SEBON’s Sweeping Overhaul: A Strategic Reset for Nepal’s Capital Market

Kathmandu — In what marks one of the most comprehensive regulatory interventions in recent years, the Securities Board of Nepal (SEBON) has unveiled a sweeping directive aimed at modernizing, securing, and bringing structural transparency to the country’s capital market. Encompassing key market infrastructure institutions, brokers, merchant banks, and listed corporations, the new policy framework addresses long-standing systemic vulnerabilities—ranging from cybersecurity loopholes and algorithmic trading risks to settlement delays and corporate governance gaps.

At the core of the regulatory push is a mandate for the Nepal Stock Exchange (NEPSE) to upgrade its digital architecture. With growing complaints regarding trading management systems (TMS), SEBON has ordered mandatory IT security audits and penetration testing across all platforms. More critically, the board has clamped down on unchecked algorithmic and artificial intelligence-driven trading, ordering the immediate identification and suspension of automated order flows until proper legal and technical frameworks are established. Measures to roll out mobile-based trading, enhance "After Market Order" (AMO) mechanisms, and ensure the unhindered availability of demo platforms reflect a concerted effort to broaden accessibility while tightening technological guardrails.

The directives also target long-overdue reforms in market measurement and settlement efficiency. SEBON has instructed NEPSE to move beyond traditional indexing by developing free-float-based benchmark indices, alongside specialized metrics like NEPSE-30 and High Cap indices, while reviewing existing circuit breaker limits and sensitive index calculations. Furthermore, to eliminate persistent logistical friction, CDS and Clearing Limited (CDS&C) has been tasked with implementing "Auto EDIS" via API integration, bridging the gap between TMS displays and actual depository holdings in real-time, and ensuring that the stringent $T+2$ fund settlement cycle is rigorously honored.

Brokerages and merchant institutions face heightened compliance burdens designed to protect retail investors. Stockbrokers are now strictly prohibited from commingling operational capital with client funds, requiring completely segregated bank accounts alongside mandatory grievance redressal units and regular financial literacy drives. Similarly, merchant bankers can no longer act merely as documentation conduits for Initial Public Offerings (IPOs); they are now held legally and professionally accountable for conducting rigorous pre-issue evaluations of a company's financial health and eliminating conflicts of interest.

Finally, the new rules introduce crucial transparency safeguards for corporate behavior and mutual fund operations. Promoters and major shareholders holding 5 percent or more equity are now legally bound to provide a 15-day advance notice before offloading substantial stakes, mitigating sudden supply shocks and information asymmetries for retail participants. Additionally, open-ended mutual funds must now publish daily Net Asset Value (NAV) and transaction breakdowns transparently. By coupling technological expansion with strict accountability, SEBON’s latest blueprint signals a decisive shift toward a mature, rule-bound, and investor-centric financial ecosystem.