Professional Documents
Culture Documents
By:
Biman Khadka(5)
Mamata Thapaliya(10)
Pankaj K.C.(15)
Pravesh Timilsina(20)
Rohit Baral(25)
Suraksha Koirala(30)
Dipesh Yadav(35)
Kritipur, Kathmandu
1/1/2015
ACKNOWLEDGEMENT
This report has been prepared as per the requirement of Master of Finance and Control,
School of Management Tribhuvan University in which students are required to prepare
reports to familiarize them with the practical aspects of what has been learnt in theories in the
classroom.
We would like to express our gratitude Dr. Jeetendra Dangol, deputy director of MFC
program, School of Management Tribhuvan University for providing great help to work and
without whose approval this report would have never been completed.
We are highly indebted to Prof. Rajan B. Poudel of SOMTU, for his cordial co-operation,
supervision and inspiration without which this report would not have come into existence.
His intellectual guidance continually inspired us to complete this work.
We sincerely acknowledge our thanks to all respected teachers, friends and all colleagues in
completing this project.
Thank You!
Group Members
ABBREVIATIONS
NEPSE
NRB
KYC
ATS
CDS
IPO
NATS
GoN
Government of Nepal
OTC
MC
Market Capitalization
OS
Outstanding Shares
ii
Contents
ABBREVIATIONS ...................................................................................................................ii
List of Tables ............................................................................................................................ iv
Chapter-1.................................................................................................................................... 1
1.1
Introduction ................................................................................................................. 1
1.2
1.3
1.3.1
1.3.3
1.4
1.5
1.6
1.6.1
Taxation: ............................................................................................................ 10
Chapter -2................................................................................................................................. 11
2.1
2.1.1
2.1.2
Trading timings...................................................................................................... 12
2.2
2.3
Circuit Breakers......................................................................................................... 13
2.4
2.4.1
2.5
NEPSE Index............................................................................................................. 16
2.5.1
2.6
Float Index................................................................................................................. 19
2.7
2.7.1
2.8
Chapter - 3................................................................................................................................ 23
3.1
Conclusion................................................................................................................. 23
Bibliography .............................................................................................................................. 1
iii
List of Tables
Table 1 Index disssemination table ............................................................................................ 4
Table 2 List of lisenced brokers ................................................................................................. 8
Table 3 Trading timings in NEPSE ......................................................................................... 12
Table 4 Capital requirement for public share proportion......................................................... 14
Table 5 Delisted companies ..................................................................................................... 16
iv
Chapter-1
1.1 Introduction
Stock market is the mechanism created to facilitate the exchange of the financial assets with a
maturity period of more than one year. It is a wide term embracing the buyers and sellers of
securities and constitutes all the agencies that assist the sale and resale of securities. In stock
market people buy and sell securities which are less tangible than gold but less valuable
(Ritter and Silber 2008). Stock market facilitates the exchange of financial securities, which
helps to mobilize internal and external financial resources.
Stock market is recognized as an effective way of raising funds for commercial enterprises,
and at the same time providing an investment opportunity for individuals and institutions
having surpluses. The enterprises can collect the funds from the stock market by issuing
various securities, i.e. equities, corporate bonds, mutual funds and derivatives etc. Similarly,
government can collect the funds from the stock market by issuing development bonds and
municipal bonds. Nonetheless, the selling of securities is possible only if individual and
institutional investors have level playing field in the market with ample opportunities for the
long term capital investment and short term speculative venture.
Safeguarding the interests of the investors is equally important together with overall
development and management of the stock market for attracting large number of domestic
and international investors. A small and scattered savings in the economy can be mobilized
productively with the mechanism of stock market. A person with a small amount of saving
also invest in mutual funds and get a good rate of returns without sufficient knowledge of
investment as the mutual funds are managed and operated by professional fund managers and
the fund managers make portfolios of different securities that maximize the return to the unit
fund holder.
Mass participation in country's industrialization process as visualized by the national plans is
possible through the efficient mechanism of the stock market. Stock market promotes
efficient collection of small and scattered savings from the investors and provides returns to
them in the form of dividend and interest with productive mobilization of these savings. The
global trend is to toward the capital market based financial system, which promotes the
competitiveness of financial industry and efficiency of corporation financing (Noh 2010).
Development of stock market enables high quality enterprises to increasingly finance
themselves from securities rather than bank loans (Shrirai 2004). Unlike traditional bank
based financing, developed stock market provides financing only to the firms having good
performance and transparency.
regulation. Similarly, SEBON started securities data management system of Nepal (SDMSN)
on 15 November, 2009 with the central securities data bank, online reporting system, and
uninterrupted power backup.
portfolio manager. At present there are 11 sales and issue manager and 2 dealers (secondary
market). The tenure of the membership is one year. The license should be renewed within 3
months after the closure of the fiscal year. If not, it can be done within another three months
by paying 25% penalty.
