KATHMANDU: In response to mounting calls for comprehensive capital market reforms, the Securities Board of Nepal (SEBON) has formed a study committee to assess the issuance of a new stock exchange license and directives for modernizing the Nepal Stock Exchange (NEPSE).

SEBON’s decision follows a series of executive, legislative, and judicial endorsements, including a Supreme Court directive, a parliamentary committee endorsement, recommendations from a cabinet-formed committee and cabinet decision to proceed with new stock exchange licensing and modernize the existing Nepal Stock Exchange (NEPSE).

With over seven million individuals—approximately 24% of the nation’s population—now participating in the stock market, the capital market has become a cornerstone of Nepal’s financial infrastructure, providing essential long-term financing for corporate sustainability.

The government’s endeavor to introduce a second stock exchange aims to infuse competitiveness into the market, while the proposed restructuring of NEPSE seeks to invigorate the capital market’s growth. Despite decade-long debates and demands for such reforms, successive governments have yet to implement significant reforms in capital market.

The committee is tasked with studying a decision by the Council of Ministers, a letter from the Ministry of Finance, and a report submitted by former Nepal Rastra Bank (NRB) Deputy Governor Chintamani Shiwakoti.

A stable, transparent, and well-regulated stock market is widely recognized as a catalyst for economic expansion in Nepal. In light of this, SEBON’s board has unanimously formed a study committee, following approvals from the cabinet, the parliamentary finance committee, and recommendations from a cabinet formed expert study group.

Private investors have persistently urged the government to expedite market reforms. While parliamentary finance committees have endorsed these initiatives. Additionally, Nepal’s Supreme Court has directed the government to issue stock licenses and undertake NEPSE reforms.

Here are all the key aspects of the latest capital market developments, including everything you need to know about the new stock exchange, NEPSE, market overview, and related updates in detail.

Who is leading the SEBON formed study committee?

SEBON board has unanimously agreed to establish the committee.The committee is chaired by Binod Kumar Bhattarai, Joint Secretary at the Ministry of Law.

What documents is the committee reviewing?

The committee is tasked with studying a decision by the Council of Ministers, a letter from the Ministry of Finance, and a report submitted by former Nepal Rastra Bank (NRB) Deputy Governor Chintamani Shiwakoti.

The committee has limited decision-making authority and will primarily provide recommendations on NEPSE’s restructuring model and also advise on whether to cancel existing applications and invite new ones or proceed with the evaluation of the old applications.

It is likely that the committee will recommend continuing with the assessment of existing applications. If so, a technical committee will be formed to evaluate them, and the company with the highest score will be granted the new stock exchange license. However, if the committee recommends opening new applications, the entire process will restart. Cancelling the old process could lead to potential legal challenges in the Supreme Court.

How will the committee proceed with its study?

The committee will first develop a work plan based on its mandate and submit it to SEBON. Once finalized, this plan will serve as a framework for the licensing process. The board is expected to prioritize NEPSE’s restructuring before issuing a new license, with both processes likely to move forward simultaneously.

Why is the restructuring of NEPSE included in the study?

Shivakoti’s report also addresses the modernization and restructuring of NEPSE, which is closely linked to the introduction of a new stock exchange. SEBON has mandated the committee to review this aspect as part of its study.

What is SEBON’s current stance on new stock  licensing?

Following the government’s decision, SEBON has prioritized the licensing process, and one of the three applicants will be selected based on eligibility criteria.

The establishment of a new stock exchange in Nepal is imperative to break the current monopolistic structure, foster innovation, and enhance the capital market’s role in economic development. New stock can pave the way for a more dynamic and competitive capital market in Nepal.

The Securities Board of Nepal (SEBON) has formed a study committee to review key documents and advance the licensing process. The Council of Ministers has also given the green light for the process to move forward.

SEBON will advance the process based on the study committee’s recommendations and ensure compliance with regulatory requirements.

Why was the stock exchange licensing process stalled?

The government halted the licensing process on May 9, 2023, citing the need for further study on the licensing framework.

When did the government decide to resume the licensing process?

The Council of Ministers, in a meeting on December 20, 2024, decided to proceed with the licensing process.

What steps did the government take to assess the need for a new stock exchange?

To evaluate the necessity of additional stock exchanges, the government formed a three-member committee in January 2023, led by Chintamani Shiwakoti, former Deputy Governor of Nepal Rastra Bank. The committee also included chartered accountant Sujan Kumar Acharya and advocate Sijan Guragain.

