The Kathmandu Post, 09 June 2018
Finance Minister Yubaraj Khatiwada on Friday said the government was mulling to devise policies to bring stability in the country’s secondary market which would help promote capital formation.
A poorly performing secondary market adversely affects investor interest in primary shares, which ultimately hits the entire ecosystem of the capital market, Khatiwada said.
Speaking at a programme organised to mark the 26th anniversary of the Securities Board of Nepal (Sebon), the finance minister said that strengthening the concerned regulators, introducing a full-fledged online trading system, upgrading CDS and Clearing, digitising government bonds and implementing hedging in exchange rates were among the government’s priorities for the development of the capital market.
“Failure to gain stability by the secondary market has also led to the slow process of diversification of the instruments in the capital market.”
Khatiwada’s remarks have come when the country’s stock market is witnessing high volatility.
A few days ago, investors boycotted trading on the Nepal Stock Exchange (Nepse) to protest the government’s decision to revise the capital gains tax threshold on the sale of bonus and rights shares.
Khatiwada expressed concern over the weak regulation of players in the capital market. Apart from Sebon, Nepal Rastra Bank, Employees Provident Fund, Citizen Investment Trust, Insurance Board, Office of the Company Registrar, Institute of Chartered Accountants of Nepal and the Department of Cooperatives are among the main regulators of the institutions that play a key role in the capital market.
“There is a need for cooperation among these regulators to make the secondary market autonomous, transparent and stable which will safeguard the interest of investors.”
Khatiwada said that remittance could not be a long-term solution to maintaining liquidity and financing the country’s imports. “Increasing people’s participation in the capital market could take the economy to stability,” the finance minister said.
High entry barriers in the securities industry, lack of competition, restricted foreign access to domestic equity markets, government control over operations of securities companies, weak regulatory frameworks and inadequate supervisory mechanisms are among the problems in the country’s secondary market.
In many cases, a handful of investors have been causing fluctuation in shares prices by manipulating related information to obtain undue benefits. Khatiwada pointed to poor financial literacy among investors as another reason behind the poor dissemination of information in the market.
The secondary market is often influenced by liquidity shortages in the banking business. Many banks are in the habit of taking little risk; this has led to a shortage of loanable funds which in turn has impeded capital formation.
Khatiwada said the practice of providing loans to long-term projects by using short-term deposits had led to the problem. He urged banks and financial institutions to issue long-term bonds and trade in the secondary market to address the shortage of funds for investment.