CDS and Clearing Limited (CDSC) is set to introduce a policy classifying dematerialised securities into two groups—promoter and public—by assigning them separate International Securities Identification Numbers (ISINs).

To implement this, CDSC has drafted the Securities Dematerialisation Operating Guidelines 2025 and submitted it to the Securities Board of Nepal (Sebon) for approval. The draft proposes issuing distinct ISINs for promoter and public shares of all listed companies, similar to the existing system followed by banks, financial institutions, and insurance companies.

An ISIN is a unique code assigned to a dematerialised share. CDSC’s new policy aims to enforce a clear separation between promoter and public shares for all sectors.

Currently, banks, financial institutions, and insurance companies maintain separate ISINs for promoter and public shares. At the same time, other sectors operate under a single ISIN—even though promoter shares are not tradable during the mandatory three-year lock-in period.

If approved, the new directive will end the automatic conversion of promoter shares into public shares after the lock-in expires. Companies must formally apply to CDSC for conversion, subject to approval from relevant regulators.

While investor associations have welcomed the move, saying it will strengthen market integrity, promoter groups, especially those in the energy sector, have sharply criticised it. The Independent Power Producers’ Association, Nepal (IPPAN) has claimed that CDSC’s recent decision will affect 870 million shares worth Rs87 billion across 58 industries, including energy, media, and cement.

According to the statement signed by IPPAN President Ganesh Karki on Tuesday, in the energy sector alone, 530 million shares worth Rs53 billion from 47 projects will be affected, along with a negative impact on the investments of 37 companies that have applied to issue shares worth Rs41 billion.

IPPAN argued that the directive will delay the government’s target of generating 28,500 megawatts of electricity within 10 years. It accused CDSC of obstructing the share dematerialisation process and pushing forward the directive without adequate consultation.

However, retail investors argue that the reform is long overdue. They say the current single-ISIN system enables illegal trading of locked-in promoter shares. Keshav Prasad Shrestha, president of the Nepal Share Market Investors’ Association, said Sebon has already penalised two promoters for trading before their lock-in expired.

“Our system doesn’t flag locked-in shares, allowing some promoters to bypass restrictions,” he said. “Separate ISINs will help enforce lock-ins and prevent malpractice.” He said the simultaneous release of large volumes of promoter shares often destabilises prices—something the directive can address.

Under current practice, once the three-year lock-in period ends, promoter shares are automatically converted into public shares and traded at market price, often triggering massive sell-offs by founders.

CDSC said this had encouraged promoters to exit en masse, leading to volatility. The directive aims to curb such behaviour and enforce procedural conversion post lock-in.

Sebon has also found that most hydropower promoters offload their shares as soon as the lock-in expires. Its internal study concluded that founders lack confidence in the long-term performance of their own projects.

There have been cases where promoters, in collusion with issue managers, sold shares during the lock-in period or pledged them to banks and sold them after they were converted into public shares, violating legal provisions.

Technical loopholes in the CDSC and Nepse systems have enabled such transactions, and Sebon is reviewing multiple complaints for regulatory action.

CDSC defends the directives

CDSC Managing Director Prabin Pandak said the directive—long delayed since CDSC’s establishment 15 years ago—will bring much-needed transparency and order to Nepal’s capital market.

“It strengthens statistical management, improves record-keeping, and ensures compliance,” she said.

Sebon spokesperson Niranjaya Ghimire confirmed that the draft directive has been submitted and said the board will initiate due process after studying its provisions.

How ISIN works

When companies receive Sebon’s approval to issue an IPO, they must later apply to CDSC to dematerialise their shares. CDSC then assigns an ISIN, typically based on codes provided by Nepse.

So far, Nepse provides two codes only to banks and insurance firms—owing to the licensing terms set by Nepal Rastra Bank and the former Insurance Board. As other sectors lack similar regulatory mandates, Nepse assigns just one code, which CDSC uses to issue a single ISIN.

Still, in the past, Nepse has issued dual codes to several non-financial firms like Kalinchowk Cable Car, Emerging Nepal, and Citizen Investment Trust, allowing CDSC to issue separate ISINs for their promoter and public shares.

Many of these companies have already completed their lock-in periods, and the dual-ISIN structure remains in place. CDSC said the new directive aims to apply this same structure uniformly to all companies, ending the inconsistency seen so far.