Investor associations submit 6-point suggestions to SEBON for capital market policy reforms
Nepal Investor Forum, Nepal Capital Market Investors Association, and Share Investors Association have submitted a 6-point suggestion to the Securities Board of Nepal (SEBON) for capital market policy reforms. The suggestions cover practical issues related to free trading in the secondary market, promoter locking, IPO structure, bonus and rights share price adjustment, margin trading, and transaction settlement.
Kathmandu. Investor associations and organizations have submitted a 6-point suggestion to the Securities Board of Nepal (SEBON) for capital market policy reforms. Nepal Investor Forum, Nepal Capital Market Investors Association, and Share Investors Association jointly submitted the suggestions for immediate policy reforms needed to make the securities market well-regulated, transparent, competitive, and investor-friendly.
The suggestions state that a timely review of existing policies and trading systems is necessary to develop Nepal's capital market in a sustainable, transparent, competitive manner that enhances investor confidence. Specifically, the associations have submitted suggestions to address practical problems seen in the secondary market's free trading, large-volume promoter share sales after lock-in, IPO and promoter share structure, bonus and rights share price adjustment, margin trading, and transaction settlement arrangements.
Key Suggestions:
Immediate review of the 15-day prior notice provision: The requirement to give 15 days' notice before selling shares legally purchased from the secondary market appears to unnecessarily affect ordinary investors' right to free trading, the market's natural demand-supply, and liquidity. The provision requiring prior notice only for sales but not for purchases does not seem practical or consistent with the principle of equal treatment. If notice is deemed necessary for sales, then on the same logic, notice should also be required for purchases. Therefore, arrangements should be made allowing ordinary investors to freely sell shares they have independently purchased in the secondary market. Unnecessary quantitative or time restrictions should not be imposed on ordinary investors' transactions. In the case of founding shareholders or large-volume sales by strategic investors, since they come to market only once, prior notice can be retained for sales exceeding 5 percent to ensure transparency. For promoters, the current 15 days should be limited to 7 days. Large-volume sales should be separated from the regular order system and traded transparently through a separate sale/offer window, offer for sale, or block trading system. This will protect ordinary investors' right to free trading while also managing the impact of large-volume share sales on the market.
Review IPO and promoter share structure and develop a price system based on real demand-supply: Timely reforms in IPO and promoter share structure are necessary for determining companies' real value in Nepal's primary market and enhancing secondary market liquidity. Based on a study of the company's nature, capital, business, and risk, a policy should be adopted to maintain a minimum IPO share of 30 percent. While protecting the share of main founders and strategic investors necessary for company operation, other promoter shares should be gradually brought into public trading. For suitable companies, a feasibility study should be conducted to make up to 50 percent of shares publicly tradable after study. After IPO listing, arrangements should be made to make shares that meet certain criteria tradable in the market without unnecessarily long restrictions. A study should also be conducted on allocating a certain portion of public offerings to institutional investors and collective investment funds, and the remaining portion to the general public through a transparent lottery distribution system as per the current distribution system. This will help reduce abnormal price fluctuations after listing and the imbalance between promoter and ordinary shares, and help create a well-regulated market where prices are determined by real demand and supply.
Maintain uniformity between NEPSE and CDSC in bonus and rights share price adjustment: Since NEPSE has a system of determining base prices by scientifically adjusting prices after book closure of bonus and rights shares, it is necessary to fully integrate that basis with CDSC's records and cost price system. Currently, due to disparities in price adjustment and cost price determination, investors face situations where they do not have to pay tax when selling immediately at a profit after price adjustment, but appear to have made a profit even when there is no real profit after bonus or rights share listing, or have to face tax-related problems even when there is a real loss. CDSC's regulations should be amended to make the base price determined by NEPSE after book closure the basis for cost price.