The Securities Board of Nepal (Sebon) has moved to issue licences to new brokerage firms outside the Kathmandu Valley even as existing companies are having a hard time keeping their head above water.

On Monday, Sebon wrote to the Nepal Stock Exchange (Nepse) to provide permits to new brokerage firms. The regulator decided to open the gates to new firms citing a possible rise in stock trading after Nepse’s online system runs effectively, said Sebon spokesperson Niraj Giri.

According to Giri, Sebon plans to issue operating licences on a province-wise basis.

“We will issue permits based on the volume of commercial activities in each province except Province 3 that includes the Valley,” said Giri, adding that Sebon was yet to fix the number of new brokers.

Sebon can allow new brokering firms only on Nepse’s recommendation. Nepse has issued licences to 50 brokerage firms. These companies are operating 41 remote work stations in major commercial towns such as Pokhara, Biratnagar, Dharan, Baglung, Besisahar, Nepalgunj, Birtamod, Birgunj and Hetauda.

Nepse permitted brokerage firms to open branches outside the Valley two years ago. Nepse has fixed the minimum office area, manpower and related equipment required to open remote work stations.

According to stockbrokers, the remote work stations generate very little income and it is difficult to sustain them. “Trading from the 41 remote work stations barely amount to 10 percent of the total transaction volume,” said Bharat Ranabhat, president of the Stockbrokers’ Association of Nepal.

Business is slow because of the small volume of banking transactions outside the Valley and lack of awareness among potential investors about buying stocks, said Ranabhat, who operates a remote work station in Pokhara. “This has raised questions about the viability of new firms in these locations,” he said.

In 2009, Nepse issued 27 new licences raising the number of brokerage firms to 50. The brokerage firms are required to have a paid-up capital of Rs20 million. They need a working capital of Rs50 million if they wish to engage in margin lending.

Nepse spokesperson Murahari Parajuli said many potential investors outside the Valley were more interested in buying shares in initial public offerings than trading on the secondary market. “After receiving Sebon’s instruction, Nepse is working on possible modalities to allow new stockbrokers,” Parajuli said.