Nepal’s Capital Market: More Permissions, Less Research, Where Is Accountability? Gunanidhi Bhusal

बीमा क्षेत्रमा नयाँ इजाजत : प्रतिस्पर्धा कि अनियन्त्रित विस्तार, नयाँ ब्रोकर थपिए, अब बजारको गुणस्तर कसले मापन गर्ने ?

लगानी न्यूज

११ कार्तिक २०८३, बुधबार ०८:२५October 28, 2026

The size of the market has increased, but has the quality of the market also increased?

Looking at the history of Nepal’s capital market, an important question arises: We have been able to increase the size of the market, but how successful have we been to make it sustainable, transparent, research-based and investor-friendly?TAG_OPEN_div_391

The market capitalization of the Nepal Stock Exchange increased from about Rs 189 billion in the financial year 2072/73 to about Rs 410 billion in the financial year 2077/78. Then it came down to about Rs 287 billion in the financial year 2078/79. In the financial year 2081/82, the market capitalization again reached about Rs 4.66 trillion. The amount mentioned here should be read according to the unit used in the official historical table; The actual amount is Rs 1.89 trillion, i.e., Rs 4.011 trillion, Rs 28.69 billion and Rs 4.65 trillion respectively.TAG_OPEN_div_389

These fluctuations also show the impact of risk and cycle with the expansion of the market. The increase in market capitalization is not in itself a proof that the economy is strong. The question of whether production, profits, employment, productivity and real investment have increased at the same pace even when the share price has increased is important.

Nepal’s capital market should now be taken out of the practice of valuation only on the basis of indices and transaction amounts. Equally important should be the indicators of whether the market has raised capital for the industry, whether the company has given returns to the investors or not, how much risk the small investors have understood and how much the regulator has maintained the fairness of the market.TAG_OPEN_div_385

Demat accounts have increased, but how many actual investors?

According to the public data of the Central Deposit System, the number of demat accounts has crossed 8 million at the end of 2026. The number of trading accounts opened for share trading has also reached millions. But demat accounts, my share users, trading accounts and active investors are not the same thing. The same person can have more than one account, and not all those who open an account do regular transactions. Therefore, the following should be clear in the data released by the government and the regulator:

How many real people have participated in the stock market?

How many account holders have transacted at least once in the last 12 months?TAG_OPEN_em_230

How many investors trade regularly?

How many investors are long-term savers and how many are short-term traders?TAG_OPEN_em_228

How many investors participate only in the primary market?

What is the participation of the investor according to the age, geographical area and size of the investment?

The increase in the number of accounts is a positive sign of the expansion of financial access. But it is wrong to consider the number of account openings as the ultimate success of market development. Actual participation in the market, financial literacy, protection of investors’ assets and expansion of institutional investment should also be measured.TAG_OPEN_div_372

Expansion of the banking sector and the responsibility of the regulator

TAG_OPEN_div_368 The Nepal Rastra Bank (NRB) has been responsible for licensing, regulating and maintaining financial stability of banks and financial institutions. The number of banks and financial institutions in Nepal increased sharply to about 220 in 2012. After that, the number of institutions decreased due to merger and acquisition policy and capital requirements. According to the 2024/25 report of Nepal Rastra Bank, 107 banks and financial institutions were in operation by mid-2025.

This experience teaches two things. First, it is not enough to allow entry into the financial sector; the institution’s capital, management capacity, risk control, and long-term business viability should also be examined. Second, after granting permission, the regulator should continuously monitor the performance of the institution and the systemic risks.TAG_OPEN_div_366

TAG_OPEN_div_364 The decrease in the number of banks is not the only evidence of improvement, just as the addition of new banks is not the only evidence of development. Depositor protection, credit quality,

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Improvement in the productive sector should be measured on the basis of credit flow, competitiveness and access to finance.TAG_OPEN_div_363

TAG_OPEN_div_361 Similarly, there is a need for a clear policy regarding the amount of money going from the banking sector to the capital market. Credit and margin facilities can increase liquidity in the market, but excessive debt-based transactions also increase the risk when the market falls. Therefore, coordination between banking policy, monetary policy and capital market policy is necessary.