1.3.1 Index Dissemination in NEPSE:
S.no
Name
Base Year
NEPSE Index
1994-02-12
Sensitive Index
2007-01-01
Float Index
2008-09-15
2008-09-15
To ensure liquidity and demand of supply of securities the stock exchange permits healthy
speculation of securities.
7. Liquidity:
The main function of stock market is to provide ready market for sale and purchase of
securities. The presence of stock exchange market gives assurance to investors that their
investment can be converted into cash whenever they want. The investors can invest in long
term investment projects without any hesitation, as because of stock exchange they can
convert long term investment into short term and medium term.
8. Better Allocation of Capital:
The shares of profit making companies are quoted at higher prices and are actively traded so
such companies can easily raise fresh capital from stock market. The general public hesitates
to invest in securities of loss making companies. So stock exchange facilitates allocation of
investors fund to profitable channels.
9. Promotes the Habits of Savings and Investment:
The stock market offers attractive opportunities of investment in various securities. These
attractive opportunities encourage people to save more and invest in securities of corporate
sector rather than investing in unproductive assets such as gold, silver, etc
simply carrying out a stock or bond trade. These firms also offer margin loans for certain
approved clients to purchase investment on credit, subject to agreed terms and condition.
Traditional brokerage firms have also become a source of up to date stock price and quotes.
In Nepal there are 50 licensed brokers. The broker and brokerage firm of Nepal are as
follows.
S.N
Securities broker
Address
Putalisadak, Kathmandu
Newpalza, Kathmandu
Putalisadak, Kathmandu
Naksal, Kathmandu
Putalisadak, ktm
Newplaza, ktm
Dharmapatha, Kathmandu
Kamaladi, Kathmandu
Indrachowk, Kathmandu
10
Putalisadak, Kathmandu
11
Anamnagar, Kathmandu
12
13
Khichapokahri, Kathmandu
14
Khichapokahri, Kathmandu
15
Malla
and
malla
stock
com.pvt.ltd
16
Dillibazar, Kathmandu
17
Kamaldi, Kathmandu
18
Kupandol, Kathmandu
19
Putalisadaka, Kathmandu
20
21
Putalisadak, Kathmandu
22
Putalisadak, Kathmandu
23
24
Putalisadak, Kathmansun du
25
Kamalpokhari, Kathmandu
26
Dakchinkali
investment
pvt.ltd
27
Dipsikha
stock
exchange
company pvt.ltd
28
Kohinoor
investment
pvt.ltd
29
30
Putalisadaka, Kathmandu
31
Putalisadak, Kathmandu
32
Hattisar, Kathmandu
33
Jamal Kathmandu
34
Kuleshwar, Kathmandu
35
Kuleswar, Kathmandu
36
Anamnagar, Kathmandu
37
Putalisadak, Kathmandu
38
NI V securities pvt.ltd
Putalisadak, Kathmandu
39
Putalisadak, Kathmandu
40
Putalisadak, Katmandu
41
Newpalaza, Kathmandu
42
Sundhara, Kathmandu
43
Kalimti, Kathmandu
44
Naksal, Kathmandu
45
Newroad, Kathmandu
46
Tripureawar, Kathmandu
47
Tripureswar, Kathmandu
48
Kamaladi, Kathmandu
49
50
Putalisadak, Kathmandu
Traded Amount
Rate of Commission
Up to Rs.50,000
1%
Rs.50,001 to Rs.4,99,999
0.9 %
Rs.50,001 to Rs.9,99,999
0.8 %
Above Rs.10,00,000
0.7 %
Traded Amount
Rate of Commission
Up to Rs.5,00,000
0.20%
Rs.5,00,001 to Rs.49,99,999
0.10%
Above Rs.50,00,000
0.05%
C. Brokerage Commission for all other financial instruments not mentioned in A and B
Traded Amount
Rate Of Commission
Up to Rs.50,000
0.75%
Rs.50,001 to Rs.49,99,999
0.60%
Above Rs.50,00,000
0.40%
The brokerage commission is not the net revenue of the broker. It is distributed as follows:
10
Chapter -2
2.1 Trading System of NEPSE
NEPSE introduced fully automated screen based trading from 24th August, 2007. Significant
developments have been made in the secondary market in recent years, especially after the
GoN decided to reform the capital market. The computerized trading system has replaced the
open-cry-out system. NEPSE operates on the NATS, a fully screen based automated trading
system, which adopts the principle of an order driven market. Purchase & Sell of Physical
Share certificates is done through NATS. NATS adopts the principle of an order driven
market.
