Promoter vs Public Shares: Why Nepal’s Stock Market Needs Better Listing and Shareholding Rules

Nepal’s capital market needs prudent, timely and forward-looking policies rather than regulations that are introduced only after a major problem has already emerged.

Too often, the market enjoys a short period of excitement without adequately asking what is right, what is wrong, and what risks may develop over time. When a major problem eventually appears, the response becomes protests, public criticism, blame and heated debate.

The more important question is: Why was the potential problem not identified and addressed earlier?

For a fair, functional and vibrant capital market, Nepal needs policies that anticipate problems rather than react to them.

1. Is the Promoter and Public Share Concept Still Appropriate?

The traditional distinction between promoter shares and public shares deserves serious review.

Rather than treating promoter and public shares as fundamentally different categories indefinitely, Nepal could consider whether a more market-oriented framework would improve price discovery, liquidity and fairness.

A modern capital market should focus on:

• Transparent ownership
• Effective disclosure
• Corporate governance
• Investor protection
• Market liquidity
• Fair price discovery
• Professional management
• Prevention of market manipulation

The objective should not simply be to protect one category of shareholders from another. The objective should be to create a system where all investors operate under clear and transparent rules.

2. Should Founders or Promoter Shareholders Be Allowed to Sell After 90 Days?

One possible policy approach would be to allow founders or promoter shareholders to sell their shares after 90 days, subject to strict regulatory safeguards.

Such a framework could include:

• Mandatory disclosure before selling
• Maximum selling limits within a defined period
• Lock-in requirements for key controlling shareholders
• Restrictions around sensitive corporate information
• Strong insider-trading enforcement
• Transparent reporting of promoter transactions
• Minimum public disclosure requirements

The purpose would not be to encourage indiscriminate selling. Instead, it would create a more predictable market structure where supply can gradually enter the market rather than remaining artificially restricted for long periods.

Greater availability of shares can also help reduce situations where limited tradable supply contributes to extreme price movements.

3. Nepal’s Post-Listing Trading System Needs Better Price Discovery

Another important issue is the way newly listed companies begin trading.

Under a system where a very small number of shares can influence the quoted price, it may be possible for a stock to move to an extremely high price based on limited transactions.

For example, if only a small number of shares change hands at progressively higher prices, the quoted market price can rise dramatically even though the broader market has not necessarily established a deep and reliable valuation.

This raises an important question:

Does a quoted price based on very limited transactions represent genuine supply and demand?

A better approach could allow broader price discovery during the initial listing period.

If shares can trade within a transparent market mechanism at prices determined by genuine buyers and sellers from the beginning, the market may be able to establish a more meaningful equilibrium price.

4. Genuine Supply and Demand Should Determine Market Price

The fundamental principle of a stock market is price discovery.

If a company has strong fundamentals, sustainable earnings, professional management and attractive future prospects, investors should be willing to pay a higher price.

Conversely, if demand is weak or the company fails to deliver expected returns, the market should be able to adjust the price accordingly.

The key is that the price should emerge from real supply and demand, rather than artificial scarcity or restrictions that prevent meaningful trading.

A healthy market should make it possible for:

Buyers → to buy at a fair market price

Sellers → to sell at a fair market price

Companies → to attract capital efficiently

Investors → to receive returns based on business performance

5. Professional Management Should Drive Company Performance

Another important principle is the separation between ownership and professional management.

A listed company should ultimately be managed by a competent professional management team, operating under effective corporate governance and board oversight.

If the company performs well, generates sustainable earnings and creates shareholder value, investors should benefit regardless of whether a particular shareholder bought the shares during the IPO, after listing or from an existing shareholder.

The focus should therefore shift from simply asking “Who is allowed to sell?” to asking:

“Is the company being managed effectively and are shareholders receiving fair value?”

If the underlying business generates sustainable returns, ownership can change without necessarily destroying shareholder value.

6. The Real Goal Should Be a Fair and Functional Capital Market

Nepal does not need policies that simply react after problems become visible.

The better approach is to identify potential market distortions before they become systemic problems.

Policymakers and regulators should continuously evaluate:

• Promoter and public share structures
• Lock-in provisions
• Initial listing mechanisms
• Price discovery
• Market liquidity
• Insider trading
• Market manipulation
• Corporate governance
• Disclosure standards
• Professional management
• Investor protection

The Securities Board of Nepal (SEBON), Nepal Stock Exchange and relevant government institutions have an important role in developing rules that balance investor protection with efficient market functioning.

Conclusion: Nepal Needs Forward-Looking Capital Market Policies

Instead of waiting for a major problem and then responding with protests, criticism and blame, Nepal’s policymakers, regulators and market institutions should work on preventive and evidence-based capital market policies.

The people responsible for designing market rules should be able to identify potential problems before they become major disruptions.

A modern stock market should be:

Fair. Functional. Transparent. Liquid. Vibrant.

The objective should not be to protect an artificial price or a particular shareholder category. The objective should be to create a market where genuine supply and demand can determine prices, companies are professionally managed, investors receive transparent information, and market participants operate under predictable rules.

Nepal’s capital market will become stronger when policy focuses not only on solving today’s problems but also on preventing tomorrow’s problems.

Learn Stock Market Analysis in Nepal

Understanding market structure, price discovery, fundamental analysis, technical analysis, investor psychology and risk management is essential for anyone participating in Nepal’s share market.

For those looking to develop practical knowledge, explore Stock Market Training Nepal and learn more about share market class training Nepal and professional stock market education from Sarbaguna.

For training and market-related information, contact Deep Thapa – Call/WhatsApp: 9849290806.

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FAQ: Promoter Shares, Public Shares and Nepal’s Stock Market

What are promoter shares in Nepal?

Promoter shares are shares held by the founders, promoters or designated controlling shareholders of a company under Nepal’s regulatory framework. The rights and transferability of such shares may be subject to specific regulatory provisions.

What are public shares?

Public shares are shares made available to public investors through mechanisms such as an IPO and subsequent secondary-market trading, subject to applicable regulations.

Why is price discovery important in the stock market?

Price discovery allows the market price of a security to emerge from the interaction of buyers and sellers. Effective price discovery can help establish a market price that better reflects available information and actual demand and supply.

Should promoter shareholders be allowed to sell shares after 90 days?

A 90-day framework is a policy proposal rather than a statement of current law. If considered by regulators, it would need appropriate safeguards such as disclosure requirements, selling limits and measures against insider trading and market manipulation.

Can a small number of transactions affect a stock’s quoted price?

Yes. When trading liquidity is low, relatively small transactions can have a significant effect on the observed market price. This is why sufficient liquidity and effective price-discovery mechanisms are important.

What is market manipulation?

Market manipulation generally refers to conduct intended to create a false or misleading appearance of market activity, supply, demand or price. Regulators use surveillance and enforcement mechanisms to address prohibited market conduct.

Why is professional management important for listed companies?

Professional management can help companies make operational, financial and strategic decisions based on business objectives, while boards and shareholders provide governance and oversight.

How can investors learn Nepal’s stock market?

Investors can study fundamental analysis, technical analysis, financial statements, valuation, risk management, market psychology and NEPSE market structure. Practical stock market class training in Nepal can also provide structured learning for beginners and intermediate investors.

Where can I learn share market analysis in Nepal?

Sarbaguna provides stock-market education and market-analysis resources for investors interested in learning about Nepal’s capital market. Visit Sarbaguna.com for more information about available learning programs.