SEBON’s Prior Notice Rule for Major Shareholders Sparks Debate on One-Sided Market Transparency

Kathmandu — A recent regulatory directive requiring major shareholders in Nepal’s capital market to provide prior notice before executing large-scale share sales has triggered a profound debate among market participants. While the move is ostensibly aimed at enhancing investor information and transparency, financial analysts argue that enforcing disclosure exclusively for sellers—while giving large buyers a free pass—creates a regulatory imbalance that could inadvertently facilitate market manipulation.

Under the directive issued by the Securities Board of Nepal (SEBON) on Bhadra 9, 2080, "basic shareholders" are subjected to strict disclosure norms. According to Section 50 of the Companies Act, 2063, any individual or entity holding at least 1 percent of the total shares in a public company with a paid-up capital exceeding Rs 250 million is classified as a basic shareholder. If these investors intend to sell 5 percent or more of their holdings, they must notify the company in writing at least 15 days in advance. This notice remains valid for three months and is broadcasted to the public via the Nepal Stock Exchange (NEPSE).

The primary objective of this provision is to alert retail investors about impending massive supplies of shares, preventing sudden market shocks. However, this one-sided transparency ignores the fundamental economic principle of the stock market: price discovery is driven by the equal interplay of supply and demand. Market observers are now questioning why an investor with the financial muscle to execute a massive buy order is not subjected to similar disclosure requirements. Large-scale, undisclosed accumulation of shares can artificially inflate prices, misleading retail investors just as severely as a massive sell-off.

This regulatory asymmetry appears to contradict the broader spirit of Nepal's Securities Act, 2063. Sections 94, 95, and 96 of the Act explicitly categorize market manipulation, artificial price fluctuations, and fraudulent trading as punishable offenses, regardless of whether they are orchestrated by a buyer, a seller, or a third-party instigator. By focusing its regulatory lens solely on the exit strategies of large investors, the current framework mistakenly implies that market manipulation is exclusively a supply-side phenomenon.

Furthermore, financial experts point out a glaring loophole in the new directive regarding the "intent" to sell. The regulation requires shareholders to declare their intention to offload shares, but it does not legally bind them to execute the transaction. For instance, if a basic shareholder holding 10 percent of a company’s total shares formally announces a plan to sell a significant chunk, the psychological impact on the market is immediate. Fearing a massive oversupply, retail investors may resort to panic selling, driving the stock price down. If the major shareholder later decides to abandon the sale, they have successfully engineered a market crash without offloading a single share—a scenario that perfectly illustrates how the rule itself could be weaponized to manipulate market psychology.

To foster a genuinely transparent, fair, and stable capital market, regulatory authorities must address these structural discrepancies. A robust disclosure framework cannot operate in a vacuum where only market exits are monitored. For the market to function with absolute integrity, the regulatory net must equally encompass major acquisitions, ensuring that retail investors are protected from the hidden impacts of both artificial supply shocks and undisclosed massive demand.