Basics of Securities Markets Nepalese Perspective 12.12.2022

WELCOME
TO
Basics of securities markets:
Nepalese perspective
- Nabaraj Adhikari, PhD
Executive Director Policy,
Research & Training Department, SEBON
Khumaltar, Lalitpur
All rights reserved.
Copyright © Nabaraj Adhikari
Coverage
0. Current macro-economic situation of Nepal
1. Financial system in Nepal
2. Major issues and challenges of financial system in Nepal
3. Introduction of securities markets
4. Significance of securities markets
5. Comparative advantages of securities markets
6. How is securities markets regulated?
7. Properties of financial systems
8. Principles of good regulation
9. The IOSCO objectives and principles
10. What do securities investors want?
11. Ingredients to a vibrant securities markets
12. Prominent features of best regulatory approach
13. Objectives of Nepalese securities laws
14. Structure of securities markets in Nepal
15. Primary securities market operation in Nepal
16. Merchant banking in Nepal
17. Secondary securities market operation in Nepal
18. Factors affecting stock price
19. Securities market trend for last 12 months
20. GoN’s policy & programmes of FY 2022.23
21. Way forward to reform & develop securities markets 2
22. Favourite
Copyright Buffet’s Quotes
© Nabaraj Adhikari
0.Current macro-economic situation of Nepal
 Fiscal year 2022/23, First Eight Months:
-GDP- Rs. 4851.6 Billion ( Fiscal year 2021/22 preliminary
estimate)- USA-$23 Trillion; China-$18 Trillion; $ 3 Trillion-5th
-Consumer Price Index (year on year price changes)= 7.44 %
- Export growth= - 29.1%
- Import growth = - 19.1%
- BOP(-Deficit) (Rs. in billion)= 148.1
-Current Account Balance (Rs. in billion) = - 44.3
-Workers' Remittances (Rs. in billion) = 794.3
Trade Balance (Rs. in billion)= - 953.6
- Gross Foreign Exchange Reserves (Rs. in billion) = 1401.2 sufficient for 9.4
months goods & services import and 11 months goods import.
- 91-day T-bills Rate* = 9.33**
- Revenue Growth (%) = - 14.9
Expenditure Growth (%) = 15.4
- Domestic Debt (Rs. in billion) = 1006.2
-External Debt (Rs. in billion) = 1027.3 as of Ashad end
- Internal Debt+ External Debt/ GDP ratio= 41.91%
1. Financial system in Nepal
Financial System in Nepal
Banks & Financial

Insurance Contractual
Securities Saving & Non-
Institutions-126-11528 Companies bank Financial
Cooperatives
Markets- 621 -40 Institutions
Commercial Bank Employees

(22-5,009) Stock Exchange (1) Provident
Life Fund, Saving &
Listed Companay (245) Insurance
Development Bank Citizen Credit
Merchant Banker (19)
(17-1,118) Investment Cooperatives
(30) Non-life (13,917)
Finance Company Insurance Trust,
(17-267) Mutual Fund (19) (19) NGOs
Deposit and
Microfinance Stockbroker (50) Reinsurance Credit permitted for
(64-5,134) limited banking
CSD(1),SD(1),CRA (3) (2) Guarantee
IDBank (1) transactions
DP (83), ASBA (48) Fund,
Hydroelectricity
Investment and Social Security (25)
QIB (131)PE/VC
Development Co. Ltd.
Fund Manager(9) Fund, Postal
(HIDCL-1) Saving Bank
 The financial system is the collection of markets, institutions, laws, regulations,

