Nepali Share Market
Meeting The Challenges

By Bashu Dev Phulara

SHARE Marketplace plays a fundamental role in channeling economy of an individual and a corporate region. On that account, it is a prolific zone of a country's financial system. In other words, share market is an important component of financial sector that provides and facilitates an ordinary exchange of long-term economic allegations.

Opportunity

In Nepal, capital market is generally known as securities or stock market comprising two segments, the primary and the secondary market . Both are complement and are foil for each other. The main objective of the securities market is to create opportunity for the public to get benefit from the return obtained by directing the cost-cutting gauge in the direction of the prolific division and through mobilising the lengthy tenure capital.

After 1990, the economic liberalisation policy was introduced for socio-economic development of the Kingdom, which is touching the profitable business deal in Nepal. These dealings also lead the noteworthy changes in the role of share capital market. In this juncture,directive principles and policies of the state do work for the government to act upon the economic justice. Investors' protection has been recognised as the fundamental spin under every securities laws and policies of the country.

Nevertheless, the Nepalese share capital market has seen unparalleled detonation over the past decade in terms of listed companies, trade volumes and investors interests. At present, Nepal is passing through a grave segment of capital sector development.

A recent report prepared by the experts of Asian Development Bank (ADB) has shown many obstacles to the enlargement of capital market. The government has adopted many financial policies in order to provide effective services and facilities to the investors but in practice, there are still abundant difficulties. The spirit of law and policies in terms of securities transaction has not been taken seriously by the governmental agencies.

Diversified legal provisions regarding share transactions constitute no more than rhetoric, and ideal. Hence, reformulation of securities laws for the protection of investors is the need of the day. In this connection, we have to bring many vital changes in the capital market because future potentiality is highly encouraging. Communal and individual hush-hush are actively participating in securities market. If any profitable bank issues its shares to the public, people gather in a huge mass to buy them.

Disclosure is the foundation for the investors' protection. So the listed companies are constantly required to offer price sensitive information and other important information to their investors and to the stock exchange as well. Public companies are still not following first-rate disclosure practices. According to market estimates, the concerned authorities often leak proclamation of cash dividends and bonus shares by the decision of the board before making such information available to the public. Take for instance, market makers could take both unwarranted and surplus benefit from trading in shares of Nepal Bank, Standard Chartered Bank, Nabil Bank and Indosuez Bank etc.

The saying "all economics is International and all politics is Local"is pertinent. In the electronic world today, the whole world is an international market and the distribution of foreign securities need not take place in any particular territory. So Nepal should adopt internationally adopted principles in terms of securities transaction, accounting and auditing practices. Issuers of public primary market should be able to concern with investors worldwide, using one set of voluntary distribution measures and disclosure credentials and subject matter to one set of accountability standard and enforcement remedies. However, this is not trouble-free mission to complement national system with international values.

Ample corporate governance is prerequisite for investors' protection in the market. Fairness, trustworthiness, effectiveness, precision and receptiveness are the basic essentials and vital mechanisms for building up the self-motivated and spirited market. We have not yet settled down such basics in our security market. More than three hundred thousand investors, who have invested millions of rupees in Nepalese stock, with a hope to harvest reimbursement are always in suspicion fearing the loss of their hard earned cash. Indeed, investors' self-confidence in the markets is diminishing day by day.

Contribution and co-operation of the government towards investors' protection is not encouraging. The Securities Board of Nepal established to advance the securities market by catering to the interest of investors' and to regulate the primary and secondary trading of securities has failed to convince the investors.

As recommended by the Asian Development Bank, the government has initiated the privatisation process of the Nepal Stock Exchange Limited. However, one can not guarantee that situation will improve after privatisation. We have to wait and see how the new proposed Securities Act and privatised NEPSE will oversee the issue.

There are some basic constraints for securities market development. The government has control over the institutional activities like restriction on funds structure, constraint on investment opportunities, poorly developed securities market and delayed bureaucracy. The operational mechanism of share market is another challenge. The securities market has increased in many folds and the existing 'open out cry' system can no more handle with mounting size of the market in the age of information technology. Hence, it should adopt the screen based and web based transaction system of the securities.

The concept of provincial market has also emerged in the stock exchange. If we can't move with the universal expansion we should at least consider the regional components. Establishing Credit Rating Agency(CRA) and Central Depositary System(CDS) of securities' is another challenge. The ADB has clearly stated in its report that CRA and CDS are essential for the successful operation of the capital market.

Initiatives

The share market and other concerned authorities should take initiatives for the maturity of the securities market and operations to endorse liquidity in the stock market. Furthermore, they are desired to furnish appropriate guidance to HMG on the issues relating to the investors protections in the capital market. They in addition should make proper attention on adaptable guiding principles, covering different aspects of operating and working situation of the security market as well.

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