NEPSE has implemented the wide area network (WAN) system. Hence trading can be done
either from NEPSEs trading floor or from the brokers office. NEPSE uses a sophisticated
technology to help brokers easily perform their transactions.
11
Days
Sunday to Thursday
Friday
Market open
12:00 hrs
12:00 hrs
Market close
15:00 hrs
13:00 hrs
The exchange may however close the market on days other than schedule holidays or may
open the market on days originally declared as holidays. The exchange may also extend,
advance or reduce trading hours when it deems it necessary.
12
done through DPs. Both CMs and DPs are directly linked to CDS through software, which
helps settle stock transaction instantly.
Investors have to wait for just three days to get the ownership transferred under the online
trading system. Apart from reducing the clearance time, the paperless shares transaction
system is also expected to boost stock transactions from outside the valley.
13
last three consecutive years to the Nepal Stock Exchange. Some documents like audited
financial statements and annual reports are mandatory to furnish to Nepal Stock Exchange at
the end of each year in order to renew the listed company. At present there are 271 companies
listed in NEPSE including banks, insurance companies, hydropower and hotels.
Listing criterions are as follows:
The following minimum proportion of public share is required as per capital amount:
Capital
% of Public Share
Upto 10 M
25 %
Rs 10 to Rs 50 M
20 %
RS 50 to Rs 100 M
15 %
Determined by NEPSE
Nepal Stock Exchange (NEPSE) had given listed companies a month-long ultimatum to
register with Central Depository System and Clearing Ltd (CDSCL) or face consequences.
CDSCL is a subsidiary of NEPSE that provides one-window service for centralized
depository, clearing and settlement services in the capital market. It acts as a central
depository for various instruments (equity, bonds, and warrants etc) especially to handle
securities in dematerialized form without physical movements of securities or execution of
transfer. Companies will be able to enlist their shares in the secondary market even without
issuing their Initial Public Offering (IPO) if the proposed securities listing bylaws comes into
implementation.
Nepal Stock Exchange (NEPSE) has brought forward the draft bylaws for discussion among
stakeholders. The proposed bylaws allow companies to list their shares in the bourse for
trading for a maximum of two years without going into public. The proposed bylaw will
replace the existing Securities Listing Bylaw 2053.The new provision is being proposed on
the wake of growing complaints that the NEPSE has failed to attract many companies, mostly
of realty sector, in the secondary market. According to the proposed bylaws, companies
14
interested to list their shares, however, will have to submit detailed time-bound plan to hand
over the shares to public through IPO or other ways.
Likewise, the proposed bylaws categorize listed shares into two types -- permanent and
temporary securities. The permanent securities include ordinary shares, irredeemable
preferential shares and bonds, while the temporary listing includes mutual fund, redeemable
preferential shares, bond, and preferential shares to be converted to ordinary ones, right
shares advice slips, unitary saving scheme, and securities to be converted into ordinary
shares.
2.4.1 Delisting of companies
Delisting is the removal of a listed security from the exchange on which it trades. Stock is
removed from an exchange because the company, for which the stock is issued, whether
voluntarily or involuntarily, is not in compliance with the listing requirements of the
exchange. Any company found to be in contravention of new, more stringent, listing
requirements, should be warned and ultimately de-listed from the exchange if they do not
comply.
In the world today, the reasons for delisting include violating regulations and/or failing to
meet financial specifications set out by the stock exchange. Companies that are delisted are
not necessarily bankrupt, and may continue trading over the counter.
As per the current rule, the companies can be delisted, if they fail to submit renewal charge,
discontinue AGM, failed to audit financial status, unreachable contact address of
registered office and discontinuation of communication from the promoters, board of
directors and management of the concerned companies to the stock exchange and the
regulators. Most of the manufacturing and trading companies are eligible for being delisted
according to the rule.
15
Delisted companies
Company name
Sector
Development bank
limited
Biratnagar Jute Mills limited
BJN
Manufacturing
and
processing unit
Himgiri
Textile
Industries HTL
Limited
Manufacturing
and
processing unit
MSM
and
processing unit
NFL
Manufacturing
Finance
Other
Centre
Nepal Bangladesh Finance & NBFL
Finance
Byapar
Bikash NBCK
Trading
Company(Koshi) Limited
Table 5 delisted companies
16
Outstanding shares
Closing Prices
M. C. At 0 time
1000
40
40000
1200
35
42000
1500
50
75000
157000
Now suppose that the number of outstanding shares and the prices of the stocks at period 1
changed as presented below (company A issued 50 bonus shares and prices of the stocks
altered).
Companies
O.S.
O.S
Closing Prices
New M. C.
