Kathmandu. The Securities Board of Nepal (SEBON) has classified the securities broker business into four categories. The board has implemented the Securities Broker Business Strengthening Policy, 2083 to make the market systematic, transparent and competitive.

According to the policy issued by the Ministry of Finance, securities broker business has been classified into four categories on the basis of capital, risk bearing capacity, service diversification and institutional capacity.

According to Sebon, the policy will make the securities broker business modern, technology-friendly, commercially sound, capable of risk management and based on customer protection.

According to the policy, securities brokers will be categorized into Group ‘A’ as a stock dealer, as a full-service stock broker in Group ‘B’, as trading stock broker in Group ‘C’ and as specialized stock broker in Group ‘D’.

This provision will allow brokers to operate different services on the basis of their capital and institutional capacity.

Securities brokers will be classified on the basis of capital, risk appetite, service diversification and institutional capacity. With this, brokers will be able to provide different types of securities related services according to their capacity and permission.

The ‘A’ class securities dealers will transact as stock dealers while the ‘B’ class full-service securities brokers will provide comprehensive services to the customers. Similarly, the ‘C’ class securities brokers will provide services focused on securities trading, while the ‘D’ class specialized brokers will provide certain types of securities related services.

The policy provides that the broker should maintain a minimum paid-up capital as well as risk-based capital adequacy. This will create a basis for the businessman to maintain adequate capital according to the nature and risk of his business.

The new policy has made it mandatory for securities brokers to have separate approvals to operate activities such as margin trading, credit and lending of securities, short selling, cross-country trading and market makers.

According to this, brokers will be allowed to operate related services only according to the permission obtained by them.

The policy also includes provision for customer complaint management, investor compensation fund and providing daily or real-time data to customers. It aims to protect the interests of customers and increase confidence in the securities market.

The policy also includes the provision of a ‘resolution framework’ for the management of the crisis-hit securities brokers. This will allow certain procedures to be followed for the management of brokers who have created financial problems.

The policy has also given priority to technology and cyber security. Securities brokers are required to adopt digital transactions, multi-factor authentication, order and risk management system and cyber security mechanisms.

Similarly, it has been proposed to make regular IT audit and penetration testing mandatory.