Task Force Submits Report on Capital Market Reforms

The four-member task force formed by Finance Minister Rameshwor Khanal has submitted its report on capital market reforms today. The task force was led by Rupesh KC, Acting Executive Director of the Securities Board of Nepal (SEBON). Other members included Sharan Adhikari, Director of Nepal Rastra Bank, Niranjan Phuyal, Acting Executive Director of Nepal Stock Exchange (NEPSE), and Sharad Neupane, Under-Secretary at the Ministry of Finance, who also served as the member-secretary.

The task force was created after the stock market, which had remained closed for over a week following the Gen Z movement, reopened last Thursday and plunged by 160 points. The minister directed the committee to submit recommendations and an implementation plan within five days, which was delivered today.

Immediate Reforms Proposed

• Removal of the NPR 250 million single-client lending cap for margin loans backed by shares.

• Cancellation of the provision requiring banks and financial institutions to invest in listed shares and bonds only for more than one year.

• Extension of the interest payment deadline on margin loans until Poush-end (mid-January 2026) without penalty.

• Implementation of a margin trading system through brokers.

• Development of a new NEPSE All-Equity Index based on free-float shares, to replace the current system, and review of circuit breaker rules.

• Clarification that capital gains tax on non-business share transactions is final.

• Companies to be responsible for withholding and paying dividend tax on bonus shares.

• Investors allowed to open more than one beneficiary (demat) account.

• NEPSE to classify listed companies based on financial health and governance, with 100% cash margin required for ‘Z group’ companies.

• Establishment of a grievance management mechanism and launch of investor awareness programs.

Medium-Term Reforms Proposed

• Restructure NEPSE and initiate capital expansion through an IPO.

• Amend the Income Tax Act to allow deductions for investments in mutual funds.

• Review the 10% minimum public shareholding requirement for IPOs.

• Clear policies for Non-Resident Nepalis (NRNs) to invest in the secondary market in foreign currency and repatriate funds.

• Make the book-building system more effective for IPO pricing.

• Revise lock-in provisions for promoter shares, allowing phased release.

• Permit subsidiaries of insurance companies to operate as securities traders.

• Establish a settlement fund and auction market to strengthen market structure.

Long-Term Reforms Proposed

• Draft separate specialized laws for securities operation and regulation, financial trustees, securities crimes and penalties, and investment advisory.

• Bring in a strategic partner for NEPSE and restructure the exchange.

• Introduce international-standard trading systems.

• Enable intra-day trading, short selling, equity derivatives, and securities lending & borrowing.

• Develop policies for government and institutional bond trading.

The report concludes that Nepal’s capital market must be made clean, transparent, effective, and dynamic to meet the needs of the economy. While immediate reforms can be implemented through administrative decisions, medium- and long-term reforms require amendments to laws, regulations, and policies.

The task force has thus outlined a phased implementation roadmap aimed at restoring investor confidence and addressing systemic issues in the capital market.