NEPSE Auction Market and NRN Investment Near Implementation: CDSC Outlines Major Capital Market Reforms

Nepal's Capital Market Reforms Move Closer to Implementation

Nepal's capital market is moving toward several long-awaited reforms, including the introduction of an auction market and a framework to facilitate investment by Non-Resident Nepalis (NRNs). According to Kanchan Sapkota, Acting Chief Executive Officer of CDS and Clearing Limited (CDSC), preparations for several market-development initiatives have reached an advanced stage.

Speaking during a discussion at the Finance Committee of the Federal Parliament, Sapkota highlighted progress on auction market operations, NRN investment, settlement mechanisms, the Central Counterparty (CCP) system, digital shareholder voting and investor security.

These initiatives could contribute to the modernization of Nepal's capital market by improving market infrastructure, strengthening settlement arrangements and expanding investment opportunities.

1. NEPSE Auction Market: Technical and Operational Preparations Underway

The proposed auction market is one of the anticipated developments in Nepal's secondary stock market.

According to Sapkota, the Nepal Stock Exchange (NEPSE) and CDSC are coordinating to complete the necessary technical and operational preparations.

Under the proposed arrangement:

• NEPSE will operate the auction market.
• CDSC will handle the settlement of transactions.
• Both institutions are coordinating to establish the necessary systems and operational procedures.

The auction market is expected to introduce a dedicated mechanism for eligible share transactions that require an auction-based process.

However, the actual launch date, operating procedures, eligibility criteria and other implementation details will depend on the relevant authorities' final decisions and official announcements.

For investors, understanding auction market rules will be important as Nepal's share trading infrastructure continues to evolve.

2. NRN Investment in Nepal's Stock Market Nears Implementation

Bringing investment from Non-Resident Nepalis into Nepal's capital market is another major initiative discussed by CDSC.

Sapkota stated that CDSC, the Securities Board of Nepal (SEBON) and NEPSE have completed the necessary policy-related and technical groundwork for facilitating NRN investment.

The process is now awaiting implementation and the practical outcomes of the preparations.

The proposed framework could create an additional channel for NRNs to participate in Nepal's capital market. It may also broaden the investor base and provide new opportunities for capital inflows.

The actual investment process will depend on the final regulatory framework, eligibility requirements, account-opening procedures and other applicable rules.

Investors should follow official announcements from SEBON, NEPSE and CDSC for confirmed details about NRN participation.

3. WACC Calculation Issues: CDSC and SEBON Explore Solutions

The Weighted Average Cost of Acquisition (WACC) calculation process has been a concern for investors in certain corporate-action situations.

When bonus shares or rights shares have not yet been credited to an investor's demat account, the existing arrangements may create difficulties in calculating the applicable acquisition cost.

According to Sapkota, discussions are underway with SEBON to explore possible solutions.

The options under consideration include:

• Reducing the time required for listing bonus and rights shares.
• Exploring separate arrangements for price adjustments at the record-date and listing stages.
• Addressing the practical difficulties that arise when shares have not yet been credited to investors' accounts.

These discussions are intended to address the gap between corporate actions, share listing and the calculation of acquisition costs.

Any change to the existing WACC methodology or price-adjustment rules will depend on the final decision of the relevant regulator.

4. Settlement Guarantee Fund to Be Strengthened

Nepal's stock market operates under a T+2 settlement cycle, under which eligible securities transactions are generally settled two business days after the trade date, subject to applicable rules and market holidays.

A Settlement Guarantee Fund has been established to help address settlement-related risks and support the continuity of market operations.

CDSC is now working on ways to make the fund more effective and operationally flexible.

The proposed improvements include:

• Establishing a more practical mechanism for fund utilization by brokers when required.
• Supporting continuity in the settlement process.
• Improving the fund's operational structure.
• Exploring the possibility of increasing the fund's size in the future.

A more effective settlement guarantee mechanism could help strengthen confidence in Nepal's trading and clearing infrastructure.

The specific conditions governing access to and use of the fund will depend on the applicable rules and approved procedures.

5. CDSC Says It Is Ready to Operate a Central Counterparty (CCP)

CDSC has expressed confidence in its institutional capacity to operate a Central Counterparty (CCP) system, citing its 15 years of experience and its role in Nepal's securities market infrastructure.

A CCP acts as an intermediary between buyers and sellers, becoming the counterparty to both sides of a transaction. This structure is designed to manage counterparty risk and support the orderly settlement of trades.

Sapkota stated that CDSC should be entrusted with the responsibility of developing and managing the necessary CCP infrastructure.

A CCP framework could represent a significant development in Nepal's capital market infrastructure, particularly in relation to risk management, clearing and settlement.

However, establishing such a system requires appropriate regulatory approval, risk-management policies, financial resources, technology and operational arrangements.

