This digitalisation of NEPSE has unarguably brought some changes in the investment techniques of Nepali investors.

--BY ANUGYA RIJAL

The story of the securities market in Nepal officially began with the issuance of shares by Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. in 1937. The Companies Act of Nepal was introduced in 1964, which was followed by the issuance of the first government bond. The establishment of the Securities Exchange Center Limited in 1976 was the big step that led to the eventual formation of the Nepal Stock Exchange (NEPSE).

The main objective of the Securities Exchange Center was to facilitate and promote capital markets. It was solely responsible for the tasks such as brokering, underwriting, managing public issue, market making for government bonds and many other financial services. Nepal Stock Exchange (NEPSE) was then established under the Securities Exchange Act, 1983 and officially opened its trading floor on January 13, 1994. At present, NEPSE is the only secondary market for listed securities in Nepal. Its shareholder ownership structure comprises of the government, Nepal Rastra Bank, Employees Provident Fund, Rastriya Banijya Bank, Laxmi Bank Ltd, Prabhu Bank Ltd, and others.

The securities market of Nepal has gone through various changes since the day it opened its trading floor. The stock-market has progressed and grown since then with the establishment of more stock brokerage firms, credit rating agencies, merchant banks, investment firms, the Meroshare online platform and many more. From standing in long lines all day to apply for an IPO to sitting in the brokerage firm all day to make one’s orders, Nepali investors have been through it all. Managing the physical share certificates used to be a tedious yet a mandatory part of an investor’s portfolio management in the past. However, the stocks have now been fully dematerialized and the trading has become fully automated with the launch of the NEPSE Online Trading System (NOTS).

Although the online trading system was launched nearly two years ago, it picked up its pace since the enforcement of the nation-wide lockdown due to the Covid-19 pandemic. The pandemic made it impossible for those selective investors, who still preferred to visit the broker’s office even after the digitisation of the market. NEPSE has thus aided the investors, who did not have an online trading account previously by making the registration process fully online and also by publishing a user manual for the ‘trade management system’ website. Furthermore, NEPSE has issued a circular to all stock brokerage firms stating that all of the brokerage firms must make an arrangement for a Help Desk in order to assist the investors with any problems that may arise during online stock trading.

Stock-markets around the world have always been influenced by the sentiments and the psychology of the investors and this digitalisation of NEPSE has unarguably brought some changes in the investment techniques of Nepali investors. Niranjan Phuyal, assistant manager at NEPSE believes that the digitisation has definitely changed the investors and the market performance. “The volatility of the market has greatly increased as compared to the past,” he says, “Currently, there is a downturn in our economy and almost every sector is declining. However, the stock market has been experiencing positive changes.”

According to him, the online trading system is the sole reason for the uphill climb of the stock market. While most of the investors placed a maximum of one or two orders per day in the past, the online trading system has enabled them to easily place multiple orders. “There has been a change in the overall behaviour of investors. Due to the convenience of placing orders, they are now investing their spare money in the stock market,” he expresses, “The daily average market turnover in the past used to be around Rs 250 million at the maximum which is Rs 2 billion now. This indicates the huge change in the activities of investors and the market since its digitisation.” He further claims that the digitisation has not just impacted the market volume but also the market coverage. “Such transactions aren’t limited within the boundaries of Nepal anymore. We have observed digital transactions happening from countries such as Kuwait, Hong Kong, United States and Australia too,” Phuyal notes.

Binu Agrawal, the Chairman of Sumeru Securities Pvt Ltd also believes that there have been some noticeable changes in the investors since the digitisation of the stock market. “The online trading system has given a new sense of power to the investors. They used to be fully dependent on the brokers to carry out their trades,” she says, “Being able to quote your desired price to the secondary market is the most powerful thing for an investor.”

Agrawal further says that digitisation of stock trading has added more players to the market. “The digitisation didn’t just make things convenient for the secondary market. The launch of Meroshare platform has made things much more efficient for the primary market too. Investors had to spend almost a whole day trying to apply for an IPO and then visit the brokers office to trade in the secondary market,” she says. “Now, all of this can be done from the comfort of their own homes or while sitting in their offices. This level of convenience and the lockdown has played a huge role in the increase of the number of participants in the stock-market.” Furthermore, the issuance of multiple IPOs during the lockdown also encouraged people to sign up for the online trading account in order to reap the multifold gains on their investments.

Phuyal of NEPSE also emphasises that the brokers now have no control over the market now and the full power rests in the hands of the investors. “Digitisation has increased the sensitivity of the market. The circuit breakers that have happened recently are the result of the digitisation of the stock market. If the orders were in the hands of the brokers instead of individual investors, perhaps this would not happen. Digitisation has brought a swing to the market, led by each individual investor’s behaviour and sentiments,” he says, “In addition, it has also fully minimised the possibility of manipulation of the market by any individual or a broker.”

Rachit Agrawal, executive chairman at Investment Management Services Pvt Ltd believes that digitisation has brought lots of significant changes in the overall functionality of the capital market. “Earlier there used be so much manual as well as clerical level work, which required unnecessary manpower involvement be it share name transfer work or signature verification work, share pledged work, etc.” he says, “Also, even the Nepalis residing abroad can trade in NEPSE now, which was just a dream pre-digitisation.”

SEBON has also been adapting to the gradual advancements in order to properly monitor and regulate the stock market. Niraj Giri, the executive director of SEBON says that the investors are still getting used to the online trading system. “Three months ago, there were only 30,000 investors who were using the online trading system but now that has increased to 80,000. The ones who have used this system have realised the ease with which they can place their order and the subsequent settlement once the trade is executed,” he says. He also believes that the trading has become much efficient than it used to be. “Decision making time has shortened due to the digitisation and thus the number of daily trades has vastly increased. It has also lowered the settlement cycle and hence there is an increase in the volume of the trade. People can now trade easily on the fourth day instead of ‘t+15’ like back when the settlement was physical,” he says. He adds that speculators have also entered the market thereby increasing the liquidity of the market.

Giri admits that there are some downsides to the digitisation of the stock market too. “The usage of technology has increased the intensity of regulation of the market. The more fintech is introduced in the market, higher is the risk. So as a regulator, we have to be more vigilant to ensure that the trade is fair and transparent,” he says, “We are currently in the process of having a digital market supervision system to monitor the market, as has been the practice of the developed markets. We have also amended several regulations and even put forward to the government our proposal to amend the current Securities Act.”

Another downside to the digitisation, as Phuyal notes is the chances of system failure. Investors have been observing some system glitches and errors in the recent days. Stock market is a very sensitive market and any flaws like these can lower the confidence and cause a behavioural change in the investors. “Yes, there are some bugs in our system that needs to be fixed,” he mentions, “However, even developed exchanges sometimes face similar problems. This is new software and it can’t be error-free at once. Remedying the software of bugs is a gradual process.”

In conclusion, the benefits of digitalisation of the stock-market vastly outweigh its downsides. It has been almost two years since the online trading system has come to operation and there have undoubtedly been lots of changes and amendments during this time. Similarly, the system will keep on updating and developing in the future. The journey of Nepali investors from standing in queues all day, to placing their orders with a few clicks on their computers has definitely been a long one and we can only hope for better changes in the future.

Rijal is a final year student at Kathmandu College of Management with finance and banking as her majors.