NEPSE’s Rapid Growth, Regulatory Lag

Nepal Stock Exchange (NEPSE) has witnessed explosive growth in retail investor participation since 2020, yet the regulatory framework meant to govern it remains outdated and understaffed. The surge in trading volume has outpaced the oversight capacity of regulators like SEBON and NEPSE itself.

1. Outdated Legal Framework

NEPSE still operates under the Securities Act of 2006 and regulatory provisions that fail to cover modern trading practices like algorithmic trading, margin lending risks, or real-time surveillance. While digital platforms have evolved, the laws governing them have not.

2. Weak Enforcement and Zero Convictions

Insider trading, circular trading, and price manipulation are frequent topics of social media rumors, yet very few formal investigations lead to punishment. SEBON lacks technical manpower, forensic capabilities, and an autonomous enforcement wing — making deterrence practically non-existent.

3. Politicization of Institutions

Appointments to SEBON and NEPSE’s leadership are often politically motivated, prioritizing loyalty over expertise. Regulatory independence is compromised when oversight bodies are seen as extensions of political power, rather than neutral financial guardians.

4. Lack of Real-Time Monitoring

NEPSE’s technical infrastructure lacks real-time anomaly detection tools, circuit breaker transparency, and automated alerts for suspicious trades. This allows price manipulation — especially in illiquid stocks — to go unchecked.

Most interventions occur post-facto, often after investors have already suffered losses.

5. Weak Investor Protection Laws

Investors in Nepal have little to no protection against fraud or broker negligence. There are no formal class-action mechanisms, compensation funds, or arbitration structures. Retail traders are left to rely on social media “awareness” and informal networks for justice.

6. Conflict of Interest Within NEPSE

NEPSE operates both as a market facilitator and a profit-seeking entity — a dual role that inherently creates conflict. When revenue generation from transaction volume becomes the goal, there’s little incentive to slow down speculative or manipulative trading.

Conclusion: Time for a Capital Market Overhaul

NEPSE is no longer a niche market — it has become a national financial asset. But without regulatory modernization, investor trust will remain volatile and capital formation will suffer.

What Nepal needs is a comprehensive capital market reform strategy — one that includes legal updates, independent enforcement, real-time surveillance, and true investor protection mechanisms.