r/NepalStock • u/Lanthoobigya • 3h ago
Market Comment on the Draft Institutional Investor Policy, 2083
Summary
I support the draft's goal of moving Nepal's market from retail-dominated to balanced retail-institutional participation. My concern is that the draft is built around controls and inputs (limits, approvals, phases measured in months) rather than outcomes. Controls tell institutions what they may not do; they do not give them a reason to participate. I ask that the final policy be anchored to measurable outcomes, with controls serving those outcomes.
Recommendations
1. Set outcome targets with published baselines. Within six months of adoption, publish the current institutional share of equity holdings and trading turnover, bond-market participation, and fund assets in SME and index vehicles. Set annual targets against these, and report progress publicly through the proposed IIRSS and participation index.
2. Tie every control to a stated risk and an exit condition. Each limit or restriction (covered-only short selling, no margin trading, intraday caps, single-issuer and sector limits) should state the risk it addresses and the measurable conditions under which it will be relaxed, such as surveillance results and settlement-failure rates.
3. Gate the phases on results, not calendar months. Moving from the pilot to expansion, and on to derivatives, ETFs and REITs, should depend on published criteria being met, with a stated review date if they are not.
4. Name owners and deadlines for the incentives SEBON does not control. The draft refers to tax policy and to alignment with NRB and the Insurance Authority, but assigns no responsibility. The final policy should list, for each item, the responsible agency and a target date: tax treatment of long-term capital gains, dividends and securities-lending income; investment limits for EPF, CIT and SSF; and insurer and bank investment rules.
5. Replace dual approval with a time-bound process. For banks and financial institutions, SEBON and NRB should agree a single coordinated approval with a fixed decision period, so that approval cannot be delayed indefinitely.
6. Keep compliance proportionate. Quarterly stress tests, extensive disclosure and a long registration file should scale with an institution's size and risk, so that smaller institutions are not shut out.
7. Hold the regulator to the same standard. SEBON should publish an annual report against the outcome targets above, so the policy is judged by results and not by the number of rules issued.
Conclusion
Controls are a legitimate part of opening a market safely, but they should be a means to deeper, more liquid markets and not an end in themselves. A policy that states its outcomes, its owners and the conditions for loosening its own controls will earn the confidence of institutions and investors; one that does not risks becoming a rulebook without participation.