The Securities Board of Nepal (SEBON) has issued a broad set of directives aimed at strengthening, modernizing and improving the transparency and reliability of Nepal’s capital market.

The directives form part of the continued implementation of the Capital Market Development Roadmap, 2083, as well as the capital-market policies and programs for the current fiscal year 2083/84. The measures cover market infrastructure, trading systems, investor services, settlement, disclosure, brokerage operations and investor protection.

The directives apply to major institutions across Nepal’s securities market, including the Nepal Stock Exchange (NEPSE), CDS and Clearing Limited (CDSC), securities brokers, merchant bankers, mutual fund scheme managers, depository participants and listed companies.

SEBON said the directives have been issued under the authority provided by Section 84(1) of the Securities Act, 2063, with the broader objective of protecting investors and modernizing the securities market.

NEPSE trading system to undergo IT audit and VAPT

SEBON has instructed NEPSE to conduct an IT audit and Vulnerability Assessment and Penetration Testing (VAPT) of its Trading Management System (TMS) and submit the reports to the board.

NEPSE has also been directed to identify existing problems in the NEPSE Online Trading System (NOTS) and take measures to make the trading platform more modern, efficient and reliable.

The directives come as the reliability and performance of Nepal’s trading infrastructure remain important for investors, brokers and other market participants.

AI-based order entry suspended

SEBON has also addressed the growing use of artificial intelligence in securities trading.

NEPSE has been directed to suspend AI-based order entry until international practices and Nepal-specific requirements concerning the technology are studied. NEPSE has also been instructed to inform investors about the decision.

The move indicates that the regulator wants the use of AI in securities trading to be assessed from the perspective of market integrity, investor protection and operational risks before such systems are widely implemented.

Mobile trading, AMO and C-KYC integration

SEBON has directed NEPSE to facilitate secondary-market trading through mobile applications and improve the effectiveness of the After Market Order (AMO) system.

NEPSE has also been instructed to integrate the Centralized Know Your Customer (C-KYC) system with TMS, with the objective of making account and investor-related processes more efficient.

The board has further asked NEPSE to develop additional market indices, including the NEPSE 30 and NEPSE High Cap indices, and establish a system for calculating indices based on free-float shares.

Auto EDIS and real-time settlement reconciliation

To make post-trade processes easier for investors, CDSC and TMS have been directed to establish API integration and implement an Auto EDIS system.

The proposed system is expected to reduce the need for investors to manually complete the EDIS process after selling shares.

CDSC has also been instructed to provide investors with immediate mobile push notifications relating to IPOs, bonus shares, rights shares, settlements and demat debits.

SEBON has additionally directed the relevant authorities to establish real-time reconciliation to address discrepancies between DP holdings displayed in TMS and the actual holdings recorded by CDSC.

The board has also asked relevant authorities to study existing issues surrounding the trading of fractional shares and submit recommendations for resolving them.

New requirements for securities brokers

SEBON has directed securities brokers to strictly maintain separate bank accounts for clients’ funds and the brokers’ own funds.

Brokers have also been instructed to establish a dedicated grievance-handling unit to address investor complaints.

Details of complaints received and their resolution must be submitted to SEBON within three working days after the end of each month.

The board has also directed brokers and NEPSE to ensure effective implementation of arrangements that allow investors to receive their funds within the T+2 settlement period.

Merchant bankers and IPO applications

Merchant bankers have been instructed to ensure that no conflict of interest arises while providing securities issuance-related services.

SEBON has also made it mandatory to attach an audit report when submitting applications for new IPO issues.

The requirement adds another layer of documentation to the IPO application process and is intended to strengthen transparency and oversight during securities issuance.

New disclosure requirement for major shareholders

SEBON has introduced a new requirement for major shareholders of listed companies.

Any promoter or major shareholder holding 5% or more of a company’s shares must notify the concerned company at least 15 days before selling their shares.

The listed company must then make the information public through NEPSE.

The requirement is intended to improve transparency around potential share sales by significant shareholders and provide investors with advance information about such transactions.

Mutual funds face wider disclosure requirements

Mutual fund scheme managers have also been directed to improve the information available to investors through their websites.

They must publish approved scheme documents, details of daily sales and repurchases of units, Net Asset Value (NAV) and the number of unit holders.

The expanded disclosure requirements are aimed at giving mutual fund investors more timely information about schemes and their performance.

Monthly financial-literacy programs

As part of efforts to improve financial literacy and investor awareness, SEBON has instructed NEPSE, CDSC, securities brokers and merchant bankers to organize at least one financial-literacy program every month.

The programs are intended to improve investors’ understanding of Nepal’s capital market, securities trading and related investment processes.

Overall, the directives represent a wide-ranging regulatory push covering trading infrastructure, digital services, settlement systems, brokerage operations, shareholder disclosures, IPOs, mutual funds and investor education.

SEBON said the measures are expected to improve market transparency, investor protection, market infrastructure and investor confidence while supporting the modernization of Nepal’s capital market.

The full directives issued by SEBON are available through the board’s official website under its circulars section.