SEBO Journal explores corporate governance practices in Nepal

SEBO Journal
Vol. I Special Publication June 2004
Securities Board, Nepal

Thapathali, Kathmandu
SEBO Journal, Vol.I, June 2004
Towards Good Corporate Governance

- Deepak Raj Kafle 1.1 Transparency, accountability, information disclosures and stringent ethics practiced by companies are fundamental in winning investors' confidence. Capital market and so the corporate sector cannot develop with weak minority shareholders, inadequate or non-disclosures, violation of laws, non-compliance to the rules and regulations and lack of independent oversight of the directors. Nepalese corporate sector has yet to establish good governance practices and become more competitive sector of the economy. In today's liberalized environment, corporate sector demands reduced interference by the government. It is in this context that operation of the companies should be transparent and they should adopt good corporate governance practices. The government has also very important role to promote good governance. It has the responsibility to shape the legal, institutional and regulatory climate so that it provides incentives for the development of individual corporate governance systems. As a regulator, Securities Board (SEBO) wants to see improved image of Nepalese corporate sector. It is presently involved in implementing government's capital market reform program that affects many aspects of
1.2
2.
Chairman, Securities Board, Nepal
corporate governance. This infrastructure and capacity building program would help to establish appropriate framework for good corporate governance. These initiatives together with the legislative reforms taking place are briefly mentioned below: Consistent legal framework 2.1 Improved corporate governance emanate from consistent legal framework. Various aspects of companies including its governance are generally provisioned in Companies Act and Securities Act. Harmonization and qualitative improvement in these two laws are taking place. A new Bank and Financial Institutions Act has already been issued as an ordinance whereas a new Securities Act and New Companies Act are in the legislative process. These acts are important to give a clear institutional framework for Nepal Rastra Bank (The Central Bank), SEBO and the Company Registrars Office (CRO) and they clearly define their regulatory jurisdictions. However, the delay in adopting the company and securities legislation is seriously hampering the reform in corporate governance framework.
Institution Building 2.2 The government has signed a contract with the Asian Development Bank to implement a Financial and Corporate Governance Project. It has capital market, judiciary reform and payment system development components. The capital market component addresses the capacity building needs of Securities Board and Company Registrars Office, modernization and professionalization of Nepal Stock Exchange Ltd. (NEPSE) and establishment of Central Depository System. SEBO's role as an effective regulator can be realized through enhanced policy development and rule making capacity, supervisory effectiveness, investigation and enforcement actions and proper research and educational roles. Establishment of comprehensive MIS, rules benchmarked to international standards, organization restructuring and strengthening functional areas are the key reform measures envisaged under the project.
2.3
These initiatives also include developing and prescribing corporate governance codes for companies. 2.4 Modernization of NEPSE would allow it to facilitate low cost and efficient transactions. The project plans to improve professionalism of its staff, setting up of MIS and preferably an electronic trading system, selfregulatory compliance and low-cost dispute settlement mechanism. Corporate governance enhancement is expected to be in the form of listing rules, which the stock exchange monitors. To supplement stock exchange efficiency, Central Depository System, a mechanism to facilitate a risk-free and efficient transfer of securities is being planned. The capacity building of the CRO deals with the up-gradation of the company registration system, its MIS and other organizational aspects.
2.5
2.6
Financial Disclosures 2.7 Improved financial transparency and disclosure is the basis of sound corporate governance that also highlights risk profile on investment. Accounting and Auditing Standards are converging towards international best practices with the progress in the activities of Accounting Standards Board and Auditing Standards Board under the umbrella of the Institute of Chartered Accountant, Nepal, Act. However, there is a need for developing practical and effective means to implement the standards. Capacity of these agencies has to be enhanced to build accounting and auditing manpower and to enforce the standards.
Judiciary Reform 2.8 Another set of reform is taking place in improving legal enforcement mechanism and judicial capacity. This includes establishment of National Judicial Academy to ensure effective skills development of judges and lawyers in commercial and financial matters. Establishment of legal information center as a center repository of all laws and regulation and for judgments by judiciary, establishment of commercial bench and dispute
resolution are the initiatives that would be helpful, although indirectly, to promote corporate governance. 2.9 The legal and institutional framework is evolving to become progressively supportive of the corporate governance practices. The new Bank and Financial Institutions Ordinance has come out with the provision of independent director (a professional expert but without voting rights), has stipulated qualification/experience for directors and CEOs and clear sanctions available for cases of non-compliance. The proposed Companies Act is believed to come out with more on corporate governance such as responsibility and accountability of directors, provision of independent directors with voting rights and audit committee.