and techniques through which bonds, stocks, and other securities are traded,
interest rates are determined, and financial services are produced and delivered
around the world.
 ‘A well-functioning financial system is a key enabler for the mobilisation of private
4
investment and driver of economic activity’.
1. Financial system in Nepal, contd.
 US financial system is the most developed financial system in globe. The
US Dollar continues to play a dominant role in financial flows. As per the
report by the Bank for International Settlements 2020, ‘around half of all
cross-border bank loans and international debt securities are denominated
in U.S. Dollar’, around 60% of the world’s official foreign exchange reserves
are in dollars, and around 85% of foreign exchange transactions involve the
dollar against some other currency.
 The Federal Reserve has become in effect the world’s central bank: When
the Fed raises rates aggressively, as it’s doing now, other central banks
tend to follow suit. There are many more than 100 currencies, but many of
them are pegged in one way or another to the dollar.
 As per the Financial Stability Report published by Nepal Rastra Bank in
mid-July, 2021, out of total assets of financial system, 79.99 percent has
been covered by BFIs (66.31 percent by commercial banks, 6.38 percent by
development banks, 1.55 percent by finance companies, 0.30 percent by
Infrastructure Development Bank, and 5.45 percent by micro-finance
institutions licensed by Nepal Rastra Bank-the Central Bank), the insurance
companies has covered 6.64 percent and reinsurance company has covered
0.36 percent, EPF has covered 5.44 percent, CIT has covered 2.42 percent,
and Mutual Funds has covered 0.30 percent) and the remaining 4.69
percent has covered by cooperatives.
 The ratio of total assets of the financial system to GDP has been
continuously increasing over the past years, and it reached to 191.61
percent in mid-July 2021.
 The ratio of deposits and credit of financial system to GDP
111.10 percent and 97.85 percent respectively in Oct.16, 2021;
and the size of Nominal GDP was NRs.4266322 millions as of
mid-July 2021. This indicates that there is a challenges to the
Government and financial system authorities to chanallise the
funds collected by banks & financial institutions to the
productive sector of the country to minimise the risk that may
arise from the financial system.
 Out of 753 local Governments, as of date 752 local Governments
have the branches of banks and financial institution.
 Sixty one percent of the total population has account at banks
and financial institutions.
 In the securities markets, primary market is accessible to all 77
districts of the country and the access of secondary market has
been increasing with the implementation of online trading
system.
 Number of Mero Share Users is 4.43 Million; and a total of 5.34
Million demat account has been opened till date and a total of
8.85 Billion shares are in demat form as of today (18 th August,
2022).
6
 The ever highest NEPSE index is 3199.03 points on August 18,
2021.
 Margin Loan against shares is Rs.91.42 Billion- Loan above Rs.
10 Million is Rs.55.09 Billion (till mid-May 2022)
 Contribution made by securities markets to the GoN revenue in
the form of capital gain tax in the FY 2077.78 and in the FY
2078.79 till Jetha 17 were Rs.15.54 billion and Rs11.03 billion
respectively.
 In the insurance sector, 23 (41.20)%(including foreign
employment insurance) of the total population have insurance
policy.
 Many of the experts of Nepal have opined that there is about
40% shadow banking activities in Nepal.
 The reporting made by FIU in the FY 2078.79 states that the
complaints relating to suspicious transactions relating with Anti-
money laundering and financial frauds increased by 81.34% as
compared to the FY 2077.78 as it was 1533 STRs and Suspicious
Activity Reporting-SAR in that year which was increased to 2780
(85.61% reported by CBs) in the FY 2078.79. This statistics also
substantiates that informal financial activities have been
increasing in Nepal.
2.Major issues and challenges of financial system in Nepal
 Maintaining stability
 Increasing productive sector lending
 Increasing financial access and inclusion
 Promoting good governance practices
 Enhancing supervisory capacity and market monitoring, and
enforcement
 Reducing shadow banking activities
 Increasing capital base of BFIs, so that they can finance big projects
 Improving the level of interbank practices and money markets
 Diversifying financial products / instruments
 Promoting financial literacy and awareness
 Removing the structural deficiencies in the securities markets
 Developing the state-of-the-art market infrastructures
 Attracting the real sector companies and institutional investor in the
securities markets
 Formulating a proper regulatory framework for commodity derivatives
markets
 Enhancing the international networking and cooperation
 Preparing a proper regulatory framework for NBFIs-contractual saving
institutions

3. Introduction of securities markets
 Securities market which deals with securities such as stocks and
bonds, is associated with financial resource mobilisation on long-
term basis.
 It offers a variety of financial investments that enable economic
agents to pool, price and exchange risk.
 It is the heart of any economy through which the savings are
channelised into effective long-term investments.
 It is the best mechanism of pricing and valuation of quality,
corporate performance, good governance, private spirits and
entrepreneurship, and innovation.
 Bernard Arnault with the networth of $185.8 B currently has been
the richest person in the globe. He is the chief executive of luxury
brand Louis Vuitton's parent company LVMH (Moët Hennessy Louis
Vuitton), and the 5th richest person is Warren Buffett: $106.8 B.
 The biggest source of fund raising for productive purposes- the
Soudi Oil Company Aramco’s IPO of US $25.60 billion in 2019 was
the largest in history of securities markets.
 Higher productivity growth, higher real-wage growth, greater
employment opportunities, greater macroeconomic stability and
greater homeownership are the five superior performance in the
countries with the good securities market environment.
9
3. Introduction, contd.
 Difference between Primary and Secondary Market is:
 In Primary Market securities are offered to public for subscription
for the purpose of raising capital or fund.
 Secondary Market is an equity trading venue in which already
existing/pre-issued securities are traded among investors.
 Research studies have proved that the equities have
outperformed most other forms of investments in the long
term.
 Research studies have proved that investments in some shares
with a longer tenure of investment have yielded far superior
returns than any other investment.
 Functions of securities markets
 Provide liquidity and marketability of securities,
 Facilitate for fair price determination,
 Act as a source of long-term funds,
 Help in capital formation- Creation of savings,
Mobilisation of Savings; Investment of Savings ,
 Reflect general state of economy and business
condition-acts as barometer of the economy. 10
4.Significance of securities markets
 Securities market reconciles the three basic mismatches
Companies (Fund users) Mismatches Investors (Fund providers)
Raise large funds Amount Invest small funds