New License in the Insurance Sector: Competition or Uncontrolled Expansion?

TAG_OPEN_div_357 The insurance sector aims to transfer risk, mobilize long-term savings, and strengthen financial security. The public data of the Insurance Authority of Nepal includes life insurance, non-life insurance, reinsurance and microinsurance companies. According to the data available in 2026, the total number of insurers has reached 37.

But the increase in the number of companies alone cannot be a measure of the development of the insurance sector. Access to insurance, premium collection, timing of claim payment, solvency of the company, capacity of reinsurance and consumer trust are equally important.

The questions that the authority should ask before granting a license to a new company are: Is there enough demand in the market to accommodate more companies? Is the capital and management capacity of the new company adequate? Has the service and claim payments of the old companies improved? Does the new entry increase real competition or create unhealthy competition for a limited number of customers and businesses?TAG_OPEN_div_353

It cannot be said that all the problems after the new license in the insurance sector are due to the license. But if the decision to grant permission does not have an adequate assessment of demand, capacity, financial stability and consumer protection, then the question of regulatory weakness is natural.

New broker added, now who will measure the quality of the market?

The decision to expand the number of brokers in Nepal’s capital market may aim to improve competition, accessibility and technological improvement in trading services. In 2023, new broker companies were approved in a phased manner. Of the companies that received initial letters of intent from SEBON, 46 were applicants and 43 companies received initial approval at various stages. In September that year, it was reported that 37 companies had received final membership approval from NEPSE.

But with the addition of a new broker, did the competition in the market increase or not? Did the investors get better service or not? Whether the reliability of the trading system, the resolution of customer complaints, risk management, research services and information given to the investors has improved or not?

TAG_OPEN_div_344 The answer to these questions should be found from the data. The addition of a new broker is not a mistake in itself, but there should be a clear system to measure performance before and after allowing entry into the market.

The margin facility can increase the reach of the transaction and the liquidity of the market. But it also increases the risk of the investor. When the share price falls, the investor who uses the borrowed money may have to raise more money or sell his investment. This can increase the selling pressure during the market downturn{

If the success of the regulator is measured only by the number of new licenses, then the true quality of the market may be overlooked. Policies to increase competition are necessary, but with competition must increase regulation, technology, financial capacity and accountability.

Policy making through research or inference?

The experiences of Nepal’TAG_OPEN_div_336 s financial sector offer one important lesson: policymaking requires problem identification, data analysis, stakeholder consultation, and policy impact assessment.

Any regulatory body must answer at least five questions before introducing a new policy:

1. What problem does the current policy not solve?

2. What data or research does the proposed policy base on?

3. Whether the views of investors, brokers, listed companies, banks, merchant bankers and other stakeholders have been taken or not?

4. How does the policy affect market costs, transactions, liquidity, competitiveness, and investor risk?

TAG_OPEN_em_219 5. How will the impact of the policy be measured six months or one year after its implementation?

The job of the regulator is not only to make rules, but also to examine whether those rules have delivered the desired results. If a policy does not deliver the desired results, it is not an institutional weakness to correct it; it is an example of evidence-based governance.

Conflict of interest should be managed while discussing policy making with stakeholders. The demands of one group should not be considered as the interest of the entire market. The final decision should be based on public interest, investigation and transparency.

Cash transactions and margin transactions: Systematic risk management, not restrictions

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Cash-based transactions and margin facilities have their own role in the capital market. In cash transactions, the investor buys shares on the basis of the available amount. In margin transactions, transactions can be done using borrowed money on certain conditions.

The margin facility can increase the reach of the transaction and the liquidity of the market. But it also increases the risk of the investor. When the share price falls, the investor who uses the borrowed money may have to raise more money or sell his investment. This can increase the selling pressure during the market downturn.

So the question is not just whether to keep a margin transaction or not; what margin system to implement, for whom, in which share, to what extent and with what risk controls.

Getting a small IPO and being a responsible investor are different things

SEBON has published a Directive on Margin Trading Facility in 2082. Now there is a need for clarity on its effective implementation, risk bearing capacity of brokers, risk assessment of clients, quality of collateral and loan recovery process.