The proposed responsibility and implementation framework remain subject to decisions by the relevant authorities.

6. E-Voting for Shareholders: Digital Participation in AGMs

CDSC has also completed preparations for an electronic voting system that would allow shareholders to participate in company general meetings through digital channels.

The proposed e-voting facility could make shareholder participation more convenient, particularly for investors who cannot attend annual general meetings (AGMs) in person.

Potential benefits include:

• Remote participation in shareholder voting.
• Greater convenience for shareholders living outside the company's meeting location.
• Reduced dependence on physical voting procedures.
• Improved accessibility to corporate decision-making.

According to Sapkota, the system can be implemented once the necessary legal provisions are incorporated into the Companies Act.

Therefore, the introduction of e-voting will depend on the completion of the required legal process and subsequent implementation arrangements.

7. Cybersecurity and Investor Asset Protection Remain Priorities

CDSC plays a critical role in maintaining the securities ownership records of Nepal's capital market investors.

Sapkota emphasized that the institution's technological and cybersecurity infrastructure must not be compromised, given that it safeguards the assets and records of more than eight million investors.

A secure depository system is essential for maintaining confidence in electronic shareholding, securities transfers and other digital market services.

As Nepal's capital market adopts new technologies, institutions must continue to strengthen:

• Cybersecurity systems and monitoring.
• Protection of investor records and personal information.
• Secure access to digital platforms.
• Technology infrastructure and operational resilience.
• Risk management and data protection procedures.

Investor protection requires both strong institutional safeguards and responsible digital practices by individual investors.

8. CDSC Warns Investors Against Sharing Mero Share Credentials

CDSC has urged investors to protect their Mero Share login credentials and other sensitive personal information.

Investors should never share their usernames, passwords, citizenship details or DIS-related information with unauthorized individuals.

Important precautions include:

1. Keep your Mero Share username and password confidential.
2. Never disclose your login credentials to strangers or unverified service providers.
3. Protect your citizenship information and other personal documents.
4. Verify requests involving DIS instructions and securities transfers.
5. Avoid clicking suspicious links or sharing verification codes.
6. Use only official platforms and authorized channels for securities-related activities.

Investors should treat access to their demat and securities accounts with the same level of caution they apply to their bank accounts.

Protecting digital credentials is an essential part of safeguarding investments in Nepal's increasingly digital stock market.

What These Capital Market Reforms Mean for Nepalese Investors

The initiatives discussed by CDSC cover several important aspects of Nepal's capital market, from trading and settlement to shareholder participation and cybersecurity.

While the initiatives have reached different stages of preparation, their actual impact will depend on implementation timelines, regulatory approvals and the effectiveness of the operational frameworks.

Investors should distinguish between completed preparations, proposed policy changes and reforms that have officially entered into operation.

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Frequently Asked Questions (FAQ)

1. What is the NEPSE auction market?

The NEPSE auction market is a proposed trading mechanism that will be operated by NEPSE, with CDSC responsible for settlement under the planned arrangement. Its final operating rules and launch date depend on official implementation decisions.

2. When will the NEPSE auction market start?

CDSC has reported that technical and operational preparations are underway. An official launch date was not specified in the information discussed by the Finance Committee.

3. What is the status of NRN investment in Nepal's stock market?

CDSC, SEBON and NEPSE have reportedly completed the necessary policy-related and technical groundwork. The initiative is awaiting implementation and further official details.

4. What is WACC in the Nepal stock market?

WACC, or Weighted Average Cost of Acquisition, is used to determine the average acquisition cost of securities for relevant purposes, including capital gains calculations. Corporate actions such as bonus and rights shares can create complications when shares have not yet been credited to an investor's account.

5. What is the Settlement Guarantee Fund?

The Settlement Guarantee Fund is a mechanism intended to help manage settlement risks and support the continuity of securities transactions. CDSC is exploring ways to make the fund more effective and flexible.

6. What is a Central Counterparty (CCP)?

A Central Counterparty acts between buyers and sellers in financial-market transactions. It helps manage counterparty risk and supports the clearing and settlement process.

7. Will shareholders be able to vote online at AGMs?

CDSC has prepared an e-voting system. Its implementation will require the necessary legal provisions in the Companies Act and the completion of the applicable implementation process.

8. How can investors protect their Mero Share accounts?

Investors should keep their usernames and passwords confidential, protect citizenship and DIS-related information, avoid suspicious links and use only official or authorized channels.

9. Where can I learn about the Nepal stock market?

Investors can explore Sarbaguna's stock market training courses to learn about NEPSE, fundamental analysis, technical analysis and practical investment concepts.arket Training Nepal

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Disclaimer: This article is for informational and educational purposes only. Proposed reforms and implementation timelines are subject to official regulatory announcements. It is not investment advice or a recommendation to buy or sell any security.