Permanent capital Duration Easy exit/liquidity
Low cost Cost/return High return
High Information Low
 Increases public ownership in industrialisation and basic
infrastructure development of the country.
 Essential mechanism for the trading and pricing of
financial instruments.
 Helps to reduce assets mis-match problem & interest
volatility, and enhance financial stability.
 Supports to have integrated and balanced development of
Financial markets.
 An efficient securities market is a barometer of the
economy and is the key to good corporate Governance.
 The securities market ensures price transparency, liquidity,
price discovery, and fair dealings in trading activities. 11
4.Significance of securities markets, contd.
 The securities market is a component of a free-market economy. It
allows companies to raise money by offering shares, debenture, etc.
and allows investors to participate in the financial achievements of the
companies, make profits through capital gains, and earn income
through dividends or interest.
 The securities market works as a platform through which savings and
investments of individuals are efficiently channeled into productive
investment opportunities and add to the capital formation and
economic growth of the country.
 An efficiently functioning securities market is considered
critical to economic development, as it gives companies the
ability to quickly access capital from the public.
 Vibrant securities markets: Provide better returns for
savers/investors; Enables more and efficient capital allocation;
promotes transparency and valuation of new areas of economic
opportunity; Reduces systemic risk-as equity acts of buffer to
economic shocks; All translate into increased economic growth
and economic opportunity.
 Securities markets are vital to the growth, development and
strength of market economies. They support corporate
initiatives, finance the exploration of new ideas and facilitate
12
the© management
Copyright Nabaraj Adhikari of financial risk.
5.Comparative advantages of securities markets
 Developed securities market contributes to economic growth
by:
• Lowering the cost of capital.
• Leading to a more efficient allocation of capital, and
• Reducing systemic risk.
How?
 By generating higher returns for investors
• Through projects that would not have been financed by
banks but where the return justifies the risk
 By presenting a more efficient engine for raising capital (from
a wider audience) for certain types of projects (especially
large aggregations of capital)
• But they also facilitate capital intermediation between large
and small enterprises
 By creating equity ‘buffers’ (as opposed to debt) that reduce
systemic risk
 By facilitating the privatisation of state owned enterprises,
when this is more efficient
 By de-regionalising the flow of capital to business enterprises
away from a given depository base. 13
6.How securities markets are regulated?
 Most nations have a securities market, and each is
regulated by a local financial regulator or monetary
authority, or institute. The SEBON is the regulatory body
charged with overseeing the Nepalese securities market.
 The SEBON is a federal agency that works independently
of the government and without political pressure.
 The objective of the securities market regulation or the
mission of SEBON as stated in Securities Act, 2006 is
“protecting investors, maintaining fair, orderly, and
efficient markets, and facilitating capital formation.”
 Companies listed on the securities market exchanges are
regulated, and their dealings are monitored by the SEBON.
In addition, the exchanges set certain requirements such
as mandating timely filing of quarterly financial reports
and instant reporting of relevant corporate developments,
to ensure that all market participants are equally
informed.
 Failure to adhere to the regulations can lead to
suspension of trading and other disciplinary measures.14
7.Properties of financial systems
---------------------------------------------------------------------------------------------------------------------
Bank-based Market-based
---------------------------------------------------------------------------------------------------------------------
 Share of control-oriented finance High 　 Low
 Financial markets Small, less liquid Large, highly liquid
 Share of all firms listed on exchanges Small Large
 Ownership of debt and equity Concentrated Dispersed
 Investor orientation Control-oriented Portfolio-oriented
 Use of mechanisms for separating Frequent Limited
control and capital base
 Dominant agency conflict Controlling vs. Shareholders vs

minority shareholders managers
 Role of board of directors Limited Important
 Role of hostile take-overs Very limited potentially important

