Kathmandu. The committee formed under the leadership of Prakash Jung Thapa, former chairman of the Nepal Stock Exchange (NEPSE), has submitted a report to the government with about 1 dozen suggestions. Various suggestions have been incorporated in the report which has been taken ownership by the Council of Ministers.

However, the recommendations of the committee formed by the cabinet meeting held on November 2 are almost impossible to implement. However, the Ministry of Finance has said that it is preparing to make the recommendations public on Sunday. A meeting of the Council of Ministers held on Friday approved the report. According to a source at the ministry, the report will be made public on Sunday.

According to sources, Finance Minister Rameshwor Khanal has not been able to implement the report as he wanted. Half a dozen studies have already been conducted for the restructuring of NEPSE. Such reports are pending at the Ministry of Finance. Experts argue that another report has been added.

Finance Minister Khanal had sought suggestions to remove the government structure of NEPSE completely. However, the committee has submitted its report with roundabout suggestions as per the wishes of the secretaries, joint secretaries and under-secretaries of the Ministry of Finance. That is why the report is unlikely to be implemented.

The committee has proposed to increase the capital of NEPSE, bring in foreign strategic partners, bring in banks and insurance, work under government ownership, issue bonus shares, issue right shares and issue ordinary shares to the general public. However, Finance Minister Rameshwor Khanal had demanded a report with suggestions for the complete removal of government ownership for the restructuring of NEPSE. However, Minister Khanal was fired after the report suggested that the government should increase the ownership from 58.66 percent to 15.73 percent. He has also indicated that the report is not implementable.

According to the study committee’s report, the current capital of NEPSE stands at Rs 1 billion. According to the Securities Market Operation Regulations-2064, a paid-up capital of Rs 3 billion is required for the operation of the secondary market. For that, the committee should

It has proposed to issue bonus shares.

Among the various options for capital increase, the organization has considered the undistributed profits to be capitalized by issuing bonus shares. In the financial statement of FY 2081÷82, NEPSE has accumulated profit of Rs 2.17 billion and reserve fund of Rs 1.95 billion. The Securities Market Operation Regulations, 2064 BS has made a provision for the secondary market operator to have a capital of Rs 3 billion. According to the regulation, NEPSE can meet the capital of Rs 3 billion if it uses its provident fund to issue bonus shares.

Similarly, it has been suggested that the existing shareholders of the organization should be asked to add an amount equal to the required capital according to the ownership. It is necessary to increase the paid-up capital of NEPSE in a timely manner as it is necessary to increase the competitive capacity of NEPSE and to expand modern services and facilities as expected by the investors. For this, it has been suggested to raise the capital to Rs 3 billion as stipulated in the Securities Exchange Operation Regulations, 2064 BS by issuing bonus shares, right shares and additional new shares.

Similarly, the committee has also suggested bringing in strategic partners of NEPSE. According to the study, up to 40 percent of the strategic partners have been brought in in other countries and it is suggested that a strategic partner should be brought in by giving 10 to 15 percent ownership in NEPSE. It has suggested modernization of NEPSE as well as in bringing in information technology and new investment and equipment. The committee has suggested disinvestment of government ownership during the study.

Strategic partners will have up to 25 percent shares, ‘A’ class commercial banks (including existing banks) and Employees Provident Fund will have 34.39 percent, national level development banks, life and non-life insurance companies will have 15 percent and other companies will have 0.61 percent shares. Similarly, the government will have a maximum of 25 percent shareholding of strategic partners, 34.39 percent of ‘A’ class commercial banks (including existing banks) and Employees Provident Fund, national level development banks and life and non-life insurance companies will have a maximum of 20 percent, existing others will own 0.61 percent and the general public will have 20 percent. The committee has also given the flexibility to restructure the board of directors for the restructuring of NEPSE.

Most of the directors are represented by the Government of Nepal or agencies under the Government of Nepal. Thus, when most of the directors are represented by the Government of Nepal or agencies under the Government of Nepal, there will be negative aspects. It has been suggested that it would be appropriate to restructure the board of directors of NEPSE in such a way that there would be majority of independent expert directors in the board. It has been suggested that it would be appropriate to determine the qualifications of independent expert directors, formation of committees related to the selection of directors, formation of various committees for institutional governance and determination of remuneration according to the performance of directors. After complete disinvestment, 7 directors including 1 commercial bank and 2 employees of Provident Fund of Nepal Rastra Bank, 1 general public and 2 independent directors of development bank, life and non-life insurance company should be required after complete disinvestment. The committee has also recommended the qualifications of the directors.

