Rs 30m fine, three years jail term proposed against insider trading

The government has proposed a fine of up to Rs 30m for individuals and groups involved in insider trading in the securities market.

Minister for Finance Bishnu Prasad Poudel registered the Securities (First Amendment) Bill, 2024, in the House of Representatives last week. The Bill aims to regulate securities transactions more effectively and incorporates new practices and international standards, with a focus on combating fraud and insider trading.

The proposed legislation significantly increases penalties for insider trading. Individuals and groups involved in fraud and insider trading can face penalties ranging from repayment of the amount involved, an equal fine, or up to three years of imprisonment, or a combination of all these penalties. If the amount involved is known, offenders could face fines ranging from Rs 5m to Rs 30m or up to three years imprisonment. 

As per the existing law, such offenders can be handed a maximum penalty of one year imprisonment.

Likewise, the bill proposes removing chartered accountants and representatives from the Federation of Nepalese Chambers of Commerce and Industry Securities Board of Nepal (Sebon) from sitting on the board of Sebon to avoid conflict of interest. Then FNCCI Vice-president, Chandra Prasad Dhakal, stepped down from the executive board of Sebon in August 2021 after media outlets reported conflict of interest. Dhakal, who was representing FNCCI in the Sebon board, chairs a number of companies listed on Nepal Stock Exchange (Nepse).   

Similar stringent measures have been proposed for individuals and groups providing false transactions, price manipulation and providing misleading information. Such individuals and groups can be slapped fines up to Rs 5m and three years imprisonment, depending on whether the amount involved is known or unknown.

Likewise, the bill introduces new restrictions to prevent conflicts of interest. Former chairpersons and high-ranking officials of the Sebon will be barred from working for listed companies or licensed institutions for two years after leaving their positions. However, this restriction won't apply to political appointees.

The bill also includes provisions for central depository services, derivatives and specialized investment funds such as private equity and venture capital. This is expected to pave the way for introduction of derivative products in the securities market. 

Likewise, it authorizes Sebon to request banking transaction records from the central bank for investigative purposes. “If an investigation is required regarding securities transactions conducted by any individual, company or organized institution, Sebon can request Nepal Rastra Bank (NRB) to obtain relevant transaction records from the concerned bank or financial institution. Upon receiving such a request, the NRB is required to collect the records from the relevant bank or financial institution and provide them to the Board,” the Bill reads.

Sebon, however, will have to keep such records confidential and use them solely for investigative purposes.