The government last week decided to take ownership of and make public a long-awaited report on the restructuring of the Nepal Stock Exchange (Nepse), about a month after it was submitted.
The study, conducted by a five-member committee led by former Chair of the Nepal Accounting Standards Board Prakash Jung Thapa, outlines reforms aimed at transforming the country’s sole stock exchange into a modern, competitive and professionally run secondary market institution aligned with international standards.
It had representatives from the Nepal Rastra Bank, Securities Board of Nepal and Nepse as members, while finance ministry under-secretary Sharad Niraula served as the member secretary.
Among others, the report has recommended increasing Nepse’s paid-up capital, bringing in a global strategic partner, gradually divesting government ownership, overhauling the board structure, expanding investment instruments, and strengthening institutional governance and technology.
The committee has proposed raising Nepse’s paid-up capital to Rs 3bn in line with the Securities Market Operation Regulations. For this, it has suggested issuing bonus shares as the primary option, while keeping open the possibility of rights issues or new share issuance in the future to meet additional investment needs related to technology and infrastructure development.
One of the major recommendations made in the report is the entry of a world-class strategic partner to bridge Nepse’s technological and managerial gaps. The committee has proposed inviting a strategic investor from among the world’s top 20 stock exchanges, with at least 20 years of operational experience and membership of the World Federation of Exchanges. Such a partner would be offered 15-25 percent ownership in Nepse, subject to a minimum lock-in period of 10 years. According to the report, the strategic partner should be capable of introducing advanced trading technology, modern investment tools and international best practices in exchange operations.
The study also strongly advocates reducing government dominance in Nepse’s ownership structure, arguing that institutions with overwhelming government ownership often suffer from structural weaknesses, including excessive political influence and lack of operational flexibility. In line with the government’s broader policy of divesting from public enterprises, the committee has recommended gradually reducing state ownership in the stock exchange. For this, it has proposed two divestment models. Under the first, the government would retain a 25 percent stake, while the remaining shares would be sold to a strategic partner and other investors. The second model envisions complete government exit, with 20 percent of shares allocated to the general public and the rest distributed among banks, financial institutions and the strategic partner. “However, any divestment should be preceded by an international-standard valuation of Nepse’s assets and liabilities to determine a fair per-share price,” it added.
Another major reform outlined in the report is the restructuring of Nepse’s board of directors. At present, most board members represent the government or government-owned institutions. To end this government dominance, the committee has recommended reconstituting the board with a majority of independent expert directors. It has also suggested excluding the CEO from board membership to avoid conflicts of interest and mandating at least one expert director nominated by the strategic partner.
To make board appointments more professional, the committee has proposed forming a nomination and remuneration committee responsible for selecting directors based on defined qualifications and determining their remuneration according to performance.
The report has also placed strong emphasis on diversifying investment instruments and services. Currently, Nepse offers a limited range of products which has limited investors’ ability to diversify risk. The committee has recommended introducing exchange-traded funds, infrastructure funds and derivative instruments linked to equities and indices. It has also called for the launch of platforms for small and medium enterprises and startups, as well as services such as margin trading, securities lending and borrowing, short selling, intraday trading and advanced IT services including API partnerships, data analytics and co-location facilities.
Institutional governance reforms form another key component of the recommendations. Identifying gaps in risk management, internal control systems, human resource policies and incentive structures, the committee has suggested comprehensive reforms covering board oversight, director qualifications, remuneration and incentives, risk management frameworks, internal controls, and transparent recruitment, career development and benefit systems for employees.
Realizing the need to align Nepse with global regulatory and operational standards, the study panel has recommended adhering to principles set by the International Organization of Securities Commissions (IOSCO), establishing critical market infrastructure such as a central counterparty (CCP), and expanding cooperation with international stock exchanges to enhance competitiveness and credibility.
The cabinet formed the study committee on Nov 18 at the initiation of Minister for Finance Rameshore Prasad Khanal. It submitted its report on Jan 12.
