The Securities Board of Nepal (Sebon) asked the Nepal Stock Exchange (Nepse) to start work to issue licences to securities dealers in a bid to revitalise the stock market which has been wallowing in a bear market.

Securities dealers, also known as market dealers, buy and sell securities for themselves as opposed to stock brokers who act on behalf of their customers. Unlike other investors who need to use a broker’s platform to trade shares, securities dealers can use the Nepse interface directly. Securities dealers are also allowed to underwrite stocks of listed companies. 

Sebon spokesperson Niraj Giri said the regulator wrote to Nepse on Thursday to issue licences to market dealers. “Nepse has started a full-fledged online trading system which permits bringing in market dealers,” Giri said.

On November 6, Nepse launched a full-fledged online system providing access to the general public, but individual investors have not been able to use it due to a number of technical glitches.

Sebon had been wanting to open the door to market dealers for a long time, but Nepse was hesitant citing the inadequate capacity of the old system. As per the regulator, it needs Nepse’s recommendation to issue licences to market dealers. The Nepse has been in free fall, plunging to a three-year low of 1,120.84 points on Thursday. Sebon had considered permitting the Citizen Investment Trust to work as securities dealer in 2011 when the index hit a record low of 290 points.

Giri said the provision letting in securities dealers was expected to boost stock trading. “Institutional investors can assume higher risks compared to individual investors.”  

Sebon endorsed the Securities Businessperson Regulations in 2008, opening the door to securities dealers and market makers. As per the regulations, a securities dealer is required to have a paid-up capital of Rs20 million and the prescribed infrastructure. Corporate houses need to open a subsidiary company to operate as securities dealers.

Questions have been raised over the possibility of big corporate houses holding a large number of shares to influence share prices in the secondary market, but Giri said that would not happen. “Nepse will fix a limit on the number of shares that a securities dealer can hold by issuing a new bylaw,” Giri said.

Sebon’s move has come at a time when the stock market is going through a bad time due to high interest rates as banks are short of cash. Earlier this week, Sebon asked Nepse to provide licences to brokerage firms based outside the Kathmandu Valley. “Until the issue of interest rate is not settled properly, there is little hope that Sebon’s efforts will yield positive results in the stock market,” said a stockbroker who asked to remain unnamed.