PRESENTATION ONSECURITIES MARKET MECHANISM IN NEPAL TEAM MEMBERS: PAWAN KAWAN BIKASH SAPKOTA SANGITA ADHIKARI RANJITA SAPKOTA SUNITA BARNAWAL
Security Market: Background Securities: Negotiable instrument representing financial value Security Market: Mechanism where securities are traded Types of security market I. Primary Market II. Secondary Market Quote Driven Market Order Driven Market Historical Background: In 1602 the Dutch east India Company issued the first share on the Amsterdam stock exchange India was the first country to start trading of securities in Asia
Major Securities Market New York Stock Exchange London Stock Exchange Established in 1817 By 2010 in 1801 Foundedthere are 2317 companies listed Bombay Stock Exchange It has December 2010, the of US$ 13.39 trillion on Dec 2010 As of total market capture Exchange had a market capitalization of Established in 1875 World largestexchange in Asia US$3.6 trillion stock exchange Oldest stock Fourth largest stock exchangeAutomated Trading System (ATS) In 1999, the BSE installed the in the world (and the largest in Europe) market capitalization of listed companies is US$ 1.28 The total trillion as of Feb 2010
Security Market In Nepal Background of securities marketFlotation of shares by Biratnagar Jute Mills Ltd. and Nepal BankLtd. in 1937 Introduction of the Company Act in 1964, the first issuance of Government Bond in 1964 and the establishment of Securities Exchange Center Ltd. in 1976 Converted Securities Exchange Center into Nepal StockExchange in 1993Order driven marketSEBON
Primary Market In NepalInvestment Banker In Nepal Investment banker is known as Merchant Banker Financial professional who helps companies and government organizations in acquiring capital Merchant Banker involves sale of security to the public
Merchant Bankers in NepalS. N. Merchant Bankers 1. NSM Merchant Banking Ltd. 2. NCM Merchant Banking Ltd. 3. Investment Management Merchant Banker Ltd. 4. Growmore Merchant Banker Ltd. 5. Citizen Investment Trust 6. NABIL Investment Banking Ltd. 7. Vibor Capital Ltd. 8. Civil Capital Market Ltd. 9. Ace Capital Ltd. 10. Beed Invest Ltd. 11. NMB Capital Ltd. 12. Elite Capital Ltd. 13. Laxmi Capital Market Ltd. 14. Araniko Capital Management Company Ltd.
Securities Issue Process In Nepal1. Company Decision2. Appointment of Issue Manager3. Prospectus Preparation4. Filling with the company’s information about Includes SEBON5. SEBON’s review by the Prospectus Vetting Committee capital, financial of SEBON situation, There are member representing management,6. Clarification/Update SEBON, promoters & directors, and involving7. Prospectus Approval by SEBON Nepal Rastra Bank, Stock exchange, future prospectus Insurance Board and company registrar’s Office
Securities Issue Process In Nepal(contd…) 8. Issue Open and Issue Close Issue should open within 2 9. Allotment andshould bemonths of prospectus approval Announcements Refundingpublished at least 7 days before the issue open. Number of applications Time for refund . Applications shall be accepted for a minimum period of five and maximum of 15 working days from the date of opening Up to 100,000 40 days 100,001 to 200,000 50 days 200,001 to 300,000 60 days 300,001 and above 70 days
Secondary Market In NepalNepal Stock Exchange Located at Singha Durbar Plaza, Kathmandu, NepalOpened its trading floor 13 January, 1994 Government of Nepal, Nepal Rastra Bank, NepalIndustrial Development corporation and members are theshareholders of NEPSE 204 listed companies at present
Listed Companies In NEPSE 2 21 Bank and finance 4 4 Hotel18 Manufacturing and processing Hydro power4 Trading Insurance 151 Others
Trading System of Nepal Stock ExchangeOpen cry out system Buyer A Seller C SELLER BUYER Broker Broker Transaction hall of NEPSE
Automated trading mechanism Introduced fully automated screen based trading since 24th August, 2007 The NEPSE trading system is called ‘NEPSE Automated Trading System ‘(NATS) Adopts the principle of an order driven market Aided by Asian Development Bank
Major features of Automated Trading Mechanism Client Management Order Price Execute at Retain until Condition Market Depth Settlement Blank Transfer Ownership transfer Circuit Breaker
Trading Days and Hours Types of trading Days Trading timeGovernment security trading Sunday to Thursday 11 AM. to 12Regular trading Sunday to Thursday 12 A.M. to 3 P.M.Odd Lot Trading Friday 11 A.M. to 12 Noon
Brokerage CommissionBrokerage Commission for equity: S. No. Trading Amount Brokerage% A Up to 50,000 1 B >50,000 & <5,00,000 0.9 C >5,00,000 & <10,00,000 0.8 D >10,00,000 0.7Brokerage commission for Government Bond: S. No. Trading Amount Brokerage % A Up to 5,00,000 0.20 B >5,00,000 & <50,00,000 0.10 C >50,00,000 0.5
Brokerage Commission(Contd…)Brokerage commission for all other stocks exceptequity and government bonds: S. No. Trading Amount Brokerage % A Up to 50,000 0.75 B >50,000 & <50,00,000 0.60 C >50,00,000 0.40
RECENT REFORM IN NEPSE Secondary trading of government Bond Started OTC market Trading of Promoters’ shares Establishment of Central Depository System Sensitive Index and float Index Introduced Trading from out of kathmandu valley Recommendation to add new brokers Real time information dissemination and online trading
Comparison of Nepalese security market with South Asian and Global context:Basis NewYork Stock South Asian Nepalese Exchange Security Market ( Security Market Reffering BSE )Initiation Around 17th Around 200years Late start around century ago from British in 1937 RegimeSize(on the basis of Huge market Medium Smallmarket coverage)Efficiency Highly efficient adopting the Is in infant stage of market efficiency adopting efficiency .Regulatory System The U.S Securities SEBI, SEC etc. SEBON and Exchange Commission(S.E.C)Automated Trading All the trading is Has ATS in almost all Nepalese securitysystem based in Automated South Asian countries market is also based trading system. on ATS and screen based trading.
Contd… .Technology Highly Has a good Slowadaptation sophisticated technology adaptation of technology base technologyParticipation All types of Dominated by Commercial organization banking sectors banks participation is vastSettlement Follows T+1 and Follow T+2 rolling Follows T+3procedure real time trade settlement rolling settlement settlement procedure procedure process
Factors affecting the stock marketForeign direct InvestmentInflation And DeflationForeign MarketsGlobalizationEarnings and Emotions (2E’s)
Shortcomings of Nepalese security market Lack of experts Lack of credit rating agency Lack of institutional investors participation in transaction Restrictions for Foreign Direct Investment Foreign securities are restricted in NEPSE
Conclusions: Conclusions Order driven security market Bank based security market Open Cry out system has been replaced by automated trading system Lack of proper regulatory system and credit rating agency Value weighted index Lack of public awareness towards security and its trading
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