The Great Reset: Can NEPSE Reinvent Itself?

Nepal’s stock market has remained profitable for years. It has attracted millions of investors and helped companies raise capital. But experts say its foundation is outdated.

While global exchanges move ahead with algorithmic trading, derivatives, and real-time surveillance systems, Nepal’s lone bourse, the Nepal Stock Exchange (NEPSE), still runs on a system shaped by government dominance, limited technology, and cautious policies. After years of failed reform attempts, policymakers are once again promising change. They say this reset could determine whether the capital market grows up or stagnates.

In November 2025, the Cabinet formed a study committee to modernize and reform NEPSE. The decision followed a report from the High-Level Economic Reforms Advisory Commission led by Former Finance Secretary Rameshore Prasad Khanal. The report warned that without deep structural reform, the capital market would lag further behind regional peers.

Following Gen Z protests of September 8 and 9, a new government was formed. Khanal, who led the study commission, was appointed Minister for Finance. He subsequently advised the Council of Ministers to form a formal committee to examine NEPSE’s restructuring needs. The committee was officially constituted on November 18, 2025, signaling what many stakeholders saw as the strongest political push for capital-market reform in years.

The reform plan was also included in the government’s policies and programs for fiscal year 2025/26. But it will be too early to be excited, as this is the 8th study report on NEPSE reform. Recommendations made by past reports have rarely translated into concrete action. NEPSE had already submitted a restructuring proposal to the Ministry of Finance on December 14, 2023, based on an independent study. The proposal, however, stalled with officials blaming indifference from successive finance ministers.

The new committee, chaired by Prakash Jung KC, has proposed wide-ranging changes. The plan covers capital structure, ownership, governance, technology, and market infrastructure. The goal is to transform NEPSE into an autonomous, transparent, and professionally run bourse capable of operating on par with international stock exchanges. Policymakers say the reforms are not just technical. They aim to make the capital market a credible platform for domestic savings and foreign investment.

Inviting a Strategic Partner

One key proposal is to bring in a strategic partner and change NEPSE’s ownership structure. The committee says NEPSE needs more capital as well as advanced technical and managerial expertise to compete with modern secondary-market operators and meet investor expectations.

Drawing on international precedents, the report proposes allocating 15–25% ownership to a qualified partner, with a minimum lock-in period of 10 years. While global examples show strategic partners holding up to 40% stakes, the committee believes a smaller stake will be appropriate for Nepal’s context.

The committee has prescribed strict eligibility criteria. The partner must rank among the world’s top 20 stock exchanges by trading volume, possess at least 20 years of experience, and must have proven expertise in advanced information technology systems, modern equipment, and service delivery. Full membership in the World Federation of Exchanges is mandatory, and the partner will nominate one expert director to NEPSE’s board.

Some analysts call the proposal as ambitious but difficult. Mukti Aryal, an investment banker and international capital-market expert, said the stringent requirement could limit Nepal’s options. “The recommendation says that the strategic partner must be among the top stock exchanges in the world. But since Nepal lacks credibility, NEPSE may struggle to get strategic partners from Hong Kong or Singapore or Japan,” Aryal said.

Other experts say small economies often offer up to 49% ownership to attract global partners. Offering only 15–25 percent, they argue, may reduce incentives for major exchanges to participate. Still, supporters of the proposal insist that its intent is not just to sell equity but to import global best practices. The committee maintains that a credible partner would bring better technology, innovative financial instruments, managerial know-how, and international credibility. These elements, it says, are essential for NEPSE’s transformation.

Analysts say, NEPSE currently faces gaps in expertise, technology, and risk-management. Vardan Giri, CEO of Anshu Invest, believes the recommendations could mark a turning point. “Since NEPSE, for a long time, had been working in an old-styled fashion, the recommendations, if implemented, would be a game changer in Nepal’s capital market,” he said. However, he also cautioned that the proposed ownership range may not be attractive enough. “They would bring technology, human resources, capital, but they would also expect meaningful returns. The report has failed to mention that.”

What a Strategic Partner Could Bring

Supporters of the recommendations say a strategic partner would do more than change ownership. It could help build a modern, globally connected financial ecosystem. By integrating international technology, professional expertise, and established trading policies, they say Nepal could narrow the gap between its current operational capacity and global standards.

One of the most anticipated benefits is technological modernization. Aryal says advanced trading platforms, surveillance systems, and data-management tools could replace aging infrastructure. “These upgrades, combined with international human capital, may help reduce malpractices such as insider trading and market manipulation,” he added.

A partner with global exposure could bring a proven toolkit for oversight, enabling regulators to detect irregularities in real time. Such automated, data-driven supervision, often referred to as SupTech, is widely considered essential for building investor confidence and attracting institutional capital.

Technology, however, is only part of the equation. Analysts say a strategic partner could also accelerate product innovation.

Giri highlights the potential introduction of Exchange Traded Funds (ETFs) which would allow investors to buy exposure to an entire sector rather than selecting individual stocks. “Rather than being forced to pick a single hydroelectric company, large-scale investors, such as pension funds and retirement funds, can invest in a ‘Hydro Index’ that represents the entire sector,” he explained. “This form of passive investment reduces individual stock risk and allows for more stable, long-term portfolio growth. Such instruments could unlock capital pools currently absent from the Nepali market.”

Still, experts say political will is crucial. Tulsi Ram Dhakal, president of the Nepal Investors’ Forum, says implementation has always been the weakest link in Nepal. “Although numerous reports have made series of recommendations for stock market modernization, progress has remained on paper. Without real action, even global expertise will not overcome institutional inertia hindering NEPSE’s growth,” he said.

