How does the share market work in Nepal?

The share market allows investors to acquire and sell company stock through Initial Public Offerings (IPOs). Investors trade through brokerage companies, which use a computerized system to match orders. The clearing and settlement processes maintain transaction security. 

Market activity is monitored to avoid manipulation. Share ownership is broad, with the government monitoring safety issues. Overall, the stock market allows businesses to raise capital and investors to take part in economic growth. let’s first understand about the NEPSE. 

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What is NEPSE?

The Nepal Stock Exchange, or NEPSE, is Nepal’s only stock market and plays an important role in the country’s share market. It offers investment options to investors and advises individuals interested in Nepal’s economic activity. NEPSE was founded in 1993 and had 226 businesses listed by June 2023, with a total market value of Rs. 306,196 crore (US$24 billion) as of February 2023. NEPSE has 76 accredited brokerage firms across the country to help people buy and sell.

What is the share ownership in the Nepal Stock Exchange (NEPSE)?

NEPSE is primarily owned by the Government of Nepal, holding 58.66% of the ownership. Other major shareholders contribute to the remaining ownership, as indicated in the table below.

How does the share market work in Nepal?

Here are the key components of how the share market works in Nepal:

• Company Registration: Companies that wish to be listed on the stock exchange must register with the Securities Board of Nepal (SEBON) and meet specific criteria, including financial stability and observance of regulations.

• Initial Public Offering (IPO): A company, after meeting the regulatory requirements, can issue shares to the public through an Initial Public Offering (IPO). This is the first time the company’s shares are made available for public purchase.

• Investor Account Opening: Individuals who want to buy or sell shares in the stock market need to open a Demat (Dematerialized) account with a registered brokerage firm. This account holds your shares in electronic form, eliminating the need for physical share certificates.

• Broker Selection: Investors need to choose a stockbroker registered with NEPSE. The broker facilitates the buying and selling of shares on behalf of the investor.

• Placing Orders: Investors can place orders through their broker, specifying the quantity and price at which they want to buy or sell shares. There are three types of orders: market orders (buy/sell at the current market price), limit orders (buy/sell at a specific price), and stop orders, which are executed as market orders after the stock hits a specific price.

• Order Matching: NEPSE operates a computerized trading system. The buy and sell orders are matched based on price and time priority. The matching process results in executed trades.

• Clearing and Settlement: After a trade is executed, the clearing and settlement process takes place. NEPSE’s clearinghouse ensures the delivery of shares to the buyer and payment to the seller. This process helps in maintaining the integrity of trades.

• Market Indices: NEPSE maintains various market indices like the NEPSE Index and the Sensitive Index, reflecting the overall market performance. Investors often use these indices as benchmarks.

• Market Surveillance: SEBON and NEPSE closely monitor market activities to ensure fair and transparent trading. They have rules and regulations in place to prevent market manipulation and insider trading.

• Dividends and Corporate Actions: Companies may issue dividends to shareholders, and there can be corporate actions like stock splits or mergers. Investors are entitled to participate in these events based on their shareholding.

• Continuous Disclosure: Listed companies are required to provide regular financial reports and updates to SEBON, NEPSE, and the public. This ensures transparency and helps investors make informed decisions.

• Investor Education and Awareness: SEBON and NEPSE also focus on investor education and awareness programs to empower investors with knowledge about the stock market, investment risks, and financial literacy.

By following these steps, investors participate in the buying and selling of shares on the Nepal Stock Exchange, contributing to the overall functioning of the stock market in the country.

How Your Order Is Processed?

With so many investors distributed over the world, it is unrealistic for everyone to assemble in one area to make their trades. This is where stockbrokers and brokerage businesses come in. When you decide to buy a stock at a given price, your broker handles the transaction at the exchange. Behind the scenes, numerous parties work together to ensure that everything operates well. Meanwhile, the exchange verifies the information of both buyers and sellers to avoid any defaults. After validating everything, it permits the real transfer of ownership of the shares, also known as settlement.

Previously, settling deals took weeks, but today it takes only T+2 days. For example, if you trade today, your shares will be in your demat account the day after tomorrow, or two working days later. The exchange assures that the trade is respected upon settlement. Whether the seller possesses the stock or not, the buyer will get their shares. If settlements are not upheld, the integrity of the stock market suffers since trades may not be fulfilled.

You may also like:

• How can I buy and sell shares in Nepal
• Can a Nepali citizen invest in foreign shares
• How do I know the IPO allotment time on the date of the allotment

FAQs

Conclusion: 

NEPSE is Nepal’s main stock market. Companies register, conduct IPOs, and get listed. Investors open accounts, place orders, and trade through NEPSE’s system. The market is monitored for fairness, and disclosure is mandatory for listed companies. NEPSE is mostly owned by the government. This process allows investors to participate in Nepal’s stock market and contribute to its growth.