Government resumes process for new stock exchange licenses amid controversy

KATHMANDU: The government has reignited the process of distributing new stock exchange licenses for private sector investment, marking a significant development in Nepal’s securities market. This process, delayed for years due to disputes and allegations of manipulation, gained momentum following the recent appointment of Santosh Narayan Shrestha as Chairman of the Nepal Securities Board. Approximately three weeks after Shrestha’s appointment, the Cabinet decided to forward a previously prepared study committee report on new exchange licenses to the Ministry of Finance for further review.

This decision has sparked mixed reactions. While some interpret it as a directive for implementation, others see it as an attempt to sideline the report entirely. Notably, the report had not reached the Finance Ministry by Monday’s office hours, raising questions about the government’s intentions.

A History of Controversy and Allegations

The process of distributing new stock exchange licenses has been fraught with controversy. Critics allege that the Nepal Securities Board was influenced by intermediaries, leading to accusations of institutional corruption and financial manipulation. In 2080 BS (2023 AD), then-Prime Minister Pushpa Kamal Dahal halted the process following protests in both parliament and on the streets. The protests stemmed from claims that the license distribution process favored certain business houses, undermining the integrity of the securities market.

Former Securities Board Chairman Ramesh Hamal initiated the licensing process by amending the *Securities Market Operation Regulations, 2064*, allowing private limited companies to invest in stock exchanges. This move, which deviated from international standards, drew criticism for increasing the investment cap from 10 percent to 15 percent of the total share capital. Previously, only banks, financial institutions, securities dealers, and listed organizations were permitted to invest in the securities market.

Concerns Over Conflict of Interest

Experts argue that allowing private limited companies to invest in stock exchanges could lead to conflicts of interest, particularly as business houses often have stakes in banks, financial institutions, and insurance companies. Former Chairman Revat Bahadur Karki emphasized the need for regulatory safeguards to prevent undue influence. “In most countries, a single company cannot hold more than 7 percent of a stock exchange’s total share capital,” he pointed out, adding that Nepal’s new policy deviates from this global standard.

The Nepal Rastra Bank has long advocated for the separation of banking and business interests to prevent conflicts, a concern echoed in the ongoing debate over stock exchange licenses. Critics argue that the increased investment cap and broader eligibility criteria could undermine the securities market’s credibility and stability.

The Path Forward

While the government’s decision to resume the licensing process is seen as a step toward revitalizing the securities market, the move also underscores the need for transparency and adherence to international best practices. The Securities Board faces the challenge of balancing private sector involvement with the need to maintain a fair and competitive market environment.

As the Ministry of Finance reviews the study committee’s report, stakeholders and experts alike will closely monitor the developments, hoping for a resolution that fosters growth, competition, and integrity in Nepal’s stock exchange landscape.