SEBON to allow strategic partner for commodity exchange operators

Kathmandu, November 9

The Securities Board of Nepal (SEBON) — the capital market regulator — is planning to create a legal ground so that commodity exchange operators can appoint a strategic partner. The commodity market regulations, being finalised by SEBON, will incorporate a provision that will allow commodity exchange operators to appoint a foreign strategic partner.

According to SEBON, it has set three basic criteria for any foreign company that wants to be a strategic partner of a commodity exchange operator in the country. Those companies that want to be a strategic partner of any Nepali commodity company must have at least five years of experience in the related field.

Similarly, such foreign companies must possess a valid operating licence and should have been involved in the commodity market for the last five consecutive years. Likewise, the market regulators of the countries that the foreign firms are based in must also issue an authorisation certificate stating that the concerned company can be a strategic partner of a Nepali company.

“Basically, these three aforementioned clauses will be incorporated in the regulations. We are yet to finalise the regulations, so some new criteria could be added after some discussions,” said Mukti Nath Shrestha, director of SEBON.

As per a provision of the Commodity Act 2017, a single domestic shareholder cannot hold more than five per cent of shares in the company. However, foreign investors, who are interested to be a strategic partner in commodities company, can hold up to 51 per cent of shares.

A commodities exchange is an exchange where various commodities and derivatives products can be traded in a single platform. Agricultural products and other raw materials are traded through the commodity market.

As per the new act, SEBON will issue operating licence to those companies that are interested in commodities exchange, trading, payment and settlement, and operating warehouses. The act has set a minimum paid-up capital of Rs 500 million for the establishment of a commodity exchange company.

Before the parliament endorsed the act, there was no legal provision to regulate the commodity market in the country. In the existing Securities Act 2007, SEBON is authorised to regulate the capital market only, which means the secondary market and it does not mention anything about the commodities market.

Nepal Derivative Exchange, Derivative and Commodity Exchange, and Mercantile Exchange Nepal are in operation as commodity exchange companies at present. According to a provision of the law, commodities exchange companies can also opt for merger or acquisition process.

According to a provision of the act, it has to be implemented 90 days after the act is authenticated by the president. President Bidhya Devi Bhandari had authenticated the act on August 27, which means SEBON has to implement the act from November 27.