2.10 Some basic tenets of corporate governance could come in the mandatory form but the main responsibility for maintaining good governance lies within the companies themselves. It is where further efforts of SEBO should be focused. It has to be well understood that the growth in number of listed companies and participation of small investors depends on the governance practices. 3 3.1 Survey on Corporate Governance SEBO conducted a survey on corporate governance practices by collecting views of directors and senior executives covering wide range of issues regarding governance. Though the response rate was merely 12% (27 out of 224) covering 16 listed companies, it has provided meaningful insight into the corporate governance situation. Promoter domination, separation of chairman and CEO in most of the companies, use of delegated committees (including Audit, Accounting, Recruitment and Promotion Committee) were observed to be in practice in some companies. The respondent directors favored the induction of independent directors, expressed the need of availing more information for the effective boardroom discussion and decision-making. They also endorsed professionalization to be useful to achieve corporate goals.
3.2
3.3
The respondents said the types of strategic alternatives and plans that they were presented with were operational and policy guidelines, budgetary outlay and targets and business expansion.. They used to review on matters especially concerned with investments. Even though the respondents found adequacy in their present internal control system, they have suggested enhanced compliance culture by upgrading the role of company secretary and having a system of compliance audit. The respondents are in favour of upgrading accounting standards. They have suggested that board should take a role to review preliminary annual report and views of analysts and upgrade the financial reports accordingly. They also agreed that the board should understand the information requirement of the corporate stakeholders and endorsed the necessity of financial as well as non-financial information to justify the share price. The responsibilities of the board regarding social, ethical and environmental aspects were well understood by the respondents. They also agreed to have mechanism to address the cases of non-compliance by the management. This survey showed that corporate directors and executives have recognized many elements of corporate governance and some of which are already in practice too. They agreed to the necessity of adopting good governance and the code of ethics. It is important to note that they have suggested for co-operation with the regulators to work for the improvement of corporate governance. Framework of Discussion
3.4
3.5
3.6
While appreciating the above-mentioned views of corporate directors and executives one can be enthused and work to move towards good corporate governance practices. These principles should be discussed, refined and adopted by the listed companies in a gradual manner, initially may be in a voluntary basis and ultimately as mandatory codes. The following elements, which are also in practice in many other countries, have been briefly mentioned as a suggestion to start discussion with the companies, business community, regulators and professionals:
The Board of Directors 4.1 The fiduciary responsibility and trusteeship role of directors, collective and individual, should be well understood and established. The focus of corporate board reform should be directed to bring in the independent, more professional, meritorious and competent person rather than merely relatives and close associates of the promoters. There should be specified number of independent directors and ensure their participation in the oversight role (e.g. by involving them in audit committee, remuneration committee etc). Board with executive chairman should have at least 50 percent non-executive directors to give fair ground for independent views on discussion and decision-making.
Audit Committee 4.2 It is important to ensure that financial disclosures and statements are correct and credible. The Audit Committees could also help in reducing, if not eliminating frauds, irregularities or failure of internal control system within the organization. A three-member committee with majority of independent directors and at least one with finance and accounting background would be appropriate.
Remuneration of Directors 4.3 Remuneration (setting fees, profit sharing etc.) should be as decided by the Board of Directors and there be adequate disclosure to the same in the annual report. This will deter the board from giving disproportionate remuneration to the directors by the promoter.
Board Procedures 4.4 The statutory and non-statutory information desired by the board should be brought to the knowledge of the directors. Requiring minimum information made available to the director enabling studied decision regarding operational plans, capital expenditures plans, joint venture or collaboration arrangements would help. The board be informed of the show-cause notices, demands, non-compliance cases, accidents, environmental
pollution and labour problems. The board is expected to be effective when its information needs are properly addressed. Management 4.5 Directors' report should have Management Discussion and Analysis Report, which should discuss industry structure and developments, opportunities and threats, segment-wise and product-wise performance, outlook and such other matters. Management analysis is bound to give much needed information and insight into the working of the company, apart from making the management think, plan and act appropriately as per the needs of the business.
Shareholders 4.6 The shareholder should be provided with brief resume of the directors when a new appointment/reappointment takes place. The board should constitute a committee to address the investors' complaints.
Financial Disclosures 4.7 Publication of mandatory financial disclosures such as annual and halfyearly reports may not be sufficient; publication of half-yearly reports after having reviewed and adopted by the board, inclusion of earning data would enhance the quality of reports. After the half yearly reporting is in order, shifting to quarterly reporting system would help the investors to be informed of companies performance more accurately in a timely manner. Besides, the standard of accounting and auditing should converge to the international norms and practices.
