Nepal Stock Exchange Limited (NEPSE) has prepared a draft regulation to allow trading of securities of small and medium-sized enterprises (SMEs) on a separate platform. The move is intended to ease capital market access for smaller firms that cannot meet the existing requirements.

According to the draft obtained by New Business Age , the proposed rules include provisions related to securities listing, trading mechanisms, broker responsibilities, and information disclosure requirements for listed companies.

NEPSE Information Officer Murahari Parajuli said the draft is yet to be endorsed by NEPSE’s Board of Directors. "Once the Board approves the draft, it will be forwarded to the Securities Board of Nepal (SEBON) for final approval," he said. The provisions will be implemented from the date specified by NEPSE once regulatory approvals are secured.

Currently, all companies—regardless of size—are listed and traded on a single platform, and their transactions contribute to the NEPSE index. However, under the new system, SMEs will be traded separately, and a distinct index will be developed for them. As per the Securities Issuance and Transaction Regulations for SMEs, 2024, only companies with a maximum paid-up capital of Rs 250 million will be eligible to trade on this platform.

Under the draft, companies seeking to list their securities on the SME platform must first obtain approval from SEBON and issue their securities to the public in compliance with prevailing laws. Any bonus, rights, or additional shares must also be listed on NEPSE. If any securities are under a lock-in period that restricts their sale or transfer, this must be clearly stated in the listing application.

The draft outlines a two-phase trading schedule. An initial trading session will take place from 10:30 a.m. to 11:00 a.m., followed by a continuous trading session from 11:00 a.m. to 3:00 p.m. The weighted average price of trades executed between 2:45 p.m. and 3:00 p.m. will be treated as the closing price for the day. If no transactions occur during this period, the last available traded price will be used.

To limit volatility, the draft proposes price bands for different trading phases. Prices in the initial session must fall within 5 percent above or below the previous day’s closing price. In the continuous session, the first trade must occur within a 2 percent range of the price established during the initial session. If a security does not trade in the initial session, stockbrokers must place opening orders for the continuous session within 2 percent of the previous day’s closing price. Securities cannot be traded at prices that vary more than 10 percent from the previous day’s close.

The minimum trading unit, or board lot, is proposed to be 500 shares. Quantities below this threshold will be classified as "odd lots" and must be traded under special provisions. Investors holding shares equal to or above the board lot size will not be allowed to split them into odd lots for trading.

Bulk trades will be permitted with prior approval from NEPSE. These are defined as transactions amounting to 2 percent of a company’s paid-up capital or Rs 2.5 million—whichever is higher.

Circuit Breaker Rules

To guard against excessive market fluctuations, the draft introduces circuit breakers. If the SME index rises or falls by 4 percent within the first hour of continuous trading, a 20-minute trading halt will be triggered. A 6 percent movement within two hours will lead to a 40-minute break, and an 8 percent change at any point during the day will result in trading being suspended for the rest of the session.

Information Disclosure Requirements

Companies listed on the SME platform will be required to notify NEPSE at least seven days in advance of closing their securities book. Any material information or decisions likely to impact the market price must be disclosed before trading opens on the same or the following day.

Details regarding the issuance of cash dividends, bonus shares, rights shares, or other capital changes must be reported immediately, including the timing of board meetings and where such decisions are made. Significant corporate actions—such as asset transactions exceeding 25 percent of total assets or Rs 50 million, or loans exceeding 50 percent of shareholders’ equity—must also be disclosed without delay.

The draft further requires companies to inform NEPSE of changes in key personnel, including directors, the CEO, the company secretary, or external auditors. NEPSE must also be notified promptly if a company’s operations are disrupted due to natural disasters, emergencies, or other events.

Any decisions to change the company’s business model, sell significant assets, or acquire controlling interests in other firms must also be disclosed.

Additionally, companies must notify NEPSE if any individual or institution acquires 5 percent or more of their shares, or if any legal case is filed that could lead to liabilities exceeding 25 percent of the company’s total assets or Rs 50 million. Decisions related to mergers, acquisitions, or demergers must also be reported to NEPSE immediately or before the next trading session begins.