Why Nepal’s Share Market Is Struggling Despite Rescue Measures: Is SEBON’s 15-Day Rule Holding Back Investors?

Nepal’s share market has received several measures aimed at improving investor confidence, including a reduction in capital gains tax, greater flexibility in the holding period for shares of banks and financial institutions, and efforts to create a more investment-friendly environment for Non-Resident Nepalis (NRNs) and institutional investors.

However, despite these measures, the Nepal share market has struggled to sustain a strong upward trend.

Market observers and large investors argue that one of the major obstacles is a new disclosure requirement introduced by the Securities Board of Nepal (SEBON). Some investors have even compared its potential impact with the controversial 4/12 lending limit introduced by Nepal Rastra Bank.

SEBON’s 15-Day Advance Disclosure Rule

Under the new provision, a basic shareholder (आधारभूत सेयरधनी) of a listed company who intends to sell 5% or more of their shareholding must provide public disclosure through the company and Nepal Stock Exchange (NEPSE) at least 15 days before the sale.

Another controversial aspect is the threshold used to identify basic shareholders.

In companies with paid-up capital above Rs. 25 crore, an investor holding as little as 1% of the company’s shares may fall within the basic-shareholder category.

This has raised concerns because an investor who purchased shares from the secondary market and is neither a founder nor a company director could potentially face restrictions similar to those applicable to strategic or controlling shareholders.

Why Could This Policy Discourage Large Investors?

The main concern is not necessarily the disclosure itself. Transparency is important for a healthy capital market.

The bigger concern is the timing and threshold of the disclosure requirement.

When investors know that selling even a relatively small portion of their holdings could require a 15-day advance public notice, they may reconsider taking a large position in the first place.

This creates a potential problem:

Difficulty in exiting → lower willingness to enter → lower demand → weaker market momentum.

1. The 1% Threshold May Be Too Low

For companies with paid-up capital above Rs. 25 crore, the 1% threshold can be significant.

A secondary-market investor who accumulates a 1% stake may not have any intention of influencing company management. They may simply be making a large investment based on valuation, fundamentals or technical analysis.

Treating such an investor similarly to a founder, promoter or strategic shareholder can blur the distinction between:

• Ordinary secondary-market investors
• Large portfolio investors
• Institutional investors
• Founders and promoters
• Strategic shareholders
• Company insiders

A more clearly differentiated framework could help maintain transparency without discouraging legitimate investment.

2. Small Sales Can Also Create a 15-Day Waiting Period

Consider an investor who owns 200,000 shares of a company.

If the investor wants to sell only 10,000 shares, equivalent to 5% of their own holding, the advance-disclosure requirement can become a major consideration.

For an active investor, portfolio management often requires flexibility.

An investor may want to:

• Take partial profits
• Reduce portfolio risk
• Shift money into another sector
• Respond to changing market conditions
• Meet liquidity requirements
• Rebalance a portfolio

A mandatory advance disclosure period can make these decisions more difficult.

3. Exit Risk Can Discourage Entry

One of the most important principles of investing is that investors consider both entry and exit before committing capital.

If a large investor believes that exiting a position could create regulatory or market complications, that investor may simply decide not to build the position.

This could be particularly relevant for:

• Institutional investors
• High-net-worth investors
• Large domestic investors
• NRN investors
• Strategic portfolio investors

Therefore, the regulation could unintentionally affect the demand side of the market.

4. Advance Selling Notices Can Create Psychological Pressure

Another concern is the potential market reaction to advance selling information.

Suppose the market receives a notice that a large shareholder intends to sell shares after 15 days.

Even though the actual sale has not yet taken place, some investors may interpret the announcement negatively.

The possible chain reaction could be:

Selling notice → fear among investors → increased supply expectations → selling pressure → falling share price.

This can create a psychological overhang before any actual transaction takes place.

The effect may be especially strong in relatively illiquid stocks where investor sentiment and order-book depth can significantly influence prices.

5. The Policy Could Affect Market Liquidity

A healthy stock market requires both buyers and sellers.

Excessive restrictions on sellers can sometimes have an unintended impact on buyers as well.

Large investors may ask:

"If I accumulate a large position today, how easily can I reduce that position tomorrow?"

If the answer involves advance public disclosure and a waiting period, some investors may prefer to remain on the sidelines.

That can reduce market liquidity and potentially make large transactions more difficult.

6. International Practices Should Be Considered Carefully

Disclosure requirements for significant shareholders are common in developed capital markets.

However, the threshold, timing and purpose of disclosure vary between jurisdictions.

In many markets, significant ownership positions are subject to disclosure because they may provide investors with important information about control, influence or ownership concentration.

The debate in Nepal should therefore focus on whether the current threshold and pre-sale disclosure mechanism are appropriately designed for secondary-market investors.

Rather than simply asking whether disclosure is necessary, regulators should consider:

Who should disclose? How much should they disclose? When should they disclose? And what level of ownership should trigger the requirement?

