Kathmandu. KATHMANDU: The Securities Board of Nepal (SEBON) has released a white paper on development of primary capital market of Nepal, 2083 BS with an objective of qualitative development in the primary capital market of Nepal.

In order to advance the regulatory reforms mentioned in the capital market policy of the fiscal year 2083/84, the board has published a white paper with long-term goals for quality improvement in the primary public offering system.

According to the Board, the white paper covers the current situation of Nepal’s primary capital market, legal and institutional limitations, problems and challenges seen in the market and the direction of strategic reforms in the coming decade.

The white paper has presented an integrated policy, legal, institutional and implementation framework with the objective of making the primary market transparent, fair, competitive, efficient, technology-friendly and in line with international good practice.

The Board has come up with a three-phase reform action plan for the long-term development of the primary capital market.

The target is to bring policy and legal reforms within a year. In this phase, issues related to the amendment of the Act and Regulations, review of the book building system are given priority.

Similarly, there is a plan to strengthen the institutional and technical capacity of the primary market within one to two years. It will promote the use and development of digital IPO platforms, electronic customer identification (e-KYC) and Suptech.

The target is to make the primary market more advanced and market-oriented within two to five years. In this phase, a fully market-based pricing system will be developed and entry of qualified institutional investors and anchor investors will be facilitated.

This is expected to make the current primary issue system more market-oriented, competitive and institutionalized, respectively. The white paper released by the board is not limited to the improvement of the primary share issue i.e. IPO system.

The white paper incorporates the current regulation of Nepal’s primary capital market, current status, problems and challenges, possible solutions, future strategy and international practices and experience.

The Board has a vision to develop the primary market as an important base for the competitive development of the private sector and the national capital formation.

According to the Board, increasing long-term capital mobilization from the primary market can contribute to the expansion of the private sector, increase investment in the productive sector and overall economic development.

The white paper has also given priority to making the responsibilities of various institutions involved in the primary market more clear and effective.

In particular, the obligations related to due diligence of issue and sales managers, auditors and credit rating institutions have been clarified and aimed at making them more accountable and effective.

A provision has been introduced to make the responsibility of the institution concerned more clear as the actual examination of the financial condition, business prospect, risk and other important details of the company and the dissemination of credible information to the investors would be important in the primary public issue.

This is expected to improve the quality of securities issued in the primary market and the credibility of the information received by investors.

The board has also made the use of technology an important basis for primary market reform.

The white paper aims to make the process of the primary market more simple, transparent and effective through the development of the digital IPO platform, the use of e-KYC, and the use of regulatory technology (RegTech) and SupTech.

The Board believes that with the increase in the use of technology, the time and cost of the issue process will be reduced and the access of investors can be expanded. It is expected to help streamline the application, verification, issuance and regulatory monitoring in the primary market.

The white paper has also proposed a review of the book building system. The board has pointed out the need to review the effectiveness of the system including book building to make the company’s share pricing more scientific, transparent and market-based in the primary market of Nepal.

The white paper also aims to develop a fully market-based pricing system in the primary market in the long term. For this, market depth, participation of institutional investors and expansion of regulatory capacity are seen as important prerequisites.

It is expected that the increase in the participation of institutional investors will help in pricing in the primary issue, identification of demand and more professionalism in the investor structure.

The Board is of the view that this will help in gradually developing the primary market from a situation of being dependent only on retail investors to a market with the participation of diversified and institutional investors.

The white paper has also given importance to the participation of investors in the primary market and the enhancement of financial literacy.

The board believes that the white paper will provide adequate information to the investors about various instruments and investment opportunities of the primary market, increase confidence in the market and also guide towards the development of new financial instruments.

It is expected that investors will be able to get more reliable information about the securities to be issued after the qualitative improvement in the primary market and the decision to participate in the market will be more informative.