KATHMANDU, Feb 4: Nepal Stock Exchange (NEPSE) needs to diversify the investment instruments, revise the trading modality and revise share structures in the NEPSE to attract notable investment in the country’s secondary market.
Currently, the trading at the NEPSE is largely based on equity. Ordinary shares, debentures and mutual funds are among the instruments being traded in NEPSE. “In the context of limited instruments being traded, investors have not had the opportunity to manage risk through investment diversification,” reads a report unveiled recently by the Ministry of Finance.
The government had earlier formed the committee under the leadership of Prakash Jung Thapa, former chairman of the NEPSE. The panel has recommended the restructuring of the NEPSE, diversification of investment instruments and radical improvements in technology to make Nepal's stock exchange market meet international standards.
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NEPSE came online more than three decades ago. However, the country’s only stock trading platform has been at the crawling stage offering the investors with limited services.
The committee has also suggested the NEPSE to introduce features such as exchange-traded funds, index derivatives, intra-day trading and short selling as soon as possible. “Investors are unable to adequately benefit from market fluctuations or manage risk due to the limited options currently available,” reads the report, recommending the authority to introduce modern instruments being used in the global prospects.
According to the report, diversification of information technology-related services, separate transactions for small and medium enterprises and innovative organizations should be ensured to mobilize capital effectively. Amid over 7.239 million of the demat accounts in operation, it is believed that such new tools will help investors diversify their portfolios and increase liquidity in the market.
The committee has expressed its concern over using a real-time automated surveillance system for transaction supervision in the Securities Board of Nepal and NEPSE and implementing strict regulations related to the prevention of insider trading. The NEPSE is also suggested to implement the provision of certification by the auditor and audit committee while publishing the interim financial statements of the listed companies for accurate information, to review and implement the information dissemination policy and procedures regarding the price sensitive information to be disseminated by the listed companies.
Unlike the other study reports, the committee this time has concluded that it is not appropriate to sell the government's ownership in the NEPSE completely. "Selling the government's ownership in full would risk weakening the confidence of small investors in the market, increasing the monopoly of the private sector, weakening self-regulatory practices, and preventing NEPSE from being used in the national interest," the report states.
The committee has rather suggested the government for its gradual disinvestment, limiting to only partial ownership of the government in the NEPSE. The entry of strategic partners has been recommended, providing them with 15 to 25 percent share ownership and a minimum lock-in period of 10 years. “The strategic partner must be from one of the world's top stock exchanges, have at least 20 years of experience, and be a member of the World Federation of Exchanges.”
