Visionary Reforms Proposed to Propel Nepal's Capital Market into a New Era

Nepal's capital market stands at a pivotal juncture, with a comprehensive 15-point reform agenda recently submitted to the Securities Board of Nepal (SEBON) by investor and former lawmaker Chhotelal Rauniyar. This ambitious proposal aims to fundamentally transform and modernize the nation's stock market, making it more dynamic, investor-friendly, and regionally competitive. The suggestions, presented to SEBON Chairman Dr. Gopal Prasad Bhatt, address critical areas ranging from taxation and trading mechanisms to market infrastructure and regulatory oversight, signaling a potential paradigm shift for Nepalese investors and the broader financial landscape.

One of the most impactful proposals targets the existing taxation structure. Rauniyar advocates for a reduction in capital gains tax (CGT) rates, suggesting a reversion to previous levels—from 4% to 3% and from 7.5% to 5%. This move is predicated on the belief that lower tax burdens will incentivize greater trading activity, ultimately leading to higher transaction volumes and, paradoxically, increased government revenue. Furthermore, the agenda calls for the immediate removal of the 5% tax currently levied on bonus shares and cash dividends, arguing that companies have already settled applicable taxes before distributing these returns to shareholders, making the additional levy redundant and burdensome for investors.

Beyond taxation, the reform agenda delves deep into enhancing market efficiency and fairness. Rauniyar proposes a timely revision of all charges within the securities market and, crucially, the abolition of the double-commission system on share transactions, advocating for a single, transparent commission structure. To further streamline costs for investors, he suggests calculating commissions based on an investor's total transaction volume during a trading day, rather than on individual orders, thereby mitigating the issue of fragmented orders leading to higher overall costs. Another significant recommendation is the abolition of the annual Demat account renewal fee, a small but persistent charge that adds to the financial burden on retail investors.

The proposals also envision a more sophisticated and diverse trading environment. Rauniyar champions the introduction of advanced financial instruments such as futures and options, intraday trading, short selling, and Exchange-Traded Funds (ETFs) into Nepal's capital market. Recognizing the inherent risks associated with such instruments, he simultaneously emphasizes the paramount need for robust regulatory frameworks and comprehensive risk-management infrastructure to safeguard small and retail investors. This balanced approach aims to foster market depth and liquidity while ensuring investor protection.

Addressing long-standing operational bottlenecks, Rauniyar calls for significant improvements in market infrastructure. He highlights widespread dissatisfaction with the current Trading Management System (TMS) and urges the development of a secure, reliable, and internationally tested online trading platform. Furthermore, to attract and facilitate foreign investment, the agenda proposes establishing a modern cross-border trading and payment-gateway system, enabling non-resident Nepalis (NRNs) and international investors to conduct transactions seamlessly from anywhere in the world. The modernization of the Nepal Stock Exchange (NEPSE) itself, with a transformation into a public company, is also a key recommendation, aimed at enhancing its efficiency and governance.

Investor protection and corporate governance are central themes. Rauniyar suggests mandating companies to conduct their Annual General Meetings (AGMs) within a maximum of two months after the fiscal year-end and to distribute bonus shares and cash dividends within one month following the AGM. This aims to ensure timely returns for shareholders. Regarding margin lending, the proposal seeks to eliminate the practice of freezing bonus shares and cash dividends when investors have already provided sufficient collateral under the existing 90% margin-lending arrangement, deeming the additional freezing requirement unnecessary.

Finally, the agenda stresses the importance of a strong, autonomous regulatory body. Rauniyar urges the government to develop SEBON into a fully capable, transparent, and modern institution with enhanced oversight capacity. To combat market manipulation and misinformation, he proposes that SEBON and NEPSE establish a dedicated 24-hour market surveillance unit to monitor trading activities and control the spread of rumors. Stronger legal provisions against cybercrime in the capital market are also advocated. The continuation of the existing policy of allocating 10 shares to individual investors in Initial Public Offerings (IPOs) is also supported, ensuring broader participation.

In essence, Rauniyar's 15-point reform agenda presents a holistic vision for a modernized, efficient, and investor-centric capital market in Nepal. By addressing policy and technological challenges, strengthening investor confidence, and aligning with international best practices, these reforms have the potential to significantly boost market activity, attract greater investment, and contribute substantially to government revenue, thereby playing a crucial role in Nepal's economic development.