Margin trading can only be extended through a broker who meets the appropriate criteria, making cash transactions a safe base. Increasing the availability of margin trading should not be a means to artificially raise the market.

Ten Units IPO Allotment: Distance Between Participation and Investment Culture{

The system of allotment of a minimum of 10 units in the primary issue has given small investors an opportunity to enter the market. But getting a small IPO and being a responsible investor are different things.TAG_OPEN_div_306

Investors should understand the company’s financial position, business potential, debt, profits, cash flow, valuation and risk. Investing in the expectation that the price will increase from the day the IPO is issued is not the basis of a healthy investment culture.

When reviewing the IPO allotment system, access, fairness, actual investor participation and productive use of the capital raised by the company should be looked at simultaneously. The decision to increase or decrease the minimum number of shares should be made not on the basis of popularity but on the basis of statistics and public consultation.TAG_OPEN_div_302

Cebon and the entity involved in the issue management should disclose data on the number of IPO applicants, the impact of repeat or inactive accounts, the price fluctuations after the issue and the long-term returns of the investors. This can be understood from what the IPO policy has actually produced.

TMS, Share Registrar and Floorsheet: A Means of Transparency or Risk of Misuse?

Nepse’s floor sheet, TMS transaction details, and stock registrar data are important for market transparency and research. But misinterpretation of public data, unsubstantiated claims, or attempts to create artificial expectations based on them can mislead investors.TAG_OPEN_div_296

To conclude that the decision of the chairman, director, or higher authority was wrong, one must look at the record of the decision, the legal system at the time, the available data, the response of the stakeholders, and the outcome of the policy. It is not appropriate to make personal accusations without evidence{

Just because a large purchase or sale has been made from a broker does not mean that the same broker has done all the transactions from its own account. The broker’s floorsheet can also include the client’s transactions. Similarly, the details of the transactions alone do not prove the intention, coordination or market manipulation of a group.

Therefore, the regulator should conduct an impartial investigation into possible incidents of market manipulation, misuse of insider information, conflict of interest, unnatural trading and misinformation. If evidence is found, action should be taken according to the law; no one should be convicted without evidence.

The systemic reliability of the TMS, the recording of customer orders, the audit trail, the transaction cancellation process and the criteria for grievance resolution should be clear. Service quality, timelines, and accountability should also be measured in the work of the share registrar and other market intermediaries.TAG_OPEN_div_288

The public of the floorsheet is not a problem in itself. The problem is that it is misinterpreted, misused, or the monitoring required to control it is not effective.

TAG_OPEN_strong_195 Let’s make the market not just supply-oriented, but based on demand and productive investment

The supply in Nepal’s capital market can be increased through the issuance of new shares, right shares, bonus shares and other capital mobilization. But for the sustainable development of the market, it is not enough to increase the supply of new shares. The institutional and long-term investor base, the real income of the company, the liquidity of the market and the confidence of the investors should also increase.

TAG_OPEN_div_281Demand here does not mean artificially inflating prices or buying on the basis of loans. It means building a stable capital base that can be invested in productive industries, infrastructure, energy, tourism, information technology and other potential sectors.

This requires the following corrections:

To make the role of mutual funds, pension funds, citizen investment trust and other institutional investors effective.

Linking long-term savings to the capital market through transparent and risk-diversified investments.

To provide financial statements, cash flow, dividend policy and risk information of the listed company in a timely manner.TAG_OPEN_em_214

To provide a transparent capital mobilization channel to productive projects of the government and private sector.

Evaluation of the supply of shares in the market, analysis of investor capacity and demand situation.

To effectively monitor activities that create artificial demand, manipulate prices or spread misinformation.

The price of the stock should not be artificially raised in the name of strengthening demand in the TAG_OPEN_div_270 market. The real demand should come from the quality, returns, reliable information and productive capacity of the economy.

