Kathmandu. The Securities Board of Nepal (SEBON) has issued a working paper on restructuring the benchmark index in the securities market, 2083 for consultation.
According to Sebon, the board has prepared the working paper as mentioned in point number 6 of the ‘Capital Market Strengthening and Revitalization Action Plan, 2083’ issued by the Ministry of Finance on September 12, 2083. The action plan states that a new benchmark index will be developed on the basis of indicators such as tradable shares, market capitalization, financial condition of the company, liquidity of transactions, corporate governance and the state of information flow and will be used by mid-December 2083.
The current NEPSE index is calculated on the basis of the market capitalization of the promoter shares that are not available in the daily trading and are locked-in. Although the market capitalization of the government-owned and locked-in shares is included in the total market capitalization, there are growing complaints that the index does not fully reflect the real situation of the market as such shares are not available for daily trading.
In order to address this problem, the board has proposed to restructure the existing NEPSE index as the ‘Nepse All Equity Index’, a comprehensive index that measures the overall share price. Along with this, it has been proposed to develop a separate ‘Nepse Benchmark Index’ based on the market capitalization of tradable free-float shares.
While calculating the proposed new index, a certain free-float factor will be applied on the basis of the share of shares available for trading by separating the promoter, government-owned and locked-in shares. This is expected to more effectively reflect the price and market capitalization of the shares actually available for trading in the market.
The board expects that the NEPSE index calculation method will be more realistic after the implementation of the new benchmark index based on the market capitalization of tradable free-float shares. It is also expected to lay the groundwork for the development of modern financial instruments such as index funds, exchange traded funds (ETFs) and derivatives.
The board has requested the stakeholders to provide suggestions on the working paper made public by November 30.
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