SEBON issues new directive

Kathmandu, November 19

Securities Board of Nepal (SEBON) has barred merchant bankers from working as issue managers of their parent firms due to apprehensions of their involvement in unethical practices while issuing shares.

As per the direction of the capital market regulator, merchant bankers will not be allowed to be appointed as issue managers of their parent companies when they want to issue shares for the secondary market.

“There are chances that there could be conflict of interest when a merchant banker works as an issue manager of its parent company or for those companies which are being operated through the primary capital of merchant bankers,” said Niraj Giri, spokesperson for SEBON. “So SEBON has taken this step to maintain professionalism and ethics.”

Moreover, the merchant bankers will also not be allowed to work as an issue manager of those companies in which they are involved as primary shareholders. Issuing a directive today, the capital market regulator also restricted merchant bankers to work as security underwriter if they are working as issue manager of any company.

“The universal practice of underwriting should be followed. In some cases merchant bankers and companies that are issuing shares have been found to be involved in various malpractices,” Giri said.

He clarified that SEBON is trying to follow the universal underwriting practice in the country by including this provision in its directive. “Underwriting should not be done just to follow a mandatory provision set by SEBON. Both the company issuing the shares and the issue manager should follow the basic principle.”

Currently, a total of 23 merchant bankers are providing various services in the country. A majority of them are serving the investors as issue manager, security underwriter, share registrar and portfolio manager, whereas, some of them are working only as portfolio manager.

Meanwhile, Aakash Capital, Century Capital — subsidiary company of Century Commercial Bank, Arch Capital, Wealth Merchant Bank and Janata Capital — subsidiary company of Janata Bank have filed their applications with the regulatory authority for operating licence of merchant banker.