The committee has given priority to the use of technology. Most of the stock exchanges around the world have said that they are equipped with modern technology to provide advanced facilities to the investors but NEPSE does not have this level of facilities. For this, it has suggested that a trading system with the characteristics of automated monitoring should be used to provide the latest equipment and services of international standard and for market supervision. NEPSE has also suggested the IT governance framework and information technology system to improve the existing transaction system ÷ revise the operating procedures.

The committee has recommended to carry out comprehensive system audit promptly to rectify vulnerabilities, to make risk management effective by identifying and analyzing network and cybersecurity risks, and to ensure the availability of the entire system by making arrangements for updating the stock of securities and other details in real time through API integration between the TMS of the transaction member and the system of CDSC.

It has also suggested diversifying investment tools and services.

Currently, only ordinary shares, debentures, mutual funds and other instruments are being traded in NEPSE. In the context of limited instruments being traded, investors have not had the opportunity to manage risk through investment diversification. In this context, it is necessary to make the instruments of international practice available in NEPSE so that all types of investors who are risk-taking and do not want to take risk can get investment related services. According to the index, diversification of information technology-related services, separate transactions for small and medium enterprises and innovative organizations should be provided to mobilize capital.

It has been suggested to provide necessary services to operate the commodity market, margin trading, SME platform, short selling, etc. It has been suggested to make necessary legal arrangements for this. Investors should be informed about new instruments and services by conducting awareness programs, diversifying the NEPSE index (such as NEPSE 30) on the basis of capital, return, liquidity, and automation of the OTC market.

Similarly, the committee has given various suggestions to maintain institutional good governance. In order to fill the gaps in the institutional governance of NEPSE in accordance with the status of remuneration and incentives of directors, risk management and internal control system, the remuneration of the board of directors, the provision of standards, review of the qualifications and incentives of the directors and the improvement in risk management, internal control, selection of directors and facilities, etc. The committee has suggested the formation of an audit committee, nomination and remuneration committee, risk management and compliance committee, information technology committee and human resources committee under the board of directors.

It has been suggested to prepare a charter of the Board of Directors and implement it, to develop the necessary mechanism for monitoring the working conditions of the committees by updating their working conditions, to strengthen the risk management and internal control system as per the operating procedure and to evaluate the performance of the directors as per the performance criteria of the nomination and remuneration committee. The recommendations include fixing the remuneration and facilities of the Board of Directors as recommended by the Nomination and Remuneration Committee and increasing transparency by systematizing the information dissemination of the organization.

Similarly, the committee has said that only secondary market operators alone will not be effective for the effective operation of the secondary market. For this, the role of various other infrastructure related to the operation of the secondary market is also important. Second, improvements to the market operating infrastructure include the establishment of a central deposit, settlement and settlement structure.

In the context of Nepal, CDSC has been established as a subsidiary company of NEPSE for central deposit, settlement and settlement. The committee has suggested restructuring CDSC focusing on capital and ownership structure, structure of Board of Directors, use of technology, diversity in service, institutional good governance, organizational structure and human resources.

Other infrastructure for the operation of the second market is the Central Counterparty (CCP), the Rafsaf Fund Operator; Information technology, training institutes and other ancillary structures are provided. These include developing new structures for the operation of CCPs or reforming the law to give responsibility to the existing CDSC, developing the technology needed to operate the market, and developing data services as a source of revenue.

It has also suggested that the principles of the International Securities Commission Organization (ISCO) should be followed in relation to the operation of the second market. The International Organization of Securities Market Regulatory Bodies (ISCO) has considered various suggestions in NEPSE to develop a secondary market structure in line with the principles propounded for self-regulatory institutions and secondary market operators.

To use a real-time automated surveillance system for transaction supervision in SEBON and NEPSE, to issue regulations related to the prevention of insider trading, to implement the provision of certification by the auditor and audit committee while publishing the interim financial statements of the listed companies for accurate information, to review and implement the information dissemination policy and procedures regarding the price sensitive information to be disseminated by the listed companies, It has suggested removing the provision of mentioning the name of securities broker in the floor sheet as the name of the securities broker associated with the transaction can be misleading while disseminating post-trade information disseminated by NEPSE through its website.

To monitor the activities such as holding annual general meetings, interim financial statements and information on time, halting transactions as per the securities legal provisions, Nepse continuously monitoring securities transactions using technology for real-time surveillance, predicting the market price of shares through various means including social media. It is suggested to implement an ML-based system.