Share allotment process to be shortened to 20 daysThe Securities Board of Nepal (Sebon) has planned to make it mandatory for companies issuing primary shares to complete the allotment process within 20 days following the application deadline.
The Securities Board of Nepal (Sebon) has planned to make it mandatory for companies issuing primary shares to complete the allotment process within 20 days following the application deadline.
The new rule is likely to go into effect at the beginning of the next fiscal year. It will ensure that investors will not have to face the possibility of their cash being locked up for an extended period. At the same time, the possibility of a liquidity shortage in the banking system will also be minimised, Sebon said.
Currently, companies floating primary shares usually give investors a week to submit applications. In case of oversubscription, the application deadline is advanced to four days.
However, the companies have been taking their time completing the share allotment process.
As per the prevailing Sebon regulation, companies issuing primary shares have to wrap up the stock allotment process within 60 days at the maximum. The previous deadline was 70 days.
As the allotment process drags on, the money deposited by investors remains stuck within the system, preventing them from investing it elsewhere or trading their stocks.
Sebon spokesperson Niraj Giri said the regulator had considered cutting the time provided for the stock allotment process in order to free investors of such problems. “It could also attract more investors into the capital market,” he said.
Moreover, the reduced timeframe is expected to minimise liquidity problems that have been appearing time and again in the banking system due to the lengthy allotment process.
A few months ago, more than Rs56 billion remained immobile while Nepal Life Insurance and Forward Community Microfinance took their time their primary shares, aggravating the shortage of loanable funds in the banking system.
The problem had even compelled the regulator to instruct the slowpoke companies to finish the share allotment process pronto.
Sebon will be enforcing the regulation simultaneously with the Application Supported by Blocked Amount (ASBA) service.
Giri said Sebon planned to speed up the share allotment process by using the software being used by CDS and Clearing, a subsidiary of Nepal Stock Exchange, to manage the ASBA and demat transaction.
“After the ASBA service becomes mandatory, the software will automatically upload the verification of the applicants wishing to invest in primary shares to the system of the concerned issue managers.”
Sebon has reduced the processing fee charged by banks in a bid to implement the ASBA service effectively. The processing fee has been slashed to a maximum of Rs100 from Rs250 per share.
A number of financial institutions such as NIC Asia, Siddhartha Bank and Bank of Kathmandu have been offering free ASBA service to their customers.
Similarly, a number of development banks have reduced their processing charge to as little as Rs10 per share. Currently, 52 banks and financial institutions across the country are offering the ASBA service.