Govt Task Force Recommends Sweeping Reforms to Revitalize Nepal’s Capital Market

A task force formed by the government has submitted a detailed report recommending short-, medium- and long-term measures to address persistent distortions in Nepal’s capital market and to boost investor confidence.

Finance Minister Rameshore Khanal formed the four-member task force on September 19 under the leadership of Rupesh KC, acting executive director of the Securities Board of Nepal (SEBON). The panel was asked to present actionable reforms and an implementation plan within five days and submitted its report to the finance minister on September 25.

Task force coordinator KC said the recommendations were developed after extensive consultations with market stakeholders and are designed to make the market more transparent, efficient and dynamic.

The plan is divided into three phases. For the immediate term, the panel urges the removal of the current Rs 250 million single-borrower limit on margin loans from banks and financial institutions. It also calls for clarifying that capital gains tax on non-business share sales should be treated as a final tax.
The report recommends allowing investors to hold more than one beneficiary account and requiring companies—rather than individual investors—to settle taxes on bonus shares.
In addition, it proposes implementing a formal margin-trading system and standardising investor identification numbers.

In the medium term, the task force recommends restructuring the Nepal Stock Exchange (NEPSE) through an initial public offering to raise capital. The report also suggests revising rules on securities allotment and minimum paid-up capital, launching a small- and medium-enterprise trading platform, introducing pre-IPO regulations and establishing both a settlement-guarantee fund and an auction market.

For the long run, the report proposes enacting specialised laws for securities trading and regulation, creating a trustee law for the financial sector. It also calls for drafting regulations on securities offences and penalties, and legislating for investment advisory and research services.

It further suggests restructuring NEPSE to align with global standards and introducing advanced trading mechanisms such as intraday trading, short selling, equity derivatives, and securities lending and borrowing. The panel also calls for revising the Insurance Act to permit cross-holding of life and non-life insurers.

According to KC, the package seeks to balance demand in the primary and secondary markets and to increase the currently low share of institutional investors—estimated at only 10 percent—by encouraging their participation for sustainable market growth.

This is the second time the government has set up a special panel to chart capital-market reforms. In 2019, a parliamentary subcommittee led by Ramkumari Jhakri submitted a 58-point report, many of whose suggestions are echoed in the new plan.

Market analysts believe that effective implementation of the latest recommendations could significantly strengthen Nepal’s capital market.