--------------------------------------------------------------------------------------------------------
Source: Bergl¨of (1997), pp. 93–123, Table 1. 15
8.Principles of good regulation
Regulations are necessary, and should be fair,
effective, affordable and enjoy a broad degree of
public confidence.
 Proportionality-Regulators should only
intervene when necessary. Remedies should be
appropriate to the risk posed, and costs
identified and minimised.
 Accountability-Regulators must be able to
justify decisions, and be subject to public
scrutiny.
 Consistency-Government rules and standards
must be joined up and implemented fairly.
 Transparency-Regulators should be open, and
keep regulations simple and user-friendly.
 Targeting-Regulation should be focused on the
problem,
and minimise side effects. 16
9.The IOSCO & its objectives and principles
 IOSCO is the leading international policy forum for securities
regulators and is recognized as the global standard setter for
securities regulation. The organisation's membership regulates
more than 95% of the world's securities markets in some 130
jurisdictions, and it continues to expand.
 The IOSCO Board is the governing and standard-setting body of IOSCO and is
made up of 35 securities regulators. Mr. Jean-Paul Servais, Chairman of the
Belgium’s Financial Services and Markets Authority (FSMA) is the Chair of the
IOSCO Board. The members of the IOSCO Board are the securities regulatory
authorities of Australia, Bahamas, Bangladesh, Belgium, Brazil, China, Egypt,
France, Germany, Greece, Hong Kong, India, Ireland, Italy, Japan, Korea,
Kuwait, Malaysia, Mauritius, Mexico, Morocco, the Netherlands, Oman,
Ontario, Peru, Quebec, Saudi Arabia, Singapore, Spain, Sweden, Switzerland,
Türkiye, the United Kingdom and the United States of America (both the U.S.
Commodity Futures Trading Commission and the U.S. Securities and
Exchange Commission). The Chair of the European Securities and Markets
Authority and the Chair of IOSCO´s Affiliate Members Consultative Committee
are also observers.
 IOSCO aims through its permanent structures:
 to cooperate in developing, implementing and promoting
internationally recognized and consistent standards of
regulation, oversight and enforcement to protect investors,
maintain fair, efficient and transparent markets, and seek
17 to
Copyright address
© Nabaraj Adhikarisystemic risks;
9.The IOSCO & its objectives and principles, contd.
 to enhance investor protection and promote investor
confidence in the integrity of securities markets, through
strengthened information exchange and cooperation in
enforcement against misconduct and in supervision of
markets and market intermediaries; and
 to exchange information at both global and regional levels on
their respective experiences to assist the development of
markets, strengthen market infrastructure and implement
appropriate regulation.
 IOSCO objectives and principles are accepted as the
international standard for securities regulation
 Core objectives
 Protection of investors
• From misleading, manipulative or fraudulent practices, including
insider trading. Ensuring full disclosure of information material to
investors’ decisions. Exercising adequate supervision and
enforcing the rules effectively.
 Ensure fair, efficient and transparent markets
• Ensuring fair competition in the operation of markets. Ensuring
timely and widespread dissemination of trading information. 18
9.The IOSCO objectives and principles, contd.
 Reduce systemic risks in the financial system
• Reduce the risk of failure of intermediaries. Knowing at
all times the risks undertaken by firms and ensuring
that they have adequate systems to manage risks.
Ensuring that there are workable procedures to isolate
single failure from contaminating the whole financial
system.
 The principles are based on three fundamental objectives of
securities regulation which cover areas relating to:
- Regulators
- Self regulation
- Enforcement and cooperation
- Issuers and information service providers
- Collective investment schemes
- Market intermediaries
- Secondary markets
 38 principles earlier – added 8 principles in June 2010 based
on the lessons learned from the financial crisis and
19
subsequent
changes in the regulatory environment.
10. What do securities investors want?
 To be in a position to choose-in an informed fashion- to be
exposed to the potential returns and risks peculiar to
particular investments,
 And to obtain (or divest) those investments at ‘efficient’ or
fair prices, with reasonable transactions costs, pursuant
to honest investment advice based on research.
 Without (or with minimal exposure to:
 Insider trading
 Market manipulation
 Offering fraud
 Financial fraud
 Expropriation of invested funds
 Abuse by majority shareholders or managers
 Excessive charges on entering or exiting the markets
 Customer Abuse by broker dealers and other
intermediaries
 systemic risk and market collapse.
20
11.Ingredients to a vibrant securities markets
 Effective enforcement
 Quality disclosure and financial reporting standards-
Quality auditing
 Quality corporate governance regime
 Access to fair, orderly, transparent and liquid marketplace
in which transaction costs are low or at least moderate-
Regulation of market intermediaries; Inspection of market
intermediaries; Cost justified statutes and regulations
 Quality investment analysis, quality (i.e., sophisticated)
investors and Quality credit rating services
 Relative capital mobility (Without fear of expropriation)
 International enforcement cooperation
 Buy-in, assistance and compliance from the securities and
investment industry
 Sound and economic judicial system or dispute resolution
mechanisms, with private causes of action for securities
violations
 High quality, well-trained, honest regulatory staff 21
12.Prominent features of best regulatory approach
 Tough enforcement, layered with administrative,
civil and criminal actions- More deterrence than
monitoring
 Self-regulation
 Disclosure-based (not ‘merit based’)
 Reliance on market mechanism and private
contracting
 Standardised, comparable financial reporting
 No ‘insuring’ by government for impact of bad
investment decisions
 Regulation of broker-dealers, exchanges,
investment companies
 One size doesn’t fit all
 Transparent rulemaking
22
13. Objectives of Nepalese securities laws
 Regulate the issue and trading of
securities.
 Protect the legal rights of investors.
 Develop the capital market to mobilise
necessary capital for the economic
development of the country.
 Promote the development of a broad-
based economy.
Implicit throughout provisions under
Securities related Act, 2006 is the
belief that regulation should facilitate
capital formation and economic growth. 23
14.Structure of securities market in Nepal
Securities Board of Nepal (SEBON)
Offers an advice to GON; Systematise the issue, transfer, sale
and exchange of registered securities; and regularise and
systematise the activities of stock exchange and securities
businesspersons in order to protect the interest of investors.
Primary market Other market

