KATHMANDU: After being stalled for a long time due to controversy, discussions have taken place at the Securities Board of Nepal (SEBON) regarding the issuance of a license for a new stock exchange funded by private sector investment. The board’s executive committee meeting held last Tuesday, chaired by newly appointed Chairman Santosh Narayan Shrestha, marked the first formal discussion on the matter.
The Ministry of Finance had sent a letter to SEBON last week, urging the board to move forward with the process of issuing a license for the new stock exchange. The discussions at SEBON were based on this letter. However, SEBON Spokesperson Niranjan Ghimire stated that the matter remains under discussion, and no decisions have been finalized yet.
On Poush 5 (December 20), the Council of Ministers had decided to forward the report of the previously formed study committee to the Ministry of Finance regarding the issuance of permits for operating securities markets. Based on this decision, the Ministry of Finance had written to SEBON last week. The Council of Ministers’ decision and the Ministry’s letter have been analyzed from various angles.
While some argue that the report has been sent to the Ministry of Finance to expedite the issuance of a license for the new stock exchange, others interpret the Council of Ministers’ decision as an attempt to delay the implementation of the committee’s recommendations. However, with the appointment of a new chairman at SEBON, the issue of licensing a new stock exchange has gained momentum, and the board’s decision to discuss the matter in its executive committee meeting is seen as significant.
Legally, the government cannot issue licenses for new stock exchanges; this authority lies solely with SEBON. However, the government can provide directives. Earlier, SEBON had halted further progress on issuing a new stock exchange license after the government intervened. Now, following the Council of Ministers’ decision and the Ministry of Finance’s letter, SEBON has formally initiated discussions on the matter.
In Baisakh 2080 (April 2023), then-Prime Minister Pushpa Kamal Dahal had ordered the process to be suspended after widespread protests in the streets and Parliament over allegations of favoritism in granting stock exchange licenses to specific business houses. Lawmakers had also opposed the issuance of licenses to private stock exchanges, claiming that the process was marred by financial irregularities.
SEBON had been accused of advancing the licensing process under the influence of intermediaries, a matter that was even raised in the House of Representatives. Despite the existence of the government-owned Nepal Stock Exchange (NEPSE), the decision to issue new licenses to private entities was deemed inappropriate, leading the Prime Minister to halt the process.
Former SEBON Chairman Ramesh Hamal had initiated the licensing process for private stock exchanges by establishing policy frameworks. However, the process had begun during the tenure of Prime Minister Sher Bahadur Deuba and Finance Minister Janardan Sharma. Lawmakers had been demanding a halt to the process, alleging institutional corruption in the licensing procedure.
Even now, political parties, including the Rastriya Swatantra Party (RSP), have announced their opposition to the government’s move to advance the licensing process. “The RSP parliamentary party held serious discussions on the issuance of licenses for new stock exchanges during its meeting,” said Deputy Leader of the RSP Parliamentary Party, Birajbhakta Shrestha. “There is a case pending in the Commission for the Investigation of Abuse of Authority (CIAA) against the addition of new stock exchanges. We oppose this process. The government and regulatory bodies have disregarded the law.”
Earlier, the Finance Committee had also made a controversial decision just before Dashain. Shrestha revealed that they had submitted a note of dissent at that time. “This move is being pushed by undermining the rule of law and systems, showcasing political dominance. The investments of 400,000 to 600,000 investors are at risk. Instead of improving and modernizing NEPSE, the focus is on adding new exchanges,” he added. “The Prime Minister’s economic and development advisor had suggested during RSP’s policy deliberation program that we should stop this if we can.”
SEBON had previously amended the “Securities Market Operation Regulations, 2064,” contrary to past policies and international practices, allowing private limited companies to invest in stock exchanges. Earlier, only banks, financial institutions, securities traders, and listed organized entities were permitted to invest in the securities market. Private limited companies were barred from such investments. Under the previous rules, no single company or organized entity could hold more than 10% of the total share capital of the securities market.
SEBON’s decision to raise the investment limit in stock exchanges to 15% is seen as contrary to international practices. Former SEBON Chairman Rewat Bahadur Karki stated that the policy framework for new exchanges was flawed, especially given the need to strengthen and make NEPSE more competitive. “Allowing private limited companies to invest in stock exchanges is not appropriate,” he said. “Licenses for new exchanges should be issued through a transparent process, allowing only public limited companies to invest.”
In most countries, a single company is allowed to invest up to a maximum of 7% in stock exchanges. In Nepal, banks, financial institutions, and insurance companies are often dominated by business houses, leading to conflicts of interest when the same individuals act as bankers and businesspeople.
Currently, Nepal has only one government-owned stock exchange, NEPSE. As of Mangsir 2081 (mid-December 2024), 267 companies are listed on NEPSE. Of these, 129 are banks, financial institutions, and insurance companies, while 91 are hydropower companies, 22 are manufacturing and processing industries, 7 are hotels, 7 are investment companies, 4 are trading institutions, and 7 belong to other groups.