The Securities Board of Nepal (Sebon) has asked Nepal Stock Exchange (Nepse) to conduct a system audit every two years to maintain corporate governance in the sector.

At a time when the regulator is considering to enforce a fully automated system, the provision of a regular system audit is expected to make the online trading system more reliable.

 Through enforcing Stocks Listing and Transaction Regulation 2018, the sector’s regulator has come up with the provision.

“In a bid to make the market more technology friendly, specific software is to be used in implementing the automation system,” reads Sebon’s regulation. Sebon has also asked the concerned to report to the regulator about the system audit within the prescribed time limit. At present, there is no mandatory provision of a system audit in the sector. 

A system audit is the assessment of the information technology based management system that could help evaluate and improve the effectiveness of a system. It involves the assessment of the vulnerability and possible threat in the system along with analysis of the internal control mechanism within the system.

Niranjaya Ghimire said they have enforced the provision of system audit through the law. As CDS and Clearing and brokers use the software enforced by Nepse, the provision could help enhance the efficiency of the entire transaction system of the stock exchange market.”

Nepse is now preparing to test the fully online trading from July 17 which is expected to come into full operation after three months. The software developed by an Indian vendor, YCO, needs to receive approval before the fully online trading goes live. Currently, Nepse is in the process of carrying out user acceptance testing.

As per the directive from Nepse with regards to the online system, stock brokering companies have recently appointed their data centre and data recovery centre.

According to stockbrokers, they have come to consensus to use the data centre provided by Silver Line, a subsidiary of Mercantile Communications and Access World, a software company that has been working as service provider for the past few years.

Through the new regulation to be enforced from Tuesday, Sebon also talks on categorising the listed companies in four broad types—A, B, G and Z.

The companies identified with large capital base, good financial health and having good corporate governance will be considered under ‘A’ type companies. The companies failing to abide the compliance will be categorised under ‘Z’ group.

At present, Sebon has separated the companies in A and B categories. Of the 195 listed companies, 112 are under ‘A’ type. “The new system will enable investors to assess the level of risk before investing in the companies’ stocks,” reads the regulation.

By bringing down the time frame for listing the shares, the new regulation has asked companies to list their shares within seven days from the date of receiving approval for the issuance. Currently, the deadline for the companies to list their shares is 30 days following the completion of the shares’ allotment.