Reporting and compliance Arrangements 4.8 Once the governance norms are agreed and implemented, corporate governance reports should be a part of the annual reports. The company should be required to obtain certificate from auditors of the company regarding compliance to the governance codes. ***
Fundamentals of Stock Returns in Nepal

DR. RADHE S. PRADHAN AND MR. SURYA B. BALAMPAKI ABSTRACT
This study deals with fundamentals of stock returns in Nepal. It examines if dividend yield, capital gain yield and total yield are related to earnings yield, size, book to market ratio and cash flow yield. The study is based on pooled cross sectional data of 40 enterprises whose stocks are listed in Nepal Stock Exchange Limited and traded in the stock market. The study reveals that earnings yield and cash flow yield have significant positive impact on dividend yield, and an insignificant impact on book to market value. However, the size has a negative impact on dividend yield. In the case of earnings yield and cash flow yield, cash flow yield has been found to be more informative than earnings yield. Likewise, it is observed that capital gain yield is positively influenced by earnings yield and size, whereas, the same is negatively influenced by book to market value and cash flow yield. Book to market value has been found to be statistically strong in predicting capital gain yield. Similarly, it is noticed that total yield is positively determined by earnings yield and size, whereas, the same is negatively determined by book to market value and cash flow yield. Book to market value has been found to be more informative than other variables. The study also revealed the positive relationship among earnings yield, book to market value and cash flow yield. However, the size is negatively related to these three variables.
1. Introduction Among the various empirical contradictions, the cross-sectional relationship between stock returns and fundamental variables has been studied extensively in the US and Japan. In general, positive relationship has been observed between equity returns and earnings yield, cash flow yield and book to market ratio, and a negative relationship between equity returns and size, e.g., Basu (1977, 1983), Banz (1981), Reinganum (1981), Cook and Rozeff (1984), Lakonishok and Shapiro (1986), Banz and Breen (1986), Jaffe, Keim, and Westerfield (1989), and Ritter and Chopra (1989). The traditional mean-variance analysis developed by Markowitz (1956) and SLB Model (Sharpe (1964), Lintner (1965) and Black (1972)) have indicated that the returns are determined by risk (beta) factors. However, Ross (1976) and other empirical studies by Fama (1991), Chan, Hamao and Lakonishok (1991), and Fama and French (1992) have suggested that the fundamental variables such as earnings yield, size, book to market value, cash flow yield and leverage etc. are the important determinants of the stock returns.
Dr. Pradhan is Professor, Central Department of Management, Tribhuvan University, Kirtipur, and Mr. Balampaki is associated with Nepal Credit and Commerce Bank Ltd.
The shortcomings of accounting earnings have motivated a number of recent papers to explore the relationship between cash flow yields and stock returns (Bernard and Stober (1989) and Wilson (1986). They observed more significant positive relationship of stock returns with cash flow yield than that of earnings yield. Rosenberg, Reid and Lanstein (1984) studied the relationship between stock returns and book to market ratio. They found most significant positive relationship between stock returns and book to market ratio. The selection of such fundamental variables has been guided more by any explicit theoretical model. Ball (1978), Fama (1991) and Fama and French (1988) have suggested the reasons why such variables might help to predict returns. In particular, yield surrogates such as the earnings yield and the dividend yield are correlated with returns because they proxy for underlying risk not otherwise accounted for by traditional measures such as beta. Stattman (1980), and Rosenberg, Reid and Lanstein (1985) have found that average returns on the US stocks are positively related to the firms book to market ratio. The study by Chan, Hamao and Lakonishok (1991) related the cross-sectional differences in stock returns on Japanese stocks to the underlying behaviour of four fundamental variables: earnings yield, size, book to market ratio and cash flow yield. Of the four variables considered, book to market value ratio and cash flow yield have been found to be most significant positive impact on expected returns. Basu (1983) found that the earning-price ratio (E/P) helps to explain the cross-section average returns on the US stocks. According to SLB Model returns are positively related to risk, but the study by Fama and French (1992) did not find the same. The study attempted to indicate the extent to which the size and book to market equity has captured the crosssectional variation in average returns for the period of 1983-1990. Davis (1994) observed that book to market ratio, earnings yield and cash flow yield have significant explanatory power with respect to the cross section of realized stock returns during the period of July 1940 to June 1963. The study by Banz (1981) documented that the stocks with larger market equity have lower returns. The size effect became weaker when beta and expected returns were allowed to vary over time (Jagannathan and Wang: 1996, 53). Ball (1978) revealed that earning price (E/P) was likely to be higher for stocks with higher risks and expected returns. Wiggins (1991) also revealed that the market adjusted stock returns are directly related to E/P and they have positive relationship. Similarly, Verma
