Dual ISIN System Proposed to Protect Public Investors from Misleading Share Sales

CDS and Clearing Limited has announced plans to introduce a dual International Securities Identification Number (ISIN) system to prevent the misleading sale of promoter shares to general investors. The company said the proposed mechanism aims to strengthen transparency and ensure greater legal and financial protection for market participants.

The provision has been included in the proposed Dematerialization Operation Directive, 2082, which has already been submitted to the Securities Board of Nepal for approval. Under the new framework, separate ISIN codes will be assigned to promoter shares and public shares, making it easier to distinguish between the two categories in the secondary market.

At a program held in Kathmandu on Monday, CDSC officials said the existing single-ISIN system has made it difficult to identify the nature of shares. This loophole has allowed some promoters to sell their holdings before completing the mandatory lock-in period, often misleading retail investors in the process. Such practices, they said, have weakened market confidence and exposed small investors to unnecessary risk.

Chief Executive Officer Prabin Pandak stated that the absence of a clear identification system had created long-term structural problems in the market. According to him, a dual-ISIN mechanism should have been introduced years ago. “Because this was not done in time, investors have suffered. We are now trying to correct that weakness through a formal directive,” he said.

Once the directive is implemented, any conversion of promoter shares into public shares will require mandatory public disclosure. CDSC explained that companies will have to formally announce such changes and follow a regulated process before merging different share categories into a single ISIN. This measure is expected to prevent unauthorized or hidden conversions that have occurred in the past.

Pandak noted that several listed companies have previously converted promoter shares into ordinary shares without proper disclosure. In many cases, inconsistencies were found between company records and the CDSC system, creating confusion and legal uncertainty. Under the proposed rules, such discrepancies will no longer be allowed, as all changes must be recorded and verified through official procedures.

The company has also emphasized that the dual-ISIN system will help protect promoter shareholders themselves from future legal complications. By maintaining separate identification codes during the lock-in period, both investors and regulators will be able to monitor ownership structures more effectively. This, CDSC believes, will contribute to the long-term stability of the capital market.

The proposed directive also requires that any merger of ISINs be carried out in line with international standards and publicly disclosed. CDSC said the provision is based on global best practices and aims to align Nepal’s securities market with internationally accepted norms.

According to the company, the directive is legally supported by several existing regulations, including the Securities Registration and Issuance Regulation, 2073, provisions of the Companies Act, and directives issued by the Ministry of Finance. CDSC maintains that the new system does not violate investors’ rights and instead strengthens both legal and economic safeguards.

The organization has further clarified that the directive ensures equal treatment of all listed companies. It removes uncertainty over whether promoter shares will receive separate or unified ISIN codes, thereby establishing a uniform standard across the market. Pandak added that no additional fees will be charged for merging ISINs when done through the approved process.

An ISIN is a 12-digit international identification code used to uniquely identify securities such as shares and bonds. By introducing a dual-ISIN structure, CDSC aims to make this identification system more functional and transparent in the Nepali context.

Market analysts believe the move could be a significant step toward improving governance in Nepal’s capital market. With increasing retail participation and growing trading volumes, stronger disclosure and monitoring mechanisms are seen as essential for sustaining investor confidence.

If approved and implemented effectively, the dual-ISIN system is expected to curb unethical practices, improve regulatory oversight, and create a more trustworthy trading environment. For many investors, it represents a long-awaited reform that could bring greater clarity and discipline to the country’s share market.