–Issuing companies Secondary market infrastructures
–Merchant bankers: 31 –Nepal Stock Exchange –Mutual funds:16
Issue managers, Ltd. (NEPSE) –Central Securities
Underwriters, -OTC market Depository (CSD)
Investment advisors –Stockbrokers –Depository
participants
Fixed pricing –Listed companies
–Credit rating
Generally Merchant bankers
agency, CRA
Portfolio managers,
oversubscription -Application
Share registrars
Supported by
Blocked Amount,
Copyright © Nabaraj Adhikari ASBA 24
15. Primary market operation in Nepal
 Regulator-SEBON –the main regulator of financial
markets–all exchanges, market participants have
to be registered with the SEBON and abide by its
regulations.
 Reviews the prospectus, approves the issue and
licenses the merchant bankers.
 Follows the disclosure based regulatory approach:
the purpose of reviewing the prospectus is to
make the prospectus self explanatory and more
comprehensive so that investors can make
informed decisions.
 SEBON! not concerned with the investment value

of the securities being issued, only with the
presentation of complete and accurate
information regarding the securities. 25
15. Primary market operation in Nepal, contd.
 Issue types-IPOs, Rights issue, Secondary offering,
Private placement, Bonus share issue, & FPOs
 Mechanism-Manual and fixed pricing (premium with cap.)
 Major means-Prospectus, offer documents, circular, and
provisions and particulars
 Merchant banker- Issue manager & underwriter
 Obtain notification in writing from NEPSE certifying the
securities to issue are qualified to be listed on the bourse
 Issue details prospectus approved from SEBON
 Securities registration at SEBON
 Prospectus registration at CRO and specific regulator-
NRB/IB; Get underwritten at least 50% of IPO and in case
NW is less than 100, premium issue(IPOs two time of NW
and FPOs one time of NW) and lowest rating, 100% of the
issue should be underwritten
 Selection & finalisation of CC
 Finalisation of issue open date
26
15.Primary market operation in Nepal, contd.
 Allotment of min. stipulated shares to be made,
i.e., 10 shares to each applicant. Fraction, convert
into upper whole
 Staff allotment: Company to allot the same &
notify SEBON via Issue Manager. Lock-in period of
3 years to be affixed on such share certificates
 Notify SEBON at least 3 days in advance from
allotment day
 Notify NEPSE & investors within 3 days from
allotment
 For inconvenience due to practical reasons, apply
to SEBON for required assistance
 Transfer of ASBA-blocked funds to the issuing
company and release the amount applied for non-
allotted shares.
 Listing of securities (ap. within 30 days of
allotment) at Stock Exchange
 Handling issue related grievances 27
16.Merchant banking in Nepal
 Merchant Banker -- Issue
advisor/Underwriter/Registrar to the
Issue/investment advisor/portfolio manager that
help sale and buy securities as well as make
portfolio of securities.
 Play the most vital role amongst all
intermediaries. They assist the Company right
from preparing prospectus to the listing of
securities at the stock exchange.
 Merchant bankers have to satisfy themselves
about the correctness and propriety of all the
information provided in the prospectus.
 It is mandatory for them to carry due diligence for
all the information provided in the prospectus and
they must issue a certificate to this effect to
SEBON.
28
17.Secondary market operation in Nepal
 Regulator-SEBON
 NEPSE-Operate trading floor- Provide
liquidity/Pricing to the listed securities by following
a set of rules and procedures designed to impart
maximum competition and transparency to the
process.
 Automated trading system and manual clearing and
settlement system
 Order registration, Order driven, Price/Time priority
 Securities businesspersons-Stockbrokers, portfolio
manager, share registrar
 Stockbrokers-Agents/Players
 Order driven- Order is given by the investors either
to buy or sell the securities, the order must be at
specified quantity either to buy or sell the
securities at fixed price, price in range or market
price. 29
17. Secondary market operation, contd.
• After receiving the order the brokers place
the order in the order entry form of the
automated trading system for trading.
 Price fluctuation limit
5% for the opening transaction and 2% for
successive transaction on either way till it
reaches to 10% of the previous close in case
of Shares while in case of Bonds or
Debentures, the limit is 0.2% for the opening
transaction and 0.1% for successive
transaction.
 For a given stock, price can go up and down
maximum of 10 % from previous close price.
30
 Order execution
This represents the phases of trading when to
execute the order. There are three phase during
which the broker can place the order to execute
the transactions. Such phases are
 At the opening, ATO

At present NEPSE has set 10:30 a.m. to
10:55 a.m. during which brokers can place
ATO orders. The engine calculates the
best price and matches the order at 11:00
a.m. i.e. when market opens. In this case
price can be quoted within the range of 5
percent of previous close. 31
 Order execution, contd.