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(1994) observed positive relationship between profitability and dividends. Though there are these studies conducted in developed capital markets, their relevance is yet to be seen in a smaller and under-developed capital market like Nepal. In Nepalese context, stocks with larger price earning ratio seemed to have lower liquidity, profitability, assets turnover and interest coverage, and higher leverage (Pradhan, 1993). It was reported that there is a negative relationship between dividend yield and size (market equity). Timilsina (1997) revealed that the relationship between dividend per share and stock price is positive, and dividend per share affects the share price variedly in different sectors. Manandhar (1998) observed that dividend per share, return on equity and dividend yields have the significant impact on market capitalization, whereas, price-earning multiple has no significant impact. The study also observed the negative relationship between dividend yield and market value, and positive relationship between dividend per share and market value of equity. Similarly, Adhikari (1999) indicated that the stocks with larger dividend yield have higher earnings, liquidity, assets turnover and interest coverage. However, the study indicated negative relationship between dividend yield and leverage. Clearly, these studies have attempted to deal with only a few relationships described earlier. The general conclusion of the above-mentioned empirical studies is that stock returns are determined not only by a single factor but by a number of different fundamental variables. This study therefore aims at analyzing the relationship of stock returns with the underlying behaviour of fundamental variables by estimating summary statistics and various regression models in the context of Nepal. To sum up, this study deals with the following issues: What are the relationships of stock returns with fundamental variables? Are there equal contributions of earnings yield and cash flow yield in predicting stock returns? If not, what could be the reasons for the discriminations? What are the roles of size and book to market equity ratio in explaining the stock returns? Do the large sized companies have higher stock returns? What kind of relationship exists among earnings yield, size, book to market equity ratio and cash flow yield?
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The remainder of this paper is organized as follows. Section 2 describes research methodology employed in this study. It includes selection of enterprises for the study, nature and sources of data, and model to be estimated. Section 3 provides presentation and analysis of the data. Finally, the results are summarized in Section 4.
2. Research Methodology
Nature and sources of data This study is based on secondary data only. The necessary data and information have been collected from various sources covering a period of 5 years, i.e., 1995/96 to 1999/00. There were 115 Nepalese enterprises listed in the NEPSE Ltd. by the end of FY 2000/01, which is regarded as size of the population for the study (SEBO/N: 2001, 15-19). This study does not cover all the Nepalese enterprises because of data problem. Moreover, the study period begins only from 1995/96. In the absence of valid and reliable data, the study periods for each selected enterprises are not homogeneous in nature. To analyze the relationships among different variables, study uses pooled cross-section data of 40 enterprises as shown in Table 1.
Table 1 Selection of companies, period of study, and number of observations
S.N. 1. 2. 3. 4. 5. 6. Name of the Companies A. Banks Bank of Kathmandu Ltd. (BOK) Nepal Bangladesh Bank Ltd. (NBB) Himalayan Bank Ltd. (HBL) Nepal SBI Bank Ltd. (NSB) Standard Chartered Bank Nepal Ltd. (SCB) Everest Bank Ltd. (EBL) Total Observations B. Finance Companies National Finance Co. Ltd. (NFC) Lalitpur Finance Co. Ltd. (LFC) Narayani Finance Ltd. (NFL) Mahalaxmi Finance Co. Ltd. (MFC) Ace Finance Co. Ltd. (ACE) Nepal Housing & Merchant Finance Ltd. (NHMF) Annapurna Finance Co. Ltd. (AFC) Nepal Housing Development Finance Co. Ltd. (NHD) Goodwill Finance & Investment Co. (Nepal) Ltd. (GFC) Nepal Share Markets Co. Ltd. (NSM) Nepal Finance & Saving Co. Ltd. (NFS) NIDC Capital Markets Ltd. (NCM) Citizen Investment Trust (CIT) Study period 1998/99 to 1999/00 1996/97 to 1999/00 1996/97 to 1999/00 1996/97 to1999/00 1996/97 to 1999/00 1996/96 to 1999/00 Observations 2 4 4 4 4 4 22 4 2 2 4 4 2 4 4 1 4 4 4 3
7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.
