KATHMANDU, March 3: The government has envisioned forming the Central Counterparty (CCP) to minimize the risk to share investors while trading in the secondary market.
The ‘Second Five-year Financial Sector Development Strategy’ recently enforced by the Ministry of Finance (MoF) talks about establishing the CCP with an objective of protecting the rights and interests of investors. The CCP is an intermediary of the equity market, which acts as buyer to the seller and as seller to the buyer.
As per analysts, this system minimizes the risk in securities trading by ensuring hassle-free transactions. The CCP gives country safety to both the buyers and sellers of securities in case the buyer becomes insolvent or the seller is unable to deliver the securities.
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Among several measures addressing to minimizing the risks to the investors, the MoF’s strategy also talks about effectively operating and managing the Clearing Assurance Fund, developing an effective grievance redressal mechanism to ensure timely and impartial resolution of complaints, and increasing the transparency and accountability of companies listed at the Nepal Stock Exchange (NEPSE).
The strategy also includes the provision of developing a mechanism to effectively monitor and control irregular activities in the market, and the regulation of individuals or institutions that conduct research, analyze, and provide investment advice. The MoF has also mentioned the issue of preparing and implementing a capital market literacy framework and bringing in the Investor Protection Fund.
“Lack of investment instruments such as derivatives and index funds other than ordinary shares has not been able to diversify investment in the market. In the absence of policy and structural arrangements, the secondary market for instruments such as bonds, derivatives and index funds has not been able to become effective,” states the five-year strategy. “The commodity exchange market has not been able to come into operation due to limited institutional capacity.
The strategy also underlines increasing risks with increasing cases of insider trading, fraud and price manipulation in the market. In addition, the need to make the NEPSE professional and competitive by ensuring structural reforms and attracting real sector companies to be listed on the market are among the underlying challenges.
"In addition to the laws on regulatory bodies, securities and commodity exchange markets, CDSCs, collective investment and specialized investment funds, there is a lack of laws on securities-related central deposits and trusts in line with good practices in this sector for the development of the securities market."