 Continuous trading, CT
This is the phase that indicates the
orders should be executed while the
market is in progress and the price can
be quoted within the range of 2 percent
of previous traded price.
 At the closing, ATC
The LTP (Last Traded Price) of the stock
at close is the ATC price or closing price.
32
 Retain until
Client/customer can give order to retain until the
specified period as below unless it is executed.
 End of day, EOD
This indicates the placed orders if not executed
should be retained until end of today.
 Good till cancelled, GTC

This indicates the placed orders if not executed
should be retained until it is cancelled.
Each and every order entered should be backed by
written order. In those orders the clients must
specify the validity period of the orders but, if they
do not mention the time period, the order will be
valid for 15 days. In this case GTC will be 15 days.33
 Circuit breaker or market halt
 Volatility in stock prices is a cause of concern for both the
policy makers and the investors.
 To curb excessive volatility, NEPSE has prescribed a system
of circuit breakers.
 NEPSE has implemented index-based circuit breakers with
effect from Sept 21, 2007. The index-based circuit breaker
system applies at 3 stages of the NEPSE index movement on
either way by 3%, 4% and 5% which is recently in 2019
changed to 4% (1st hour of trading, trade halted for 20
minutes), 5% (2nd hour of trading, trade halted for 40 minutes)
and 6% (trading halted for remaining trading time). These
circuit breakers when triggered bring about a trading halt in
all equity.
 Clearing and settlement
• T+2, Settlement for shares, preferred stock, and mutual funds
• T+0, Settlement for Government Bonds and Debentures
• Manual clearing and settlement system- trade by trade
settlement-no netting system
34
• The trading is done at ‘T’ and at T+1, the
buying brokers have to submit bank vouchers
for settlement with covering letter.
• At T+2, the selling brokers must submit
sale slip with covering letter.
• If the vouchers/documents are not

submitted by the brokers at NEPSE by T+2
then that broker company’s transaction is
blocked on T+3 till the pending
vouchers/documents are submitted.
• At T+2, NEPSE prepares billing for payment
and this will be forwarded to the bank.
35
 Index and its calculation
• A stock index or securities market index is a
measurement of the value of a section of the securities
market. Stock Index shows composite movement of the
listed companies for the particular period of time. It is
computed from the prices of selected
securities(typically a weighted average).
• In order to calculate NEPSE index, the outstanding shares
of traded companies is considered and is multiplied by the
respective closing price. The value of all traded shares is
summed to find the total value. The total value divided by
the base price and multiplied by 100.
NEPSE Index =
• The numerator is today’s market value

• The denominator is base value
• Base date is Feb 12, 1994. 36
 Index calculation, contd.
 Base value adjustment
In practice, the listed company may
increase its capital either by issuing rights
shares or bonus shares or making
additional issues and in sometimes NEPSE
may delist the listed securities. In such
case base value needs to be adjusted to
reflect the true performance of the market.
 The adjusted base value is
= New Market Value * Base Value before any change
Previous Market Value (Old)
37
An example of base value adjustment
Market value on Dec.4, 2022 was Rs.36,00,000 million
Base value was Rs.22,00,000 million
Case : Dec 5, 2022, a new company listed its shares of
Rs.1,000 million
 Index calculation, contd.
Adjusted Base Value= New Market Value * Base Value before new listing
Old Market Value
= Old Market Value +Amount of New Listing * Base Value before new listing
Old Market Value
= Rs.36,00,000 million+Rs.1,000 million* Rs. 22,00,000 million= Rs. 22,00,611.11 million

Rs.36,00,000
Dec 5, 2022 onwards, Rs.22,00,611.11 million will

be used as the base value to calculate the index
and it continues
till the next change. 38
 Presently NEPSE calculates the four types of Index
Base year
- NEPSE- All the listed stocks in NEPSE -Feb 12, 1994
- Sensitive index- Index from Group A -July 7, 2006
Companies stock trading
- Float- Index excluding promoters’ shares

trading of all the listed stocks -Sept 11, 2006
- Sensitive float- Index of Group A Companies

excluding the trade of promoters’ shares -Sept 11, 2008
Interpreting secondary market data as of 11 Dec, 2022:

• NEPSE index: 1,885.31 points -31.97
• Market turnover: Rs. 1,103.40 Million
• Total traded shares: 3.51 Million
• Total transactions: 24,644
• Total scrips traded: 253
• Total market capitalisation: Rs. 27.15 Trillion
• Total float market capitalisation: Rs. 11.63 Trillion 39
NEPSE had started the classification of listed companies
into Group ‘A’ and Group ‘B’ since fiscal year 1996/97
which was changed to the quarterly classification of ‘A”,
‘B’, ‘G’ and ‘Z’ (Four) Groups on October 15, 2018 with the
provision Rule 11 under the Securities Listing and Trading
Regulations, 2018 and Securities Listing Byelaws, 2018.
NEPSE classify listed companies into Group ‘A’ based on
the following criteria:
- Paid up capital should be at least Rs.1000 million.
- Listing of securities was made three years before.
- Should be in profits and dividend distributed in the last three
consecutive years.
- Have rated by Credit Ratings Agency average or above the
average.
- Should have financial statements in the formats/standards
specified by the Regulators.
- Have conducted AGM within the six months of the fiscal year end.
40
 NEPSE classify listed companies into Group ‘B’ based on the following
criteria:
- Paid up capital should be at least Rs.500 million.
- Listing of securities was made three years before.
- Should be in profits at least two years in the last three years.
- Have rated by Credit Ratings Agency one level below than the average.
- Have conducted AGM within the six months of the fiscal year end.
- Should not have accumulated loss.
 NEPSE classify listed companies into Group ‘G’ if the listed companies
have not completed two years after listing.
 NEPSE classify listed companies into Group ‘Z’ if the listed companies
have not been classified in any of the ‘A’, ‘B’ and ‘G’ Groups.
 Trading through NOTS:
 Contacting your Broker and update the KYC along with a valid e-mail address.
 Get the user ID and URL for TMS from the Broker
 Open the URL in any browser and click forget password.
 You will get an e-mail with the password reset.
 Click on Reset password.
 You will get e-mail after successfully changing the password.
 Now login with your user ID and newly set password. You will get an OTP in your e-mail
after clicking submit button.
 Enter the OTP that you have got in mail and sign in.
41
18.Factors affecting stock price in secondary markets
Performance of
the company
Policy & Notice and
directives and information
regulation of the about the
regulator company
International Factors
markets, and
export and affecting Investor’s
important psychology
situation
stock price
Demand and
supply of Political and Banking
securities economic liquidity and
situation
interest rate
of the
country
42
19.Securities market trend for last 12 months
-The Turnover is highest in the month of Magh 2078 of Rs. 117899.08

million and lowest in the month of Asoj 2079 of Rs. 12263.95 million.
-The Average Daily Turnover is also highest in the month of Magh 2078 of
Rs. 6205.21 million and lowest in the month of Asoj 2079 of Rs. 817.6
million. 43
19.Securities market trend for last 12 months, contd.
Market Capitalisation
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
Manshir2078 Poush2078 Magh2078 Falgun2078 Chaitra2078 Baisakh2079 Jestha2079 Asar2079 Shrawan2079 Bhadra2079 Asoj2079 Kartik2079
Market Capitalization Market Capitalization of Sensitive
-The Market Capitalisation is highest in the month of Poush 2078 of

Rs. 4037127.22 million and lowest in the month of Asoj 2079 of
Rs. 2672791.2 million.
44
-NEPSE Index is highest in the month of Poush 2078 at 2857.75 points

and lowest in the month of Asoj 2079 at 1858.33 points.
-NEPSE Float Index is highest in the month of Poush 2078 at 196.98
points and lowest in the month of Asoj 2079 at 129.84 points.
NEPSE Sensitive Index is high in the month of Poush 2078 at 530.83
points and lowest in the month of Asoj 2079 at 365.63 points. 45
-IPO approved is highest in the month of Magh 2078 of Rs. 4.92

Billion and lowest in the month of Asoj 2079 of Rs. 0.18 Billion. 46
20.GoN’s policy & programmes of FY 2022.23
 Making more competitive secondary markets and its structure.
 Protecting the interest of general investors by expanding and
diversification also reducing the potential risk of the capital
markets.
 Developing legal provisions to open the secondary markets to
the NRN.
 Making provision to preserve 10 percent of the public offering
to the Nepalese persons working abroad.
 Commodity derivatives markets and its infrastructures will be
brought into operation.
 Developing debt markets by systematising the Corporate
debenture and bond markets.
 Operation license will be provided and facilitated to the private
equity and venture capital for promoting entrepreneurship and
innovation.
 The programmes will made in order to get listed by making IPOs
of shares by the public limited companies with the paid up
capital of Rs.1 billion or transaction amounting more than Rs.5
billion or using natural resources, government subsidized, tax
47
exempted companies.
21.Way forward to reform and develop securities markets
 Legal strengthening-Act with the provisions of independence &

