SEBON Issues Broad Directives to Strengthen Nepal’s Capital Market

The Securities Board of Nepal (SEBON) has issued a series of directives to strengthen, modernize, and improve the transparency and reliability of Nepal’s capital market. The directives have been issued as part of the continued implementation of the Capital Market Development Roadmap, 2083, and the capital-market policies and programs for the current fiscal year 2083/84. They are aimed at strengthening the regulation and supervision of securities markets and transactions and improving services for investors. The directives cover the Nepal Stock Exchange (NEPSE), CDS and Clearing Limited (CDSC), securities brokers, merchant bankers, mutual fund scheme managers, depository participants and listed companies. SEBON said the measures were issued under the authority granted by Section 84(1) of the Securities Act, 2063, with the objective of protecting investors and modernizing the securities market. SEBON has instructed NEPSE to conduct an IT audit and Vulnerability Assessment and Penetration Testing (VAPT) of its Trading Management System (TMS) and submit the reports to the board. NEPSE has also been directed to identify problems in the NEPSE Online Trading System (NOTS) and take measures to make the trading platform more modern, efficient, and reliable. Regarding the growing use of artificial intelligence (AI) in securities trading, SEBON has directed NEPSE to suspend AI-based order entry until international practices and Nepal’s specific requirements are studied. NEPSE has also been instructed to inform investors about the measure. The board has further directed NEPSE to facilitate secondary-market trading through mobile applications, improve the effectiveness of the After Market Order (AMO) system, and integrate the Centralized Know Your Customer (C-KYC) system with TMS. SEBON has asked NEPSE to develop additional market indices, including NEPSE 30 and NEPSE High Cap, and establish a system for calculating indices based on free-float shares. To improve investor convenience, CDSC and TMS have been directed to establish API integration and implement an Auto EDIS system. The system is expected to eliminate the need for investors to manually complete the EDIS process after selling shares. CDSC has also been instructed to provide investors with immediate mobile push notifications regarding IPOs, bonus and rights shares, settlements and demat debits. The board has additionally directed authorities to establish real-time reconciliation to address discrepancies between DP holdings displayed in TMS and actual holdings recorded by CDSC. SEBON has also asked relevant authorities to study existing issues related to the trading of fractional shares and submit a report with recommendations for resolving them. SEBON has directed securities brokers to strictly maintain separate bank accounts for clients’ funds and the brokers’ own funds. Brokerage companies must also establish a dedicated grievance-handling unit to address investor complaints. Details of complaints and their resolution must be submitted to SEBON within three working days after the end of each month. The board has also instructed brokers and NEPSE to ensure effective implementation of arrangements for providing investors with their funds within the T+2 settlement period. Merchant bankers have been instructed to ensure that there is no conflict of interest while providing securities issuance-related services. SEBON has also made it mandatory to attach an audit report when submitting applications for new IPO issues. SEBON has introduced a new requirement for major shareholders of listed companies. Any promoter or major shareholder holding 5 percent or more of a company’s shares must notify the concerned company at least 15 days before selling their shares. The listed company must then make the information public through NEPSE. Mutual fund scheme managers have also been directed to improve disclosure on their websites. They must publish approved scheme documents, details of daily sales and repurchases of units, Net Asset Value (NAV) and the number of unit holders. To promote financial literacy and improve investors’ understanding of the capital market, SEBON has instructed NEPSE, CDSC, securities brokers and merchant bankers to organize at least one financial-literacy program every month. SEBON said the measures are expected to improve transparency, strengthen investor protection, modernize market infrastructure and enhance investor confidence in Nepal’s capital market. The full directives issued by SEBON are available on the board’s official website under its circulars section.