Does the country need another stock exchange company?

Published On: June 19, 2017 05:00 AM NPT By: Sagar Ghimire  | @sagarghi

While some laud the decision to bring new stock exchange company, others call it 'misplaced priority'
KATHMANDU, June 19: The preparation of the Securities Board of Nepal (Sebon) to license a new stock exchange company has divided investors, analysts, experts and other stakeholders over the need and rationale of another bourse. 

Last month, the Sebon decided, in principle, to add a new stock exchange company with an objective of fostering competition in the stock market. 

Currently, Nepal Stock Exchange (Nepse) is the only one bourse in the country. 

While many stakeholders have lauded the capital market regulator's move to bring one more stock exchange company to promote competition in the market by ending the monopoly of the Nepse, the decision has also drawn criticisms from some. 

Critics of the Sebon's decision question the viability of the new stock exchange company. 

“The central bank is aggressively reducing the number of bank and financial institutions, realizing that more is not always merrier,” Atmaram Ghimire, a stock investor, told Republica. “The size of the economy, volume of our transactions in the secondary market and the current market capitalization cannot justify the entry of another stock exchange company. There is no diversity in the market which is dominated by the bank and financial institutions that are legally required to float their shares to the public. Otherwise, there are not much real sector companies in the market.” 

“In this backdrop, there is no requirement for another stock exchange company,” Ghimire, who is also the chairman of Investors' Forum of Nepal, said.

He suggested that the government privatize the state-owned Nepse instead.
Some analysts believe that the Sebon's recent decision as 'a misplaced priority'.

“It is true that the existing stock exchange company has not functioned efficiently. So, the idea to add a new stock exchange company to promote competition is not bad.

However, the reality of our market is that there is shortage of shares for investors which means our priority should be in bringing more companies, particularly the real sector companies in the market,” Bijay KC, the dean of South Asian Institute of Management (SAIM), said. “We can introduce more stock exchange companies in future provided that we have more business, a large number of companies and high supply,” he added. 

Staff members of Nepse have vehemently opposed the decision and openly lobbied with the government to block the regulator's move to introduce a new stock exchange company. They have even submitted a memorandum to the Ministry of Finance, calling for its intervention to stop Sebon from bringing their competitor. “The process of having two stock exchange companies is certain to put nearly Rs 15 billion of government's asset into risk,” read the memorandum.

However, the decision to add a new stock exchange company comes in the wake of growing frustration about the lack of efficiency in the existing stock exchange company.

The government, which owns the majority of shares in the company, has shied away from offloading its stake despite repeated commitment to do so.

The process to add a new stock exchange company has also made many investors optimistic that the competition with the entry of new company will reduce transaction cost, modernize the trading, and bring more efficiency and transparency in the market.

“Entry of a privately-owned stock exchange company means there will be more brokers and investors will have choice. There will be competition, and the transactions cost and hassles will go down,” Deependra Agrawal, an investor, told Republica.  

Sebon officials also have similar logic. “While the modernization of the current stock exchange company is an ongoing process, there is clearly a need for another company that can foster competition in the stock market,” Rewat Bahadur Karki, chairman for the Sebon, recently told a press meet. “The GDP of the country has been growing, number of investors and companies are increasing, and market capitalization is also rising. We have been making efforts to bring more real sector companies through various incentive packages so that there will be more business in the days to come,” he said, adding: “The entry of a new company will make the stock market technically sound and efficient.”

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