Sebon recommends new stock exchange

HIMALAYAN NEWS SERVICE

KATHMANDU: Despite doubts regarding the viability of another stock exchange, the capital market regulator is pushing for another stock exchange after Nepal Stock Exchange (Nepse) failed to get privatised or to find a strategic partner.

A study conducted by Securities Board of Nepal (Sebon) –– capital market regulator –– has recommended the operation of another stock exchange as an urgent need to stimulate the Nepali capital market. However, in a market of Nepal’s size and with weak regulators, the smooth operation of more than one exchange is difficult to comprehend.

“The report says that establishing a new stock exchange is viable as it will provide better trading infrastructure, diversified instruments, and will even pull down transaction cost for investors,” said director of Sebon Nabaraj Adhikary.

Nepse had been pursuing privatisation for the last three and a half years, and the Ministry of Finance had even asked it to find a strategic partner so that the government could divest or transfer its shares. However, nothing concrete has happened so far while Nepse’s trading system has become old and is falling behind in innovations.

“Nepse is frozen in terms of innovation and is unable to cater to online trading. It is not compatible even for new instruments –– mutual funds, market makers, debt instruments and stock derivatives, among others, so a new stock exchange is the only answer as Nepse is not contributing to the development of the market,” pointed out Adhikary.

Likewise, Nepse also being within the government’s ambit, the regulatory body has found the imposing regulations a bit difficult causing the regulators to desire for a competitor to strip away Nepse’s monopoly in stock trading.

Sebon had received applications from three separate groups interested in opening

a new stock exchange three years back.

“It is absurd that Sebon is supporting the idea of a new bourse, instead of coaxing Nepse to introduce a better trading system and instruments,” said former chairman of Sebon Dr Chiranjibi Nepal.

He pointed out that the existence of another stock exchange will bring about distortion in prices, especially in a market like Nepal, where the regulator is not strong enough. “Stock exchanges worldwide are opting for mergers due

to the high operation cost

and to bring homogeneity in pricing,” he added.

But, despite the intentions of the regulator, the Nepali capital market might not be able to shoulder another stock exchange when investors are not very interested in the existing one, as seen through the transaction volume.

Last fiscal year, Nepse’s total transaction stood at Rs 10.26 billion, which is half of the transaction of fiscal year 2008-09. “The situation regarding market turnover, technological requirements and cost suggest that another stock exchange

is not viable,” said managing director of Nepse Shankar

Man Singh. He also expressed that there is no guarantee that another bourse will inspire Nepse to function better due

to competition.

Nepal Stock Exchange still has not given up hopes on privatisation and has formed a committee to work out the details by early-December.