New M. C.
excluding
including new
At 1 period
new listing
listing
At 0
At 1
Period
Period
1000
1050
45
45000
47250
1200
1200
40
48000
48000
1500
1500
55
82500
82500
17
175500
177750
Required document
1 Copy of photograph
Validity up to 15 days
(T+5 means that when a security is purchased, payment and the securities certificate
must change hands no later than five business days after the trade is executed)
Market Indices
As of 2014-12-31
Index
Current
Points Change
% Change
NEPSE
902.33
-4.9
-0.54
Sensitive
193.7
-1.55
-0.79
Float
62.96
-0.41
-0.64
Sen. Float
52.85
-0.44
-0.83
(Source; http://www.nepalstock.com.np/)
20
How to Calculate?
Sensitive Float Index = [Current MV of all shares listed in NEPSE under Group A Floated
to public / MV of shares in Base year] *100
365,010,832
1,063,950
Total Transactions
2071
122
925,355.15 Millions
288,284.74 Millions
(Source; http://sharebazarnepal.com.np/)
21
From above we can see that market capitalization of NEPSE (925,355.15 Millions) on date
2014-12-31.
Requirement of other indices by nepse (float indices)
The standard NEPSE index designed to follow Market Capitalization- Weighted
methodology. In this design large companies which have high market capitalization affect the
indexes. The slight change in price level affects whole the nepse index. But most of such
large companies shares are locked up or they are not readily available for public. This
creates artificial rise or fall. The large company like Nepal telecom, nabil bank, standard
chartered bank, investment bank holds market in greater extent. So any changes of price level
of such company affects whole the nepse standard index.
In 2013 a plunge in Nepal telecom share price following its book closure further dampened
the performance of stock market for week. The share price of NT that has biggest market
capitalization in stock exchange went down by RS 48 per unit that crushed other sub group
by 56.38 points. (Source; the Himalayan Times, 23 March 2013)
Thats why NEPSE introduced free float and sensitive float index techniques to measure the
realistic measure of change in stock price. This methodology only considers the freely floated
shares for calculating market capitalization. So index is constructed on the basis of free float
market capitalization.
because it ignores the locked up shares. It provides the true amount of floated shares and true
impact of their price level. Market capitalization of large companies reduced to the level of
readily available shares, this will reduce the artificial impact of big companies in share
market. It is good news for both investor and potential investor of Nepalese share market.
This will give true and actual figure of share market to the investor. So depending upon the
float indexes they can make their rational decision on investment.
22
Chapter - 3
3.1 Conclusion
Securities market plays a pivotal role in mobilizing the fund in the economy. Investment in
securities market leads to channeling the fund towards productive sector. Capital market is
always important to every investor. From here they can participate in the development of
economy. Index also represents the financial figure of nation or it shows how well are the
companies of particular nation are doing. Foreign investors rely on capital market
performance before investing in the country. Stock market can be taken as an indicator of
development and financial performance.
In Nepal NEPSE is only the institution established for capital market practices which since its
establishment is continually connecting the investor or potential investor to share market. It is
responsible for calculating the indexes and changes in indexes. The basic objective of NEPSE
is to impart free marketability and liquidity to the government and corporate securities by
facilitating transactions in its trading floor through member, market intermediaries, such as
broker, market makers etc. It seems that NEPSE is partially fulfilling its objectivity but still
there is a long way to fulfill its objectivity completely. There are some regulatory issues and
transparency problem in NEPSE. Still small shareholder does not have access to full
documented information.
NEPSE is only confined to equity market; transaction of debt is negligible in stock market.
NEPSE should also focus on debt transaction. This is an era of globalization so it would
beneficial to be integrated with world market. In order to fulfill its objectivity NEPSE should
follow the securities act effectively and it should also practice good corporate governance to
develop the corporate culture in it. The disclosure of data should be available to all level of
shareholder and it should maintain high level of transparency.
The development of stock market in Nepal is critical. Being capital deficient country it
requires capital at low cost without it funding long term and intermediate term development
activities from domestic and international sources at low cost seems distant. The increasing
and dynamic stock market activities facilitating private sector participation in the industries
and infrastructure development projects of the country ultimately contribute to the economic
growth that is required in the capital deficient and underdeveloped country like Nepal.
23
Bibliography
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sharemarket. (2012, june 12). Retrieved december 29, 2014, from sharebazaar:
http://www.sharebazaar.com
(2013). Bank Supervision Report. NRB.
Gurung, J. B. (2004). Growth and Performance of Securities Market in Nepal.
Nepal Rastra Bank. (n.d.). Retrieved from Nepal Rastra Bank: http://www.nrb.org.np
Pushkar Bajracharya, P. K. (2002). Nepalese Capital Market Issues and Challenges. economic
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Zvi Bodie, A. K. (2009). investments. New York: tata Mc Graw Hill.