1996/97 to 1999/00 1998/99 to 1999/00 1997/98 to 1998/99 1996/97 to 1999/00 1996/97 to 1999/00 1997/98 to 1998/99 1996/97 to 1999/00 1996/97 to 1999/00 1998/99 1995/96 to 1998/99 1996/97 to 1999/00 1996/97 to 1999/00 1996/97 to 1998/99
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S.N. 20. 21.
Name of the Companies Universal Finance & Capital Markets Ltd. (UFCM) HISEF Finance Ltd. (HSF) Total Observations C. Insurance Companies National Life & General Insurance Co. Ltd. (NLG) United Insurance Co. Ltd. (UIC) Neco Insurance Co. Ltd. (NIC) Himalayan General Insurance Co. Ltd. (HGL) Premier Insurance Co. (Nepal) Ltd. (PIC) Nepal Insurance Co. Ltd. (NICL) Everest Insurance Co. Ltd. (EIC) Total Observations D. Hotels Yak & Yeti Hotel Ltd. (YHL) Soaltee Hotel Ltd. (SHL) Total Observations E. Manufacturing and Processing Companies Nepal Lever Ltd. (NLL) Bottlers Nepal (Tarai) Ltd. ( BNT) Bottlers Nepal (Balaju) Ltd. (BNB) Jyoti Spinning Mills Ltd. (JSM) Nepal Lube Oil Ltd. (NLO) Khadya Udyog Ltd. (KUL) Total Observations F. Trading Companies Salt Trading Corporation Ltd. (STC) Nepal United Co. Ltd. (NUC) Bishal Bazar Co. Ltd. (BBC) Total Observations G. Others Necon Air Ltd. (NAL) Total Observations Grand Total Observations
Study period 1997/98 to 1999/00 1996/97 to 1999/00
Observations 3 4 49 3 4 1 4 4 4 4 24 4 4 8 4 4 3 4 4 2 21 3 4 4 11 4 4 139
22. 23. 24. 25. 26. 27. 28.
1996/97 to 1998/99 1995/96 to 1998/99 1998/99 1995/96 to 1998/99 1995/96 to 1998/99 1995/96 to 1998/99 1995/96 to 1998/99
29. 30.
1995/96 to 1998/99 1995/96 to 1998/99
31. 32. 33. 34. 35. 36.
1996/97 to 1999/00 1995/96 to 1998/99 1996/97 to 1998/99 1995/96 to 1998/99 1995/96 to 1998/99 1997/98 to 1998/99
37. 38. 39.
1995/96 to 1998/99 1995/96 to 1998/99 1996/97 to 1999/00
40.
1995/96 to 1998/99
Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com.
Thus the study is based on 139 observations. The enterprises selected for the study can be considered representative of banks, finance companies, insurance companies, hotels, manufacturing and processing companies, trading companies and airlines. Models The study, among others, attempts to estimate various econometric models to confirm the relationship between stock returns and fundamental variables and to test the robustness of the results. The alternative statistical specifications are also attempted in each case where necessary in order to obtain the best possible results. The study examines the relationship of stock returns (R) such as,
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dividend yield, capital gain yield and total yield with fundamental variables such as, earnings yield (E/P), size (LS), book to market equity ratio (B/M) and cash flow yield (C/P) of Nepalese enterprises by estimating various models. The theoretical statement of the models is that the stock returns (R) may be regarded as subject to the constraints of earnings yield (E/P), size (LS), book to market equity ratio (B/M) and cash flow yield (C/P). The theoretical statement may be framed as under: R = f(E/P, LS, B/M, C/P) (I)
The equation to be estimated has, therefore, been specified as under: R = a + b1(E/P) + b2(LS) + b3(B/M) + b4(C/P) + Ui (II)
Where, dependent variable, R chosen for the study has been specified as under: DY = Dividend yield or dividend per share to market price per share, i.e., D1/P0. CY = Capital gain yield or capital gain per share to market price per share, i.e., (P1-P0)/P0. TY = Total yield or dividend per share plus capital gain per share to market price per share, i.e., (D1+P1-P0)/P0. The independent variables are specified as under: E/P = Earnings yield or earning per share to market price per share. LS = Size or market capitalization. B/M = Book value of equity per share to market value of equity per share. C/P = Cash flow yield or earning per share plus depreciation expenses per share to market price per share. Ui = Disturbance or error term. The summary statistics are studied to examine the relationship between stock returns and fundamental variables. The study is conducted at a portfolio level and sorts out all the sampled securities into four portfolios. The summary statistics for portfolios have been sorted by earnings yield, size, book to market equity ratio and cash flow yield, viz., Panel A, Panel B, Panel C and Panel D respectively. The low to high ratios of fundamental variables are provided in portfolios 1 to 4 for each panel. Forming more than four portfolios based on various ratios of fundamental variables would yield too few stocks per portfolio.