7. Could the Rule Be Improved?

A more balanced framework could potentially distinguish between founders/promoters, directors, insiders, strategic shareholders and ordinary secondary-market investors.

Possible policy alternatives could include:

Higher Ownership Threshold

The threshold for basic shareholders could be reviewed so that ordinary investors do not automatically fall under the same framework as strategic shareholders.

Post-Trade Disclosure

Instead of requiring advance notification in every situation, regulators could consider whether disclosure after the transaction—or within a defined period—would provide sufficient market transparency.

Exemptions for Small Transactions

A mechanism could potentially be introduced for relatively small sales by large shareholders, particularly when the transaction does not materially change ownership or control.

Separate Treatment for Institutional Investors

Institutional and professional investors could potentially receive a clearly defined regulatory framework that balances transparency with portfolio-management flexibility.

Is SEBON’s Policy the Main Reason Nepal’s Share Market Is Weak?

It would be difficult to attribute the entire performance of the NEPSE index to a single regulation.

The stock market is influenced by many factors, including:

• Interest rates
• Bank lending
• Liquidity
• Deposit growth
• Investor confidence
• Corporate earnings
• Monetary policy
• Fiscal policy
• Political developments
• Regulatory changes
• Market psychology
• Foreign and institutional investment

However, regulations affecting large shareholders can influence investor behavior, liquidity and market sentiment.

Therefore, the concern raised by market participants deserves serious consideration.

The Bigger Question for Nepal’s Capital Market

Nepal needs stronger investor confidence and deeper participation if its capital market is to grow sustainably.

Reducing capital gains tax, improving shareholding rules, attracting NRN investment and encouraging institutional participation can support the market.

But regulatory policies should also ensure that investors feel confident about their ability to manage their portfolios.

A capital market needs transparency, but it also needs liquidity, predictability and reasonable exit flexibility.

If investors believe that entering a large position could make future portfolio management unnecessarily difficult, they may reduce their participation.

That is why SEBON may need to evaluate whether the current 1% basic-shareholder threshold and 15-day advance selling disclosure requirement strike the right balance between investor protection and market efficiency.

Conclusion

Nepal’s share market needs policies that encourage both transparency and investment.

The objective of shareholder disclosure is understandable: investors should know when significant shareholders are changing their positions.

However, market participants argue that applying a 15-day advance disclosure requirement to investors who may hold only 1% of certain companies could discourage large investments and reduce market liquidity.

The key issue is finding the right balance.

Transparency should protect investors—not unintentionally scare investors away.

For Nepal to build a deeper and more mature capital market, regulators may need to continuously review whether their policies encourage genuine long-term investment while preventing market manipulation and protecting minority shareholders.

Investors should therefore monitor both SEBON regulations and NEPSE market trends before making major investment decisions.

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Frequently Asked Questions (FAQ)

1. What is SEBON’s 15-day advance disclosure rule?

The rule requires certain basic shareholders who intend to sell 5% or more of their holdings to provide public disclosure through the company and NEPSE at least 15 days before the proposed sale.

2. Who is considered a basic shareholder in Nepal?

Under the discussed framework, shareholders holding a specified percentage of a listed company may fall under the basic-shareholder category. For companies with paid-up capital above Rs. 25 crore, the 1% ownership threshold has become a major concern among market participants.

3. Why are investors concerned about the 15-day selling notice?

Investors argue that advance disclosure can reduce exit flexibility, create psychological selling pressure and discourage large investors from accumulating significant positions.

4. Can the rule affect NEPSE liquidity?

Potentially. If large investors reduce their participation because of concerns about future exit procedures, trading activity and liquidity could be affected.

5. Does the rule apply to all NEPSE investors?

No. The requirement discussed here concerns shareholders falling under the relevant basic-shareholder criteria and the applicable selling threshold. Investors should check the latest SEBON regulations before making decisions.

6. Could the policy discourage NRN and institutional investment?

Market participants argue that it could, particularly if large investors believe that building a significant position will make future portfolio management more difficult.

7. Is SEBON’s policy the only reason the Nepal share market is weak?

No. NEPSE is influenced by numerous factors, including interest rates, liquidity, bank lending, earnings, investor confidence, monetary policy, government policy and market sentiment.

8. What should investors study before trading NEPSE?

Investors should understand fundamental analysis, technical analysis, risk management, market cycles, company financials, valuation, trading psychology and relevant regulatory requirements.

9. Where can I learn share market trading in Nepal?

Sarbaguna provides share market training in Nepal, including fundamental and technical analysis, NEPSE analysis and practical trading education.

10. Does Sarbaguna provide Forex trading training in Nepal?

Yes. Sarbaguna offers a Professional Forex Trading Course in Nepal covering forex market concepts, technical analysis, trading strategies and risk management.

This article is for educational and informational purposes only and should not be considered investment advice. Investors should verify the latest SEBON, NEPSE and regulatory provisions before making investment or trading decisions.