What did the committee recommend?

The committee submitted its report on April 26, 2023, to then-Prime Minister Pushpa Kamal Dahal, recommending the restructuring and modernization of NEPSE to enhance its efficiency and the issuance of a license for a new stock exchange to foster competition and improve investor accessibility.

When did the process for a new stock exchange originally begin?

On September 18, 2022, the Securities Board of Nepal (SEBON) called interested applications for a new stock exchange with a 45-day deadline. However, the Supreme Court issued an interim order on October 21, 2022, halting the process. The court later dismissed the writ petition on March 20, 2023, allowing SEBON to reopen applications on April 13, 2023, for the remaining 10 days.

How many companies applied for a stock exchange license?

On September 11, 2022, SEBON introduced the second amendment to the Securities Market Operation Regulations. Following this revision, the board invited applications for stock exchanges, commodity exchange companies, and securities brokers on September 18, 2023.

The amended regulation mandates that any new stock exchange must have a minimum paid-up capital of Rs 3 billion. Additionally, the company is required to issue 30% of its issued capital to the general public within two years of commencing operations, subject to board approval.

In response to SEBON’s call, three companies submitted applications: Himalayan Stock Exchange, National Stock Exchange of Nepal, and Annapurna Stock Exchange Limited.

Who are behind the Himalayan Stock Exchange?

Himalayan Stock Exchange, led by Shankar Group, has brought together some of Nepal’s most prominent business figures in its bid for a stock exchange license.

The consortium includes Shankar Lal Aggarwal, Deepak Bhatt of Infinity Holdings Pvt. Ltd., and several leading industrialists. Notable investors include former FNCCI presidents Shekhar Golchha, Pashupati Murarka, Bhawani Rana, and Rajendra Khaitan of Khaitan Group.

Other key figures involved are Satish Lal More of Lucky Group, Bibek Dugad of Dugad Group, Shaurabh Jyoti of Jyoti Group, Rohit Gupta, Ashish Shrestha, and Juni Gurung, among others.

Who are the key figures behind the National Stock Exchange?

The National Stock Exchange has a large proportion of investments from Non-Resident Nepalis (NRNs), led by Upendra Mahato. Other investors include Deepak Timilsina, Jiba Lamichhane, Badri K.C., Kul Acharya, and Gauri Joshi.

Who is behind the Annapurna Stock Exchange?

Annapurna Stock Exchange is led by Rameshwar Thapa, Chairman of Annapurna Media Network, with key investors including Ganesh Kumar Shrestha, Surendra Raj Wagle, Mukti Bodh Neupane, Anil Sapkota, Prakash Kumar Shrestha, Shekhar Subedi, and Balaram Upreti.

What caused further delays in the licensing process?

Allegations surfaced that the applicants were engaging in political lobbying to influence the appointment of SEBON’s chairman, delaying the process.

What are the financial requirements for the new stock exchange?

The new stock exchange must have a minimum paid-up capital of Rs 3 billion, with promoters required to hold 70% of the capital. Additionally, 30% of the shares must be issued to the public within two years of commencing operations.

Why has Nepal’s capital market remained underdeveloped despite the growth in listed companies?

Nepal’s capital market, primarily represented by the Nepal Stock Exchange (NEPSE), has remained underdeveloped since its establishment in 1994. Despite the increase in listed companies, the market has been dominated by the financial sector, with hydropower companies gaining prominence only in recent years.

The government’s majority ownership of NEPSE, holding a 58.66% stake, has contributed to a lack of innovation and competitiveness.

This monopolistic structure has hindered the adoption of advanced technologies and the diversification of investment opportunities, limiting the market’s potential to mobilize resources effectively for national development.

What is the NEPSE’s historic evolution, ownership and trend overview?

The Nepal Stock Exchange (NEPSE), established on January 13, 1994, remains Nepal’s sole stock exchange. Despite its decades-long existence, the market has struggled to modernize at the pace of global financial markets.

NEPSE’s total market capitalization stands at approximately USD 36 billion, reflecting its growth but also underscoring the challenges of an underdeveloped capital market.

A major milestone in NEPSE’s evolution came on August 24, 2007, when it transitioned from an open-cry trading system to a fully automated screen-based system under a government-led initiative supported by the Asian Development Bank (ADB).