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In other words, splitting stocks into more than four portfolios reduces the sample sizes. For each portfolio, average ratios are computed. 3. The Results Table 2 sorts out all the sampled securities into four portfolios. The summary statistics for portfolios have been sorted out by earnings yield, size, book to market value ratio, and cash flow yield, and are shown in Panels A, B, C and D respectively. The low to high ratios of fundamental variables are provided in portfolios 1 to 4 for each panel. For each portfolio, various ratios of dividend yield, capital gain yield, total yield, earnings yield, size, book to market value ratio and cash flow yield are computed. They are then classified according to above, and average ratios are computed. In panel A of Table 2, the portfolios sorted by earnings yield have been presented. The stocks with high earnings yield have higher dividend yield, higher capital gain yield and higher total yield. The average dividend yield increased from 1.00 percent for the low to 11.14 percent for the high portfolio. Similarly, the average capital gain yield increased from 2.70 percent for the low to 28.54 percent for the high portfolio. The average total yield also increased from 1.70 percent for the low to 39.68 percent for the high. The stocks with high earnings yield are less variable than that of low earnings yield. However, the dividend yield, capital gain yield and total yield for the high portfolio are more variable as compared to low earnings yield portfolio. Furthermore, size variable is negatively related with earnings yield, whereas, book to market value ratio and cash flow yield are positively related with earnings yield. The average of size decreased from 24.40 million for the low to 12.12 million for the high earnings yield portfolio. Moreover, the size for the low portfolio is more variable than that of high earnings yield portfolio. The average book to market value ratio increased from 0.39 times for the low to 1.19 times for the high earnings yield portfolio. Similarly, the average of cash flow yield increased from 2.25 percent for the low to 33.59 percent for the high portfolio. However, both book to market value ratio and cash flow yield for the low are more variable as compared to high earnings yield portfolio.
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Table 2 Summary Statistics for Portfolios Sorted by Fundamental Variables

Average yearly dividend yield (DY), capital gain yield (CY), total yield (TY), earnings to price (E/P) ratio, size (LS i.e., market capitalization), book to market (B/M) ratio, and cash flow to price (C/P, i.e., earnings plus depreciation divided by price) ratios, for portfolios sorted by the four fundamental variables over the period of 1995/96 to 1999/00 of 40 enterprises with 139 observations. Figures in parentheses are standard deviations and N denotes the number of observations in each portfolio. Panel A: Sorted by Earnings to Price (E/P) Ratio
Portfolios Bases of Portfolio 1 (Low or smallest) 2 <4.00 4.00 to 10.00 3 10.00 to 18.00 4 (High or largest) >18.00
Dividend Yield Capital Gain Yield Total Yield E/P Size B/M C/P N
Portfolios Bases of Portfolio
(percent) (percent) (percent) (percent) (in million) (times) (percent)
1.00 3.65 (3.18) (3.00) -2.70 53.75 (44.25) (90.16) -1.70 57.40 (44.30) (90.34) -8.12 6.96 (26.71) (1.76) 24.40 233.81 (5.16) (1.70) 0.39 0.53 (0.66) (0.35) -2.25 9.15 (17.52) (3.28) 33 37 Panel B: Sorted by Size (LS)
1 (Low or smallest) 32.61
5.93 (3.80) 17.38 (37.16) 23.31 (36.78) 14.15 (2.33) 132.22 (1.30) 0.85 (0.33) 16.91 (4.01) 35
11.14 (8.15) 28.54 (47.51) 39.68 (47.63) 29.88 (11.21) 12.12 (1.04) 1.19 (0.51) 33.59 (14.61) 34
4(High or largest) 485.17
2 3 32.61 to 80.20 80.20 to 485.17
Dividend Yield Capital Gain Yield Total Yield E/P Size B/M
(percent) (percent) (percent) (percent) (in million) (times)
8.59 (8.43) 8.76 (31.48) 17.35 (28.10) 20.46 (16.74) 15.25 (0.48) 1.39 (0.41)
5.70 (4.34) 21.02 (56.78) 26.72 (56.84) 8.48 (29.34) 49.13 (0.25) 3.64 (17.05)
4.07 (5.52) 38.13 (79.80) 42.20 (80.27) 9.61 (16.33) 187.63 (0.57) 0.59 (0.29)
3.91 (3.07) 41.02 (71.68) 44.93 (71.24) 7.67 (4.40) 1047.84 (0.69) 0.32 (0.18)
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C/P N Portfolios Bases of Portfolio Dividend Yield Capital Gain Yield Total Yield E/P Size B/M C/P N
Portfolios Bases of portfolio
(percent)