New Instruments and Market Depth

The restructuring blueprint places strong emphasis on technology and product diversification. It calls for replacing or upgrading NEPSE’s trading and surveillance systems and introducing automated monitoring tools. The report recommends launching instruments such as ETFs, infrastructure funds, and equity and index derivatives.

To improve liquidity, it proposes additional services including SME and startup platforms, margin trading, securities lending and borrowing, short selling, intraday trading. Likewise, it has suggested advanced IT offerings such as API sharing, data analytics, and co-location facilities.

The committee has also recommended establishing a Central Counterparty (CCP) to mitigate clearing and settlement risks. It has also proposed reforms at CDS and Clearing Limited, NEPSE’s subsidiary, targeting its capital structure, governance, technology, and service portfolio.

Giri says these changes could make the market more efficient and mature. “The recommendation for a derivatives market, short selling, and intraday trading will make the market more efficient and mature,” he said. “However, instruments alone cannot solve structural imbalances. Many companies are going public, increasing supply but demand remains weak. As a result, the capital market has not grown as expected. There is an urgent need to bring in foreign investors as well.”

Aryal agrees that investors have long demanded such innovations. “Nepali authorities have remained silent on these issues. Even our regional partners have adopted modern technologies and advanced instruments, while Nepal has lagged behind. This is the time to capitalize on these reforms,” he said.

Financial Strength, Structural Limits

Despite its weaknesses, NEPSE has delivered strong financial results. In fiscal year 2024/25, it reported total assets of Rs 9.88 billion and shareholders’ equity of Rs 8.07 billion. During the year, it earned Rs 3.40 billion in income and recorded a profit before tax of Rs 2.43 billion. Profitability and demand payouts have remained steady for years.

Investor participation has also grown quickly. By mid-December of the current fiscal year, demat accounts had reached 7.23 million. More than 4.5 million investors used online trading accounts through brokers, and over 2.72 million of them were active. A total of 285 organized institutions are listed on the exchange. It is supported by 90 securities brokers and two securities dealers.

But the committee argues that strong finances hide deeper institutional limits. Government-dominated ownership and governance, it says, slow decision-making. That makes it harder for NEPSE to adapt to new technology, launch new products, or respond to competition. In fast-moving markets, delays can quickly erode investor confidence.

Government Divestment: Gradual or Full Exit?

The restructuring proposal is closely tied to the government’s broader policy of gradually divesting stakes in public enterprises. To facilitate this transition, the committee has outlined two ownership options.

Under partial divestment, the government would keep a 25% stake while a strategic partner or Nepal Rastra Bank (NRB) would hold another 25 percent. The remaining shares would be distributed among Class A commercial banks and the Employees Provident Fund (34.39%), development banks and insurance companies (15%), and existing shareholders (0.61%).

Under full divestment, the government would exit entirely. A strategic partner would hold 25% stake. Commercial banks and the Employees Provident Fund would get a higher 39.39% stake, and the general public would be offered 15%.

Both models cap ownership at 5% for any single institution or related group to reduce concentration risk. Nevertheless, the report warns that a complete government exit could weaken confidence of small investors and create the risk of a private monopoly. It therefore recommends partial divestment as a transition.

Dhakal, however, disagrees. He argues that continued state participation inevitably leads to slow decision-making and prevents the bourse from operating according to the global spirit of capital markets. He points to procurement rules as an example. “The Public Procurement Act makes acquiring new technology a lengthy process in an environment where speed is essential,” he added.

Aryal agrees with Dhakal. He suggests allowing a strategic partner to hold up to 50% to ensure efficiency, with the rest divided between public and private investors.

The report also flags weaknesses in the current board structure. Most directors represent government entities and may lack expertise in global market trends. It recommends restructuring the seven-member board to prioritize independent experts, removing the CEO from board membership, and creating a Nomination and Remuneration Committee to set qualification standards and ensure transparent, performance-based appointments.

Is a Second Exchange Necessary?

Reform talks have revived debate over whether Nepal needs a second stock exchange. Dhakal says the answer depends on the success of NEPSE’s transformation. “If the existing exchange becomes autonomous, professional, and technology-driven, another exchange may not be necessary in a small market like Nepal. If reforms fail, competition could become important,” he added.

Critics also point to low financial literacy and uneven market penetration. Dhakal cites the hydropower sector as an example. Companies often issue shares to project-affected families, yet many rural shareholders keep physical certificates at home because they do not know how to trade them. He believes private ownership would incentivize stronger outreach and education, as private operators benefit directly from higher participation and trading volumes.

Although online trading has expanded access, participation remains heavily concentrated in urban centers. Large segments of the population remain disconnected from the market’s functioning. Supporters of reform say involving private and strategic partners could help turn NEPSE into a proactive nationwide platform serving both experienced investors and first-time participants.

The Stakes

For policymakers, the reform goes beyond one institution. A modern stock exchange can channel domestic savings into productive sectors, reduce dependence on bank loans, and attract foreign investment. A stagnant one risks losing relevance in a competitive regional market.

Nepal now stands at a familiar moment. Detailed reform blueprints exist, expert recommendations are clear, and political leaders have expressed support. What remains uncertain is whether this latest push will finally translate into action. If carried out, the proposals could reshape Nepal’s financial system. If delayed, they may join the long list of unrealized plans.

After eight reports and years of discussion, the question confronting Nepal is no longer what should change, but whether policymakers are ready to act.

(This piece was originally published in the March 2026 issue of New Business Age magazine.)