Government Moves to Open NEPSE Reform Debate with Decision to Publish Restructuring Report

The government has decided to make public the long-awaited restructuring report of Nepal Stock Exchange Limited, signaling a possible turning point for Nepal’s capital market. The decision was taken at a Cabinet meeting held on Thursday, clearing the way for wider public and policy-level discussion on the future of the country’s only stock exchange.

The report was prepared by a high-level study committee formed in early December under the coordination of former Nepal Accounting Board chairperson Prakash Jung Thapa. The committee was mandated to examine NEPSE’s existing structure and recommend reforms within a 50-day timeframe. Although the report was submitted to the Ministry of Finance nearly three weeks ago, its contents had remained confidential until the Cabinet’s decision.

According to officials familiar with the document, the committee has concluded that NEPSE’s current institutional framework is no longer aligned with the growing size and complexity of Nepal’s capital market. The report identifies weaknesses in ownership structure, capital base, governance practices, management autonomy, and technological capacity, arguing that incremental changes would be insufficient without deeper structural reform.

Capital Expansion Seen as Foundation for Modernization

One of the central recommendations of the report is a significant expansion of NEPSE’s paid-up capital—from the current Rs 1 billion to Rs 3 billion. The committee argues that a stronger capital base is essential if the exchange is to invest in modern trading systems, market surveillance tools, and advanced technological infrastructure.

To raise the additional capital, the report proposes a mixed ownership model. This includes issuing up to 30 percent of shares to the general public through an initial public offering, attracting a foreign strategic partner with technical expertise, and mobilizing funds from domestic institutional investors. The committee notes that similar restructuring models have been successfully implemented in neighboring countries such as India, Pakistan, and Bangladesh.

Rethinking Government Control Over the Stock Exchange

The report raises fundamental questions about the government’s dominant ownership role in NEPSE. Currently, the government holds nearly 59 percent of the exchange’s shares, with the remaining ownership spread among public-sector financial institutions, commercial banks, and brokers. According to the committee, such a structure has limited operational independence and slowed decision-making.

To address this, two alternative ownership scenarios have been proposed. Under the first option, the government would reduce its stake to 25 percent, retaining a strategic presence while allowing greater private-sector participation. The second option goes further, suggesting full divestment of government ownership through an open and competitive bidding process, following a due diligence audit and professional valuation.

Governance Reform Placed at the Center

Beyond ownership, the committee places strong emphasis on governance reform. It recommends dissolving the existing board of directors and forming a new board composed primarily of professionals nominated by shareholder institutions. The aim is to shift NEPSE away from bureaucratic control toward a performance-driven and commercially oriented governance model.

The report also highlights the need to strengthen internal capacity, including upgrading human resources, simplifying decision-making processes, and reinforcing institutional accountability. Without these changes, the committee warns, capital injection alone would not deliver meaningful reform.

Strategic Partner and Ownership Limits Proposed

To avoid excessive concentration of ownership, the committee has recommended limiting any single domestic institution’s shareholding to a maximum of five percent. At the same time, it suggests allocating 15 to 25 percent of shares to a strategic partner capable of contributing not only capital but also technology, expertise, and international best practices. Among domestic investors, commercial banks have been identified as preferred participants due to their financial strength and market experience.

Market Awaits Government’s Next Move

With the Cabinet’s decision to make the report public, attention has now shifted to implementation. Market participants say the real test lies not in the publication of the report but in whether the government demonstrates the political will to execute its recommendations. Past reform efforts in the capital market have often stalled at the implementation stage.

Analysts believe the path chosen by the government will shape the future credibility, transparency, and competitiveness of Nepal’s stock market. As investor confidence remains sensitive to governance and regulatory clarity, the restructuring of NEPSE is increasingly seen not as a technical exercise, but as a critical policy decision with long-term implications for the broader financial system.