22.86 14.33 14.02 (16.98) (20.44) (15.90) 35 35 36 Panel C: Sorted by Book to Market (B/M) Ratio 1 (Low or smallest) 2 3 0.40 0.40 to 0.70 0.70 to 1.10
10.22 (5.76) 33 4 (High or largest) 1.10 7.57 (8.26) 3.27 (21.99) 10.84 (26.13) 22.80 (15.79) 26.43 (1.13) 1.47 (0.37) 25.37 (16.14) 33
4 (High or largest) 22.00
2.41 5.84 6.78 (2.02) (5.93) (5.71) (percent) 65.59 27.76 12.29 (98.17) (46.11) (43.34) (percent) 68.00 33.60 19.07 (96.58) (47.64) (42.33) (percent) -3.37 13.16 14.32 (27.33) (8.80) (11.31) (in million) 159.89 180.28 41.04 (4.81) (1.11) (0.91) (times) 0.14 0.57 0.94 (0.39) (0.10) (0.12) (percent) 3.23 15.73 17.75 (16.29) (11.18) (14.77) 35 36 35 Panel D: Sorted by Cash Flow to Price (C/P) Ratio
1 (Low or smallest) 2 6.50 6.50 to 13.00 3 13.00 to 22.00
(percent)
Dividend Yield Capital Gain Yield Total Yield E/P Size B/M C/P N
(percent) (percent) (percent) (percent) (in million) (times) (percent)
1.27 (1.92) 37.74 (86.51) 39.01 (86.92) -6.69 (27.90) 128.32 (1.80) 0.40 (0.61) 1.25 (15.68) 35
3.46 (3.20) 32.81 (70.79) 36.27 (71.13) 7.86 (2.39) 191.42 (1.60) 0.59 (0.35) 9.95 (1.89) 35
7.20 (4.07) 19.61 (44.11) 26.81 (44.06) 14.26 (6.60) 79.40 (1.27) 0.85 (0.34) 17.37 (2.16) 35
10.61 (8.64) 19.27 (40.55) 29.88 (41.88) 29.89 (12.09) 39.82 (1.29) 1.23 (0.50) 34.88 (14.28) 34
In Panel B of Table 2, the portfolios sorted by firms size are presented. It shows that larger stocks have lower dividend yield. The average dividend yield
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decreased from 8.59 percent for the smallest to 3.91 percent for the largest portfolio. However, the dividend yield for the smallest portfolio is more variable as compared to largest portfolio. In contrast to the dividend yield, larger portfolios have higher capital gain yield and total yield. The average of capital gain yield increased from 8.76 percent for the smallest portfolio to 41.02 percent for the largest portfolio. Similarly, the average total yield increased from 17.35 percent for the smallest portfolio to 44.93 percent for the largest portfolio. Moreover, both capital gain yield and total yield for the smallest portfolio are less variable than that of largest portfolio. Besides, the negative relationship of size has been observed with earnings yield, book to market value ratio and cash flow yield. The average earnings yield decreased from 20.46 percent for the lowest portfolio to 7.67 percent for the largest portfolio. Similarly, the average of book to market value ratio decreased from 1.39 times for the smallest to 0.32 times for the largest portfolio. The average cash flow yield also decreased from 22.86 percent for the smallest portfolio to 10.22 percent for the largest portfolio. However, the earnings yield, book to market value ratio and cash flow yield for the smallest portfolio are more variable than that of largest portfolio. In Panel C of Table 2, the portfolios sorted by book to market value ratio are presented. The stocks having high book to market value ratio have higher dividend yield. The average dividend yield increased from 2.41 percent for the smallest portfolio to 7.57 percent for the largest portfolio. However, the dividend yield for the largest portfolio is more variable than that of smallest portfolio. The stocks having high book to market value ratio have lower capital gain yield and total yield. The average capital gain yield decreased from 65.59 percent for the smallest portfolio to 3.27 percent for the largest portfolio. Similarly, the average total yield decreased from 68.00 percent for the smallest portfolio to 10.84 percent for the largest portfolio. Moreover, both of capital gain yield and total yield for the smallest portfolio are more variable than that of largest portfolio. In Panel D of Table 2, the portfolios sorted by cash flow yield are presented. The stocks having high cash flow yield have higher dividend yield. The average dividend yield increased from 1.27 percent for the smallest portfolio to 10.61 percent for the largest portfolio, and higher dividend yield for the largest portfolio is more variable as compared to smallest portfolio. However, the stocks
