Securities Board unveils concept paper on intraday trading implementation, what are its objectives?
The Nepal Securities Board has published the 'Concept Paper on Implementation of Intraday Trading of Securities in Nepal, 2083'. It aims not for immediate implementation but to assess market structure, legal arrangements, risk management, and investor protection, and to collect feedback through public consultation. In the initial phase, only the buy-first-sell-later model will be adopted.
Kathmandu. The Nepal Securities Board has published the 'Concept Paper on Implementation of Intraday Trading of Securities in Nepal, 2083'.
Intraday trading refers to a system where securities are bought and sold within the same trading day, and the trading position is closed within that day. In the proposed system, the initial phase will adopt only the buy-first-sell-later model, while the sell-first-buy-later arrangement will be considered only after the necessary legal, technical, and institutional infrastructure for securities lending and borrowing and covered short selling is developed.
The main objective of this concept paper is not to present a decision to implement intraday trading immediately, but to assess Nepal's market structure, legal and regulatory arrangements, institutional capacity, technological infrastructure, risk management, and investor protection, and to identify the views, suggestions, and areas of improvement of relevant stakeholders through public consultation.
Rationale and Objectives of the Concept Paper
The Securities Board states that the main bases for studying the feasibility of intraday trading include enhancing liquidity in the secondary market, effective price discovery, increasing trading efficiency, expanding the participation of institutional and professional investors, and creating a foundation for the future development of margin lending, securities lending and borrowing, covered short selling, and other advanced market systems.
According to the Securities Board, this concept paper aims to specifically identify an intraday trading model suitable for Nepal, determine necessary legal and regulatory reforms, propose a framework for risk management and investor protection, identify the technological infrastructure needs of the Securities Board, NEPSE, CDSC, and securities brokers, and prepare the basis for phased implementation.
The key guiding principles of the concept paper include prioritizing investor protection, risk-based regulation, technology-based market operation, transparency and market integrity, phased implementation, and the appropriate use of international best practices in the context of Nepal.
Policy and Economic Rationale of Intraday Trading
The concept paper's perspective is that intraday trading should not be viewed merely as a means of short-term trading or speculation, but should be developed as a complementary trading system of the modern secondary market. Its potential contribution is mainly related to market liquidity, price discovery, information adjustment, continuity of trading, and overall market efficiency.
It is expected that intraday trading can increase trading frequency and competition in buy-sell orders, help adjust available information into prices more quickly, and improve market depth. However, it has been concluded that it would not be appropriate to make all listed securities equally eligible in the initial phase, as such trading can increase the risk of price volatility and market abuse in securities with low liquidity.
Therefore, the proposed system will be based on the fundamental approach of 'Risk First, Trading Second'. Before expanding intraday trading, it is considered necessary to adequately develop mechanisms for risk identification, risk control, market surveillance, technological preparedness, and investor protection.
The Securities Board states that this concept paper has been brought with the objective of effectively implementing margin lending and intraday trading as mentioned in the 'Capital Market Strengthening and Revival Action Plan, 2083' issued by the Ministry of Finance on Bhadra 29 last year, and in the current fiscal year's policy of the Securities Board. The Securities Board says that the draft regulations on margin lending have been prepared, and work is underway to finalize the regulations by incorporating suggestions received from stakeholders.
The Securities Board states that this concept paper has been prepared as necessary preparation for making the required policy and legal arrangements regarding the implementation of intraday trading, and has been made public to identify the views, suggestions, and areas of improvement of relevant stakeholders through public consultation.