While this was a significant step forward, technological advancements have remained limited, and the exchange continues to lag behind global standards in terms of efficiency and accessibility.

Ownership of NEPSE is heavily concentrated in government hands, with the Government of Nepal holding a 58.66% stake, while Nepal Rastra Bank (NRB) controls 9.5%, followed by the Employees Provident Fund with 10% and Rastriya Banijya Bank with 11.23%.

The remaining 16.74% is held by other shareholders. Despite Nepal Rastra Bank’s repeated intention to divest its shares, the government maintains control, limiting the prospects for privatization and broader market reforms.

The current paid-up capital of NEPSE stands at NPR 1 billion (approximately USD 7.35 million), significantly smaller than its international counterparts.

Historically, NEPSE has witnessed periods of strong performance and volatility. In 2007, the market recorded a 69.43% gain, signaling a bullish trend. Between 2003 and 2024, data shows that the market closed positively 57% of the time, reflecting resilience despite ongoing structural challenges.

One of the most significant surges occurred in 2020, when the index grew by 68.18%, largely driven by post-pandemic recovery.

NEPSE currently tracks 13 sectoral indices, including banking, finance, hydropower, manufacturing, microfinance, insurance, and tourism, among others.

The exchange’s lack of competition, slow technological upgrades, and regulatory constraints continue to hinder its full potential.

Without market liberalization and policy reforms, NEPSE risks remaining a stagnant, government-controlled entity, unable to foster a competitive and dynamic capital market environment.

What are the major challenges NEPSE faces?

NEPSE struggles with several structural and operational challenges that hinder its efficiency and competitiveness. One of the biggest issues is technological limitations—despite launching an automated trading system (TMS) in 2018, many investors continue to face technical glitches, slow transaction processing, and unreliable system performance. This not only affects trading efficiency but also discourages investor participation.

Another significant challenge is market volatility, where rapid stock price fluctuations create uncertainty, making it difficult for investors to predict market trends.

NEPSE lacks robust market stabilization mechanisms, such as stabilization funds and circuit breakers, which could help manage extreme price swings and protect investor interests.

Transparency is another critical issue, as NEPSE has failed to ensure regular and accurate disclosures from listed companies.

This lack of transparency makes it difficult for investors to make informed decisions and weakens overall market confidence. Additionally, governance concerns, including lack of accountability and fairness in trading practices, have been flagged, requiring stronger regulatory frameworks and enforcement to uphold market integrity.

The stock market in Nepal also suffers from a lack of investor education, as many potential investors do not fully understand stock market operations.

Without sufficient financial literacy programs, public participation remains limited, leading to a less dynamic market. Awareness campaigns that simplify financial concepts could help bridge this gap and encourage wider investor engagement.

Another fundamental issue is limited market depth, meaning a small number of actively traded stocks can result in significant price fluctuations when large transactions take place. To address this, NEPSE must focus on attracting more listed companies and increasing market participation to enhance liquidity and stability.

Previous SEBON audits have raised concerns regarding operational inefficiencies, lack of technical advancements, governance flaws, and over-reliance on specific individuals for decision-making.

These issues have fueled criticism over NEPSE’s management and its ability to handle a competitive and growing stock market effectively.

Strengthening regulatory oversight, modernizing technology, and ensuring fair trading practices are crucial for making Nepal’s capital market more competitive and investor-friendly.

The current state of NEPSE reflects a lack of a pragmatic and techicnsl approach to thrive the market. NEPSE lack of effectiveness continues to discourage new, young traders and hinder market growth, keeping Nepal’s capital market underdeveloped for far too long.

Privatization and competition with distribution of the new stock license are essential for breaking this stagnation and driving progress of capital market in Nepal.

Why is a new stock exchange essential to make Nepal’s capital market more relevant and competitive?

The introduction of a new stock exchange is essential to infuse competition into Nepal’s capital market. Competition would compel existing and new exchanges to enhance their technological infrastructure, improve transparency, and offer a broader range of financial instruments.

This, in turn, would attract more investors, both domestic and international, and facilitate better resource mobilization for economic growth. A competitive environment would also encourage the development of a robust bond market, addressing the current resource gaps and contributing to national development.

The establishment of a new stock exchange in Nepal is imperative to break the current monopolistic structure, foster innovation, and enhance the capital market’s role in economic development. New stock can pave the way for a more dynamic and competitive capital market in Nepal.