risk by guaranteeing the terms of a trade, thereby protecting both parties even if a buyer becomes insolvent or a seller fails to deliver securities.
Net Neutrality in Nepal
Among several measures aimed at reducing risks faced by investors, the MoF’s strategy also emphasises the effective operation and management of the Clearing Assurance Fund, the development of an efficient grievance redressal mechanism to ensure timely and impartial resolution of complaints, and greater transparency and accountability of companies listed on the Nepal Stock Exchange (NEPSE).
The strategy also includes provisions to develop a mechanism to effectively monitor and control irregular market activities, as well as regulate individuals or institutions that conduct research, analyse markets, and provide investment advice. The MoF is also preparing to implement a capital market literacy framework and introduce an Investor Protection Fund.
The strategy acknowledges structural challenges, noting that the lack of diverse investment instruments such as derivatives and index funds has limited investor options. It further states that policy gaps have hindered the development of a secondary bond market and the commodity exchange.
It also highlights growing risks from insider trading, fraud, and price manipulation, stressing the need for structural reforms to make NEPSE more competitive and to attract more real-sector companies to list.
The strategy points to the need for updated legislation, stating that existing laws governing regulatory bodies are inadequate and that there is a lack of legal provisions for securities-related central depositories and trusts in line with international best practices for market development.
