KATHMANDU, Aug. 10: The Securities Board of Nepal (SEBON) has proposed classification of share investors based on the factors such as risk bearing capacity, financial capacity and investment objectives, among others.
SEBON plans to implement the new measures stating that it will impose differentiated regulatory measures on different investors. According to SEBON, it is not appropriate to apply the same regulatory regime to all investors in the modern capital market by keeping them in the same category.
SEBON stated that the classification of investors (Investor Classification) has developed as a basic element of capital market regulation as investors have different financial capacity, risk-bearing capacity, investment experience, information analysis ability and investment objectives.
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According to the sector’s regulator, investor classification will not only directly affect IPO allocation but also public issuance, book building, derivative transactions, qualified institutional buyers, information flow, investor protection and many other aspects of market development.
The SEBON in this regard has proposed classifying Nepal's investors into seven categories: Retail Investors, High Net-worth Investors (HNI), Qualified Institutional Buyers (QIB), Anchor Investors, Strategic Investors, Employee Category and Promoter Category.
Retail investors will include ordinary individual investors. This group will require a simple application process, high level of information flow and regulatory protection. According to the SEBON, a separate sub-category of small retail investors may be determined if necessary for the purpose of promoting small investor participation and financial inclusion.
Likewise, the HNI group will include individual investors with high financial capacity, including those having ability to invest in large amounts and bear relatively high risks. The QIB type will include institutional investors who are professionally regulated and have sufficient financial and analytical capacity. This includes mutual funds, insurance companies, pension funds, licensed investment companies, banks and other institutional investors approved by regulators.
Anchor investors will include qualified institutional investors who make investment commitments for a fixed period at the initial stage of public issuance through the book building method. Strategic investors will include individuals or institutions that invest for long-term strategic objectives and have the ability to add value to the development of the company.
A separate reservation or incentive system for company employees has been proposed to be implemented with clear criteria if a separate reservation or incentive system is required. Similarly, a promoter category has been proposed to maintain separate ownership, lock-in and information related arrangements for promoters and control groups.
The SEBON says that a clear legal definition and qualification of each investor category will be determined while developing the investor classification framework in the country. Similarly, the sector’s regulator has also proposed to link the IPO allocation system with investor classification, integrate the QIB and anchor investor related arrangements with the framework, determine access to high-risk financial instruments according to investor categories, and regularly review the classification criteria as the market develops.
