Journal of SEBON

Topics: Stock market, Stock exchange, Financial markets Pages: 179 (25603 words) Published: May 13, 2014
SEBON Journal
Volume III

July 2007

Securities Board of Nepal
Thapathali, Kathmandu

2

SEBON Journal, Vol.III, July 2007

Building a Dynamic Capital Market
- Deepak Raj Kafle
Nepalese financial system is characterized by small but a growing capital market. During the past 14 years of its operation, securities market has witnessed three market phases of ups and downs. The latest upswing started from the fiscal year 2002/03 and is continuing. During this phase, Nepse index, the market indicator climbed from 205 to 621 (July 10, 2007). The market capitalization of the listed stocks climbed from Rs. 35.24 billion to Rs. 169.05 billion during the same period. During the past five years, capital mobilized through public issue and rights offerings has been in the tune of Rs. 8.4 billion from 109 issues. In the fiscal year 2006/2007 alone, capital worth of Rs. 2.8 billion has been mobilized from 34 issues.

In spite of expansion in size, the securities market is yet to make quality transformation gaining depth and maturity. The market lacks sectoral diversification of performing listed companies, access to secondary trading services is limited , transparency and efficiency of the issuer and market is not sufficient, capacity of the regulator, exchange and the players is limited, the market is featured by active individual investors and the institutional investors are conspicuously absent. The market infrastructures supporting the trading, clearing and settlement are not sufficient. Thus the effort to build a dynamic market is going to be an ardent task requiring a lot of commitment and efforts of the government, regulator, market place, maker players and the investors. The vision for a new Nepal has to have an important place for a dynamic capital market. It should be a market where issuers have choice to tap the funds at lower cost while people have choice to invest in the securities with different risk and return. In essence, securities market is a mechanism that delivers public access to ownership and share benefit from the investment. The fund requirement to finance the establishment and expansion of corporate sector can conveniently 

Chairman, Securities Board of Nepal

SEBON Journal, Vol.III, July 2007

3

come from capital market as these entities venture to tap the opportunities in the economy.
The vision of a vibrant capital market assumes that a country has respectable level of and visible progress in country’s governance. Some aspects of governance like rule of law, effective tax administration, and political stability to ensure consistency and continuity of economic policies, directly impact the confidence of domestic and foreign investors in the market. The governance parameter, particularly the market related ones, should be improved so as to make a meaningful breakthrough in the capital market sector. It is well understood that large number of intermediaries, institutions and professionals are the players and advisors active in capital market. Regulations and laws governing the capital market are diverse, numerous and complex too. At this point of time, Nepalese capital market is focusing on reforming the laws, regulations and policies, building institutional capacity, above all visualizing a dynamic capital market in order to tap the inherent potential and managing the cross border issue and trading of securities. This article intends to highlight important reform initiatives and some critical aspects of capital market development in Nepal.

Legal and regulatory aspects
Government is responsible to frame securities laws and devolve power to make regulations. The government also has its role in formulating capital market development plan and addressing economic, fiscal and public borrowing policies bearing close linkages to the capital market growth. Government plan should support appropriate structure, incentives and infrastructure for the capital market. Nepalese capital market has...

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