Kathmandu. KATHMANDU: The Capital Market Reform Suggestion Task Force has submitted a study report on systemic procedural reforms to boost the morale of the general investors in the capital market.

The task force has suggested to resolve the problems in the capital market keeping in mind the situation of participation of general investors in the capital market, lack of other alternative investment opportunities, national need for long-term capital mobilization, existing legal provisions, availability of resources, institutional capacity, possible impact of the implementation of reforms and mandate received by the taskforce.

According to the report, the immediate reform is to remove the maximum single subscriber limit of Rs 250 million for margin type loans issued by banks and financial institutions as collateral. Similarly, the provision of allowing banks and financial institutions to invest in shares and debentures of listed companies for a period of more than one year has been scrapped.

It will implement margin trading system through securities brokers and set certain standards to maintain uniformity in the International Security Identification Number (ISIN) issued by CDS and Clearing Limited.

Maintaining the existing NEPSE index as the All Equity Index, developing a new index on the basis of tradable shares (free float shares) and using it as the current index and revising the rules of circuit breaker on the basis of that, clarifying that the capital gains tax levied on the sale of non-commercial shares is the final tax and facilitating the process of obtaining tax clearance certificate on the basis of the tax paid in the share sale transaction ।

Similarly, the corporate body concerned should adjust the dividend tax levied while distributing bonus shares to the investors and make a provision for the investors to pay the dividend tax on time, if the securities broker fails to pay the amount as per the purchase order on time or if the securities broker fails to pay the investors on time, uniformity will be maintained in the provisions related to the payment of liability or return created from that amount and the investors can open two or more beneficiary accounts ।

The Nepal Stock Exchange Limited (NEPSE) has decided to make the classification of listed companies objective on the basis of their financial soundness, liquidity and corporate governance, make provision for taking 100 percent cash margin while transacting the Z group of companies after the classification, establish and operate a grievance management mechanism to immediately address the problems and grievances of the investors and to establish a mechanism to complete the investigation of securities related offences in a timely manner ।

The reforms to be carried out in the mid-term period include restructuring of Nepal Stock Exchange Limited through the initial public offering process, making provisions in the Income Tax Act allowing the deduction of certain amount invested in the collective investment scheme within the income year in course of the tax assessment of natural persons, timely review of the existing provisions related to the allocation of securities and a minimum of 10 percent of the issued capital for the issuance of initial public shares by the corporate body. Amending the regulations to review the boundaries, formulating necessary by-laws and developing a system to bring the SME platform into operation,

The meeting also proposes to make necessary provisions to regulate the practice of raising capital (pre-IPO) from the general public (IPO) using social media, and to make clear policy provisions regarding the investment and repatriation of foreign currency from Non-Resident Nepalese (NRNs) in the secondary market.

To make the book building method effective for realistic pricing process and make it contemporary, to formulate and implement certain criteria regarding initial public offering and right shares, to amend the Securities Registration and Issue Regulations to open the lock-in period of the sale of shares of promoter shareholders in a phased manner without disclosing the lock-in period at one go. The bill proposes to amend the Securities Dealers (Securities Brokers and Securities Dealers) Regulations to allow the subsidiaries of insurance companies to function as securities traders, review the existing provisions of the process of buying and selling of shares of banks and financial institutions and promoter companies of insurance companies, and make them cost-effective by reducing the expense burden of investors in the capital market.

Likewise, reforms to be carried out in the long term include separate Specialised Act related to Operation and Regulation of Securities Market, Vision Act related to Financial Sector, Regulations on Offences and Punishment related to Securities, Legal provisions related to investment consultancy and research analysis, restructuring of Nepal Stock Exchange Limited by bringing in strategic partners, bringing in a trading system of international standards in Nepal Stock Exchange Limited and policy and systemic reforms related to the trading of government and corporate bonds. The bill proposes to formulate and implement the by-laws related to Right Reinsurance Training in respect of the right shares issued by the corporate entities and to amend the Insurance Act to remove the existing provision that prohibits life insurers from buying shares of life insurers and non-life insurers.