Sebon, NEPSE and the government: rights as well as accountability{

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In Nepal’s capital market, SEBON, NEPSE, CDSC, Nepal Rastra Bank, Insurance Authority, Ministry of Finance and other related institutions have their own responsibilities. The lack of coordination between these institutions can increase the distance between the objectives, implementation and outcome of the policy.TAG_OPEN_div_266

The responsibility of SEBON is to regulate, protect investors, fair market and market development. The role of NEPSE is to operate a transparent and reliable transaction infrastructure. CDSC should maintain the credibility of non-physical records of securities and related deposit services. The government should provide a legal, institutional and policy environment.TAG_OPEN_div_264

To conclude that the decision of a chairman, director or senior official was wrong, one must look at the record of the decision, the legal system at that time, the available data, the response of the stakeholders and the outcome of the policy. It is not appropriate to make personal accusations without evidence. But citizens have every right to question the decisions of public officials and to seek their justification.

Every major policy decision should be accompanied by an impact assessment, a summary of the public consultation, potential risks, an implementation plan, and an outcome measurement. After the policy is implemented, the results should be made public. If the target is not met, it should also explain why it did not happen and a reform plan should also be presented.

Improvements: Explicit research and implementation prior to the new rules

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The following steps are now needed to move Nepal’s capital market in the right direction. First, data-based market assessment: Data on demat accounts, active turnovers, genuine investors, market capitalization, transaction amount, institutional investment and investor complaints should be made public regularly.

Second, Regulatory Impact Assessment: The potential benefits, costs, and risks should be studied before the new policy is implemented. The results should be reviewed six months and one year after implementation.

The government and the regulatory body should consider the development of their permitted areas as an integral part of their responsibility. Granting permissions, making rules, and issuing guidelines is just the beginning. The real success is determined by the results of those decisions in the market

Thirdly, Institutional consultation with stakeholders: Public discussions should be held with brokers, investors, listed companies, merchant bankers, researchers, economists and relevant government agencies. The summary of the consultation and the basis of the decision should also be made public.

Fourth, effective implementation: Bridge the gap between the ability to make and enforce the rules. Strengthen the necessary manpower, technology, oversight capacity and legal action process.

Fifth, Responsibility and Accountability: Each policy should have a responsible body, implementation timeline, indicators to measure results, and public reports.TAG_OPEN_div_247

Sixth, emphasis on investor education: Financial literacy is not the only way to fill out an IPO, look at a floorsheet or run a TMS. Provide practical education on company valuation, risk management, diversification, and long-term investing.

Seventh, the institutional development of the market: Margin trading, institutional investment, bonds, collective investment schemes and other financial instruments should be linked to the real needs of the market and risk management.TAG_OPEN_div_243

Conclusion: Time to move the market from crowd to institutional maturity{

The increase in the participation of millions of people in Nepal’s capital market is an important achievement. But increasing the number of participants does not guarantee that the market will mature. For the market to mature, it needs transparency, reliable information, effective regulation, responsible investors, quality companies, and a long-term capital base.TAG_OPEN_div_239

With the increase in the number of institutions in the banking sector, the need for mergers, capital and risk management was seen. In the insurance sector too, the importance of service and financial capacity is more important than the number of companies. Even after the addition of brokers in the capital market, the quality of service, competition, transaction system and monitoring should be measured.

The government and regulatory bodies should consider the development of their permitted areas as an integral part of their responsibility. Granting permissions, making rules and issuing guidelines is just the beginning. The real success is determined by the results of those decisions in the market.

TAG_OPEN_div_234 The question is not how many new rules were made; it is not about how many problems were solved by the new rules. It is not about how many new licenses were distributed; it is not about how many quality services and real economic value they created. It is not about how many demat accounts were opened; it is not about how many citizens became conscious, safe and responsible investors.

There should be no further delay in taking Nepal’s capital market from crowd-based volatility to an institutional market based on research, trust, productive investment and accountability. Research in policy making, transparency in decision-making, and accountability in implementation – these three pillars will determine the future of Nepal’s capital market. (The writer Bhusal is the former General Secretary of Stock Brokers Association of Nepal and Managing Director of Aryatara Investment and Securities Pvt. Ltd.)