NEPSE Restructuring Report Recommends Bringing in Strategic Partner

A government-formed committee tasked with recommending reforms at the Nepal Stock Exchange (NEPSE) has proposed bringing in a strategic partner to strengthen the stock exchange’s competitiveness, governance and service delivery.

The NEPSE Restructuring Recommendation Committee, 2082, led by Prakash Jung KC, has suggested offering a strategic partner 15 to 25 percent ownership, with a minimum lock-in period of 10 years, based on international best practices. The report states that a strategic partner is essential to enhance NEPSE’s competitive capacity and introduce modern, internationally comparable services.

According to the report obtained by New Business Age, the strategic partner should be among the world’s top 20 stock exchanges, have at least 20 years of operational experience, prior experience in managing or partnering with other exchanges, advanced information technology capabilities, and full membership of the World Federation of Exchanges.

The committee noted that government divestment processes tend to be lengthy and complex. As a result, it said allowing non-government shareholders to sell shares initially to bring in a strategic partner would be more practical.

The Cabinet had formed the committee on November 18, 2025 to study NEPSE’s restructuring needs and submit recommendations.

Gradual Divestment of Government Ownership

The report recommends gradual divestment of government ownership to address structural weaknesses arising from state dominance in NEPSE.

It proposes that government shares be divested after an independent valuation of NEPSE’s assets and liabilities, followed by peer review and share pricing in line with international standards. Shares should be sold to a strategic partner, institutions regulated by Nepal Rastra Bank and the Nepal Insurance Authority, and the general public.

The report suggests priority should be given to Class ‘A’ commercial banks, national-level development banks, and life and non-life insurance companies.

However, the committee cautioned that full divestment could weaken small investors’ confidence, increase the risk of private-sector monopoly and undermine self-regulation. It therefore proposed retaining partial government ownership if needed.

NEPSE had earlier proposed issuing 30 percent shares to the public and employees after raising paid-up capital to Rs 3 billion, retaining 33.33 percent ownership for existing shareholders, and allocating 36.67 percent shares to domestic and foreign institutional investors. Under the plan, foreign stock exchanges would hold up to 15 percent stake, and a single domestic institutional investor or group up to 5 percent.

Proposed Shareholding Structure

NEPSE currently has Rs 1 billion in paid-up capital, with the government holding 58.66 percent ownership. Other major shareholders include Rastriya Banijya Bank (11.23 percent), Employees Provident Fund (10 percent), Nepal Rastra Bank (9.5 percent), Laxmi Bank (5 percent) and Prabhu Bank (5 percent).

Under the partial divestment model, the government would retain 25 percent, the strategic partner or Nepal Rastra Bank 25 percent, Class ‘A’ commercial banks and the Employees Provident Fund 34.39 percent, development banks and insurance companies 15 percent, and others 0.61 percent.

If government ownership is fully divested, the strategic partner or Nepal Rastra Bank would hold 25 percent, commercial banks and the Employees Provident Fund 34.39 percent, development banks and insurance companies 20 percent, the public 15 percent, and others 0.61 percent.

Capital Requirement

Under the Securities Market Operation Regulations, 2007, a secondary market operator must have a minimum paid-up capital of Rs 3 billion. NEPSE currently falls short, with paid-up capital of Rs 1 billion.

The committee has recommended raising capital to Rs 3 billion, initially through bonus share issuance, citing the need for sustained investment in technology, human resources, infrastructure, research and development, service expansion and subsidiary institutions.

The report also keeps open the option of issuing rights shares or fresh shares if additional investment is required in the future.

Board Restructuring

The report places strong emphasis on restructuring NEPSE’s board of directors, noting that the current seven-member board is dominated by government representatives—a factor it identified as a structural weakness.

It recommends forming a board with a majority of independent expert directors, selected through a nomination and remuneration committee based on predefined qualifications. Directors’ remuneration should be linked to performance.

Under partial divestment, the government would have one board representative, while under full divestment, it would have no representation. The committee also proposed limiting independent directors to two, separating the chief executive officer from the board, and clearly delineating management and board responsibilities.

Technology Upgrade

The committee concluded that NEPSE has fallen behind global exchanges in adopting modern trading technology, resulting in services that fall short of investor expectations.

It said NEPSE’s existing systems are inadequate to handle rising trading volumes, risk management and market surveillance, and recommended making technology reform the top priority. This includes installing a next-generation trading system with automated market surveillance, capable of supporting international-standard instruments and services.

The report also called for an IT governance framework, strengthened in-house IT capacity, enhanced network and cybersecurity risk management, and 24-hour cyber-risk monitoring. It stressed the need for an internationally compliant data centre and disaster recovery site.

In addition, it recommended integration of Application Programme Interface (API) between trading members’ systems and CDS and Clearing (CDSC), a government-promoted central securities depository, to enable real-time updates of securities holdings and transaction data.

New Investment Instruments

To expand investor choice and promote diversification, the committee proposed introducing exchange-traded funds, infrastructure funds, and equity index derivatives.

It also recommended launching a Small and Medium Enterprises (SME) platform, startup platform, margin lending, securities lending, short selling, and intra-day trading, among other services.