High-Level Panel Urges Capital Expansion and Structural Reform for Nepal Stock Exchange

A high-level committee formed to restructure the Nepal Stock Exchange (NEPSE) has concluded that increasing the exchange’s paid-up capital is essential for its long-term sustainability and competitiveness. The 126-page report, prepared under the coordination of former Nepal Accounting Board chairperson Prakash Jung Thapa, was made public by the Ministry of Finance, Nepal on Tuesday.

The report states that although the Securities Market Operation Regulation, 2007 requires a minimum paid-up capital of NPR 3 billion for a secondary market operator, NEPSE is currently operating with only NPR 1 billion. According to the committee, this gap has limited the exchange’s ability to modernize its services and compete with regional and international markets.

The committee has warned that without sufficient capital, NEPSE cannot make the necessary investments in technology, human resources, infrastructure, research, and service expansion. To address this, it has recommended issuing bonus shares to immediately raise paid-up capital to NPR 3 billion. If additional funding is required in the future, the report suggests mobilizing resources through rights shares or fresh public offerings.

Analysts believe this recommendation reflects growing concern over NEPSE’s weakening institutional capacity. In recent years, the exchange has struggled to keep pace with technological change, while neighboring markets have invested heavily in automation, surveillance, and data systems. As a result, Nepal’s capital market has remained relatively small and less attractive to foreign investors.

The report has also highlighted weaknesses in NEPSE’s ownership and governance structure. At present, the Government of Nepal holds 58.66 percent ownership, while the remaining shares are held by public and financial institutions. The committee argues that this structure has reinforced bureaucratic control and limited managerial flexibility.

To address this, the panel has proposed partial divestment and the introduction of strategic partners. However, it has ruled out full privatization, warning that complete government withdrawal could weaken small investors’ confidence, increase the risk of monopoly, and undermine market self-regulation. Instead, it recommends maintaining partial state ownership while gradually reducing government stakes.

Under the proposed model, strategic partners may be allowed to hold between 15 and 25 percent ownership, with a mandatory lock-in period of at least ten years. The report states that such partners should be selected from leading global stock exchanges with at least 20 years of experience and membership in the World Federation of Exchanges (WFE).

The committee has also raised concerns about excessive government influence on NEPSE’s board. It has recommended dissolving the existing board and forming a new one dominated by independent experts. The report suggests establishing a nomination and remuneration committee to ensure transparent appointments and performance-based compensation.

Governance experts say this proposal reflects long-standing criticism that political appointments and administrative dominance have weakened professional management at NEPSE. According to them, stronger institutional independence is necessary to improve credibility and efficiency.

On the technological front, the report describes NEPSE as significantly behind international standards. It calls for the immediate upgrade or replacement of trading platforms, surveillance systems, data analytics tools, and IT-based services. The committee stresses that modern automated monitoring systems are essential to detect market manipulation and ensure transparency.

The report has also emphasized the need to diversify financial products and services. It recommends introducing exchange-traded funds (ETFs), infrastructure funds, derivatives, SME and startup platforms, margin trading, securities lending and borrowing, and intraday trading. It also highlights the importance of establishing a central counterparty (CCP) to reduce settlement risk in the secondary market.

Market analysts view these recommendations as critical for expanding investment options and improving liquidity. They argue that Nepal’s stock market remains overly dependent on equity trading, making it vulnerable to volatility and speculative behavior.

To strengthen regulatory standards, the committee has urged NEPSE to fully adopt the principles of the International Organization of Securities Commissions (IOSCO). It has also recommended increasing cooperation and information exchange with international exchanges and pursuing full membership in WFE.

According to the report, alignment with global standards would improve investor protection, enhance transparency, and support Nepal’s efforts to integrate into regional and global financial markets.

The committee, which was given 50 days to complete its work, has categorized its recommendations into short-term, medium-term, and long-term reforms. Immediate actions focus on capital expansion and governance restructuring, while medium- and long-term plans emphasize technology upgrades, product diversification, and international partnerships.

Observers say the report presents one of the most comprehensive reform roadmaps for NEPSE in recent years. However, its success will largely depend on political commitment and administrative willingness to implement sensitive reforms, particularly those related to ownership and governance.

For investors, the report has generated strong interest, as it signals potential changes in market structure and regulation. Many believe that if the recommendations are implemented effectively, NEPSE could become more transparent, efficient, and competitive.

At the same time, experts caution that delays or selective implementation could weaken the impact of the reform agenda. Without coordinated execution, they warn, NEPSE may continue to lag behind regional peers.

Overall, the committee’s findings underline the urgent need for modernization and institutional reform at Nepal’s stock exchange. As the government prepares to decide on the future restructuring model, market participants will closely watch whether policy commitments translate into concrete action.