Reform Proposals Put Forward to Restore Trust in Nepal’s Capital Market

Bhaskar Chhetri

A comprehensive set of reform suggestions has been formally submitted to Securities Board of Nepal, calling for structural, regulatory, and technological changes to strengthen Nepal’s capital market. The recommendations come at a time when investor sentiment appears fragile, trading activity has shown inconsistency, and concerns over transparency and governance have intensified.

At the core of the proposals is a strong call for institutional accountability. Market participants have emphasized the need for an independent and thorough investigation into past irregularities involving both the regulator and Nepal Stock Exchange. The underlying concern is that without visible corrective action and institutional reform, confidence among retail and institutional investors will remain under pressure. The suggestion for leadership-level responsibility signals growing frustration over perceived governance gaps.

Another key recommendation focuses on strengthening company fundamentals through ownership structure. Mandating at least a 30 percent promoter holding across all listed companies is seen as a way to ensure long-term commitment from promoters. Analysts believe that the current practice of relatively short lock-in periods has contributed to speculative trading patterns, and revisiting this framework could stabilize price behavior and improve corporate accountability.

The IPO allocation mechanism has also come under scrutiny. The proposal to eliminate quota-based distribution reflects concerns that the existing system may not ensure equitable access or efficient price discovery. A more market-driven allocation model, if implemented carefully, could enhance fairness while attracting more serious long-term investors into the primary market.

Operational efficiency in the secondary market is another major theme. The recommendation to shift the settlement cycle from T+2 to T+1 aligns with global best practices and is expected to improve liquidity turnover. Faster settlement reduces counterparty risk and allows investors to redeploy capital more efficiently, which could ultimately increase market depth.

However, perhaps the most critical issue raised is the risk of information leakage. Allegations that trading data may be accessible in real time to intermediaries or insiders have raised serious concerns about market integrity. Strengthening legal provisions, restricting unauthorized access to client trading data, and enhancing internal surveillance systems within Nepal Stock Exchange are seen as essential steps to ensure a level playing field.

The proposals also highlight the need to modernize market infrastructure. Upgrading the existing Trading Management System (TMS) into a more secure and technologically robust platform is viewed as urgent. In an increasingly digital trading environment, system vulnerabilities can directly translate into investor distrust, making cybersecurity and data protection critical priorities.

From a market stability perspective, improving volatility control mechanisms such as circuit breakers and trading halts has been recommended. A more scientific and transparent framework could help manage extreme price swings without unnecessarily disrupting normal market activity. At the same time, tightening regulations around frequent rights share issuance is expected to prevent undue dilution pressure on existing shareholders.

Finally, the call for establishing a dedicated securities tribunal reflects a broader demand for investor protection. A specialized judicial mechanism could provide faster resolution of disputes, reduce procedural delays, and reinforce legal confidence in the market ecosystem.

Taken together, these recommendations present a structured roadmap aimed at rebuilding trust, enhancing transparency, and aligning Nepal’s capital market with international standards. Whether these proposals translate into policy action will likely determine the direction of investor confidence in the coming months.