New Benchmark Index for Securities Market by Mangsir, Working Paper Made Public
The Securities Board of Nepal (SEBON) is set to introduce a new benchmark index for the securities market by the upcoming Mangsir. To this end, the board has prepared and published a working paper on a free-float share-based index. The new index is expected to reflect the market more accurately and support the development of index funds, ETFs, and derivatives.
Kathmandu. The Securities Board of Nepal (SEBON) is set to bring a new benchmark index for the securities market into use by the upcoming Mangsir.
The board has prepared to introduce the benchmark index as mentioned in the Capital Market Strengthening and Revival Action Plan, 2083, issued by the Ministry of Finance on Bhadra 29. For this purpose, the board has prepared and made public for consultation the Working Paper on Restructuring of Benchmark Index in the Securities Market, 2083.
Keeping the NEPSE index as an all-equity index, the new benchmark index will be introduced based on indicators such as tradable shares, market capitalization, the company's financial condition, trading liquidity, institutional governance, and information flow, according to the board.
The currently used NEPSE index is calculated based on market capitalization that includes non-daily traded and locked-in founder shares. As a result, government-owned and locked-in shares are added to the total market capitalization but are not available for daily trading, leading to a failure to measure a realistic market index and not reflecting the true picture of the market—a public concern that needs to be addressed, the board stated.
To solve this problem, under the proposed structure, the board plans to keep the existing NEPSE index as it is and restructure it as a broad index that measures the price of all shares.
- A NEPSE benchmark index based on the market capitalization of tradable free-float shares will be developed.
- For the implementation of this new benchmark, a specific free-float factor will be applied based on the tradable portion by separating founder, government, and locked-in shares.
After the development of the new benchmark index based on the market capitalization of tradable free-float shares, the NEPSE index calculation method is expected to become more realistic and support the development of modern financial instruments such as index funds, ETFs, and derivatives, according to the board.
The board has requested all stakeholders to provide suggestions on the proposed working paper by Kartik 15.