The plan of the Securities Board of Nepal (Sebon) to allow banks to offer brokerage services has run aground after Nepal Rastra Bank (NRB) balked at issuing stockbroker licences to financial institutions. 

The central bank has been holding back citing lack of clear provisions in the Bank and Financial Institutions Act.

Sebon has long been mulling to allow commercial banks to conduct stock trading, and had asked the Nepal Stock Exchange (Nepse) to carry out a study to explore such a possibility.

Nepse said in its report submitted to Sebon last month that the regulator of the securities market should coordinate with the central bank to enforce the provision.

Securities Businessperson Regulations 2008 of Sebon contains a provision allowing banks and financial institutions to offer brokerage services too. 

“Banks or financial institutions established under the prevalent laws may conduct securities business as stockbroker, securities dealer and market maker through their respective fully owned subsidiary company,” states the Sebon regulation.

Sebon Chairman Rewat Bahadur Karki said they would issue stockbroker permits to commercial banks if NRB gives the green signal. “A number of interested banks have applied to NRB for permission,” he said. 

Meanwhile, the central bank said it was unclear whether it would be legal to issue stockbroker permits to banks.  

“The Bank and Financial Institution Act does not have a clear provision on giving permits to commercial banks to operate share trading business,” said NRB Spokesperson Narayan Prasad Poudel. “However, we have been holding discussions to find out if this can be done.”

Sebon Spokesperson Niraj Giri said they were holding talks with NRB. “We have been consulting with a study team formed by the central bank,” said Giri. 

Meanwhile, stockbrokers have opposed Sebon’s plan to permit commercial banks to offer brokerage services. They have said they want to open remote work stations (RWS) in locations outside the Kathmandu Valley. 

Currently, nine out of the 50 stockbrokers in the country have been conducting transactions from major cities such as Biratnagar, Pokhara, Dharan, Birgunj and Narayanghat. 

The rest have been eyeing other large towns like Banepa, Baglung, Besisahar, Birtamod, Butwal, Damak, Hetauda, Itahari, Mahendranagar and Nepalgunj.

According to Nepse, two stockbrokers have recently informed it that they have set up offices in Nepalgunj and Banepa. 

As per Nepse regulations, brokering companies need to have adequate office space, advanced technology and necessary manpower to operate RWS. 

Murahari Parajuli, assistant spokesperson for Nepse, said they would be checking out the new RWS offices. “If they fulfil the requirement, Nepse will allow them to start operations,” Parajuli said.