encompassing provisions
 Building up supervisory capacity -in terms of human resource
and IT sophistication
 Developing secondary markets- in terms of infrastructures
and access
 Developing debt markets- clearing & settlement software
 Enhancing service scope of market intermediaries
 Facilitating real sector companies to entre in the
markets in order to expand and diversify their businesses
 Improving on corporate governance practices and
internal governance practices- of the regulator and market
operator
 Improving disclosure practices- of listed companies & the
market participants
 Improving in data management system, market
investigation, and enforcement
 Institutional arrangement for investor education and
professional
capacity build up 48
22.Favourite Buffet’s quotes
1.
Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
2.
Investing is laying out money now to get more money back in the future.
3.
Never invest in a business you cannot understand as risk comes from not knowing
what you're doing.
4.
I put heavy weight on certainty. It's not risky to buy securities at a fraction of what
they're worth.
5.
If a business does well, the stock eventually follows.
6.
Time is the friend of the wonderful company, the enemy of the mediocre.
7.
All there is to investing is picking good stocks at good times and staying with them
as long as they remain good companies.
8.
Wide diversification is only required when investors do not understand what they are
doing as diversification may preserve wealth, but concentration builds wealth.
9.
You are neither right nor wrong because the crowd disagrees with you. You are right
because your data and reasoning are right.
10.
The best business returns are usually achieved by companies that are doing
something quite similar today to what they were doing five or ten years ago.
49
23.How to be a smart investor?
Invest with long horizon-Short-term investments in the securities
market can result in big losses, and losses become less and less
frequent, the longer the time horizon of the investment.
Invest in stocks of secondary markets having low P/E Ratio that is
see the potential, not the current value of a stock.
Invest in new and emerging companies with the business growth
scope in the primary & secondary markets
Pay more attention to long-term trends rather than short-term
movements.
Note that there is positive relationship between banking liquidity and
stock price and negative relationship between banking interest rate and
stock price.
See web-sites of SEBON, NEPSE, Insurance Board, Nepal Rastra Bank
and Ministry of Finance, as well as go through major daily newspapers
to know new policy, directives, changes in business scope and price
sensitive information.
Diversify & find the right time to buy and sell. When the return on an
investment reaches the target you set, cash out. Don’t be greedy.
Don’t show herd instinct or irrational exuberance while involving in
securities transaction, rather make required decisions based on facts,
figures and intuition as there is limit of everything.
50
Learn fundamental and technical analysis.
Assignments
1. What do you mean by financial system? Why do we need the financial
system?
2. What is the structure of Nepalese financial system? Describe its
components.
3. What are the issues and challenges of Nepalese financial system?
4. Securities market is an essential aspect of economic development.' Discuss.
5. Why do you think stock market needs to be regulated? Explain the attributes
of good regulation.
6. Illustrate the securities markets structure in Nepal.
7. Discuss the details of operational procedure of primary securities markets in
Nepal.
8. Explain the secondary securities markets operational procedure in Nepal.
9. What are the major issues and challenges in developing securities markets in
Nepal?
10.Out of the two elements of securities markets, which element is more
problematic in Nepal? Give your arguments.
11.Do you think Nepal is underdeveloped due to the poor level of securities
market development? If yes, suggest the measures to develop the securities
markets in Nepal.
12.How does one can be a smart investor in Nepalese securities markets?
Good Luck!
Copyright © Nabaraj Adhikari 51

Basics of Securities Markets Nepalese Perspective 12.12.2022

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Basics of Securities Markets Nepalese Perspective 12.12.2022

Uploaded by

Copyright:

Available Formats

WELCOME

Banks & Financial

Commercial Bank Employees

 The financial system is the collection of markets, institutions, laws, regulations,

Copyright © Nabaraj Adhikari

Raise large funds Amount Invest small funds

 Dominant agency conflict Controlling vs. Shareholders vs

 Role of board of directors Limited Important

 Role of hostile take-overs Very limited potentially important

Primary market Other market

 SEBON! not concerned with the investment value

 At the opening, ATO

 Order execution, contd.

 Good till cancelled, GTC

• If the vouchers/documents are not

• The numerator is today’s market value

= Rs.36,00,000 million+Rs.1,000 million* Rs. 22,00,000 million= Rs. 22,00,611.11 million

Dec 5, 2022 onwards, Rs.22,00,611.11 million will

- Float- Index excluding promoters’ shares

- Sensitive float- Index of Group A Companies

Interpreting secondary market data as of 11 Dec, 2022:

-The Turnover is highest in the month of Magh 2078 of Rs. 117899.08

Market Capitalization Market Capitalization of Sensitive

-The Market Capitalisation is highest in the month of Poush 2078 of

-NEPSE Index is highest in the month of Poush 2078 at 2857.75 points

-IPO approved is highest in the month of Magh 2078 of Rs. 4.92

 Legal strengthening-Act with the provisions of independence &

You might also like