Nepal Stock Exchange Information
The history of Nepal Stock Exchange, stock market began with the floatation of shares by Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. in 1937. Introduction of the Company Act in 1964, the first issuance of Government Bond in 1964. And the establishment of Securities Exchange Center Ltd. in 1976 were other significant development relating to capital markets. Securities Exchange Center was established with an objective of facilitating and promoting the growth of capital markets. Before conversion into stock exchange it was the only capital markets institution. Undertaking the job of brokering, underwriting, managing public issue, market making for government bonds and other financial services. Nepal Government, under a program initiated to reform capital markets converted Securities Exchange Center into Nepal Stock Exchange in 1993.
Nepal Stock Exchange Ltd. operates as a stock exchange and information provider in Nepal. The company facilitates trading in shares, equity shares, preference shares, debentures, government bonds, and mutual funds. It also provides brokering, underwriting, public issue managing, market making, and other financial services. The company offers its trading services through brokers and market makers.
Securities Board of Nepal (SEBON)
SEBON was established by the Government of Nepal on June 7, 1993 as an apex regulator of Securities Markets. It has been regulating the market under the Securities Act, 2006. The Governing Board of SEBON is compose seven members including one full time chairman appointed by the Government for tenure of four years. Moreover, other members of the Board include joint secretary of Ministry of Finance, joint secretary of Ministry of Law, Justice and Parliamentary Affairs, representative from Nepal Rastra Bank, representative from Institute of Chartered Accountants of Nepal, representative from Federation of Nepalese Chambers of Commerce and Industries, and one member appointed by the Government from amongst the experts pertaining to management of securities market, development of capital market, financial or economic sector.
CDS and Clearing limited
A company establish under the company act. And promoted by Nepal Stock Exchange Limited (NEPSE) in 2010 to provide centralized depository, clearing and settlement services in Nepal. The company inaugurate on 31st march 2011. The main objective of the company is to act as a central depository for various instruments (Equity, Bond, and Warrants etc.). Especially to handle securities in dematerialization forms. This organization is entrusted with the safekeeping, deposit, and withdrawal of securities certificates and transfer of ownership/rights of the said instruments. The depository functions is perform by the company under the securities regulation of Securities Board of Nepal (SEBON).
A depository is an institution holding a pool of pre-verified shares held in electronic mode that offers efficient settlement of transactions. Similarly, A Depository Participant (DP) is an intermediary between the investor and the depository. A DP is typically a financial organization like a bank, broker, financial institution, or custodian. Acting as an agent of the depository to make its services available to the investors. Each DP is assigned a unique identification number known as DP-ID. As of November 2016 there were a total of 60 DPs registered with CDS.
Mutual Fund is a pool of fund generally of several small investors. The fund is invest in financial instruments such as Stocks, Bond/Debentures, Govt. Securities, and Fixed Deposits (as prescribed by Mutual Fund Regulation, 2067). Fund Manager decide the investment. Returns from the investment are shared proportionately among the investors on the basis of the units held by them. Thus, Mutual Fund is the most suitable investment vehicle for the small investors. Moreover, it offers an opportunity to invest in a professionally managed diversified basket of securities at a relatively low cost.
In the same vein, Mutual Fund in Nepal is regulate by SEBON. Mutual Fund in Nepal can be issue, supervise and manage only by entities/individuals. Fulfilling the criteria led in Mutual Fund Regulation, 2067 and as authorized by SEBON.
Information on Performance of the Nepal Stock Exchange
Before the establishment of NEPSE, the volume of market activity was very low though it tend to spurt at the latter period. Turnover rise from Rs 2 million in1984/85 to Rs 800 million by 1993. Which became more rapid with the commencement of NEPSE. So, the stock market turnover rapidly increasing as many investors, both small and big, institutional investors, mutual funds and different private investments companies entered in the market. After successful constitution assembly election which provides hope amongst investors. Resulted a milestone change on daily transaction and market capitalization. Resent data shows average daily turnover of NEPSE is more than 800 Million.
Current Market Scenario
Favorable political environment after the successful constitution assembly which provides hope amongst investors.
- Meanwhile, Nepal Stock Exchange information provider has implemented Central Depository System (CDS) which replaced a 22-year paper-based stock certificate system. As a result, settlement has become quicker and an ownership transfer can be done within 5 days. But this process took a month before the implementation of CDS.
- After the great April 2015 earthquake, there has been a large surge in awareness of insurance (Life and Non-Life) among people. Moreover, the government has also brought many insurance-related policies. Such as, compulsory insurance for home and health insurance resulting in massive optimism among investors pushing insurance sector into a hyperbull market.
- Awareness and financial literacy among investors about share market is increasing resulting in many new investors entering the share market lately.
- Institutional investors like Mutual funds, Insurance Companies, Banks (without cross holdings) are also investing directly and indirectly in stock market resulting excess demand for stock.
- The Central Bank of Nepal (Nepal Rastra Bank) brought a mandatory paid up capital increment policy for banks and financial institutions which resulted in positive vibes. So, the market due to possible bonus shares and right share declaration for capital increment.
- Excess liquidity in the market creating low market interest rate resulting massive flow of money from banks to the stock market.
- Inflation is the major problem; So, we are facing a double-digit inflation since long which is a discouraging factor for people to keep money in their bank account. More recently, the average interest rate is 3% and the inflation rate is around 10%.
Positive Change in NEPSE
From 1994-2007, our trading system was an open outcry system. Investors and Stock brokers need to visit the premises of NESPE for trading purposes.
- After 2007 NEPSE adopt Automated Trading system . And this convert manual trading to electronic trading. Now the investors need to visit broker offices for buying stocks.
- Till date NEPSE has not adopt online trading system. But NEPSE has already planned to launch online trading system in near future.
- Paper Certificate are completely replaced with Demat Share which is very positive.
Current Scenario in NEPSE
- Way back in 1994 Nepal Stock Exchange (NEPSE) establish. And till date, there is only one stock exchange in Nepal i.e. NEPSE.
- Similarly, there is a lack of Stock Dealers.
- Brokers are not allow for Margin lending.