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having high cash flow yield have lower capital gain yield and total yield. The average capital gain yield decreased from 37.74 percent for the smallest portfolio to 19.27 percent for the largest portfolio. Similarly, the average of total yield decreased from 39.01 percent for the smallest portfolio to 29.88 percent for the largest portfolio. Moreover, both of capital gain yield and total yield for the smallest portfolio are more variable than that of the largest portfolio. The regression results of dividend yield on earnings yield, size, book to market value and cash flow yield are presented in Table 3. The first four models include one of the four independent variables at a time. Models 5 to 7 include various combinations of the fundamental variables and model 8 includes all the four fundamental variables simultaneously. The results of these alternative specifications deeply support the summary statistics for the portfolios presented in Table 2. The results are as expected and encouraging and more or less similar to the results indicated by Chan, Hamao and Lakonishok (1991) conducted in the context of Japanese stock market. The dividend yield is positively influenced by earnings yield, book to market value and cash flow yield, and negatively influenced by size. The coefficients of earnings yield are significant for the models 1, 5 and 6. Similarly, the coefficients of size are also significant for the models 2, 5 and 6.
Table 3 Estimated Relationship Between Dividend Yield and Fundamental Variables
The results are based on pooled cross-sectional data of 40 enterprises with 139 observations for the period of 1995/96 to 1999/00 by using linear regression model. The model is, DY = a + b1(E/P) + b2(LS) + b3(B/M) + b4(C/P) + Ui. Where, DY, E/P, LS, B/M and C/P are dividend yield, earnings yield, market capitalization, book to market ratio and cash flow yield respectively. Results for various subsets of independent variables are presented as well. Models (1) (2) (3) (4) Intercept 3.73 (7.23)* 23.91 (3.95)* 2.49 (2.95)* 2.59 (4.17)* Regression Coefficients of E/P 0.15 (6.34)* LS B/M C/P 0.23 -0.99 (3.02)* 4.08 (4.50)* 0.20 (7.23)* 0.07 0.13 0.29 5.42 6.00 5.77 5.23 40.20 9.14 20.29 52.27 R2 SEE F
19
Models
Intercept
Regression Coefficients of
R2
SEE
E/P LS B/M C/P (5) 16.88 0.13 -0.69 0.24 5.42 20.41 (3.00)* (5.44)* (2.29)** (6) 21.06 0.15 -0.88 1.07 0.25 5.43 13.71 (2.56)** (4.40)* (2.15)** (0.70) (7) 14.33 -0.61 0.46 0.19 0.30 5.22 18.33 (1.93) (1.64) (0.30) (5.61)* (8) 13.47 0.01 -0.57 0.28 0.20 0.30 5.24 13.66 (1.63) (0.23) (1.41) (0.19) (3.23)* Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com Notes: (1) Figures in parentheses are t-values. (2) The signs * and ** denote that the results are significant at 1 percent and 5 percent level of significance respectively.
Specifically, earnings yield, book to market value and cash flow yield have individually and reliably positive influence on dividend yield while a reliably negative association exists between dividend yield and size. Model 5 attempts to unravel the separate influence of earnings yield and size on dividend yield. The tstatistics suggest that the coefficients are estimated with a high degree of precision. The variables do not dominate each other. Adding the book to market value ratio as the third independent variable in model 6 does not rob the predicting power of earning yield and size. In model 7, earnings yield is replaced by the cash flow yield measure. The cash flow yield may be more informative than other two variables. In model 8, when all the fundamental variables are simultaneously included, only the t-statistics of cash flow yield has been found to be significant. The results suggest that the cash flow yield may be more important in predicting dividend yield than other variables. Although, it is important to be noted that the earnings yield and cash flow yield are highly correlated (Table 2), the model 8 suggests that the cash flow yield may be more informative than earnings yield, since reported earnings are likely to be distorted by the substantial divergence between economic and reported depreciation. This finding is in consistency with the quality of earnings explanation discussed by Bernard and Stober (1989), according to which earning per share is more easily manipulated. Table 4 presents the regression results of various models of capital gain yield on earnings yield, size, book to market value and cash flow yield. The overall results show the positive relationship of capital gain yield with earnings yield and size,
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and negative relationship with book to market value and cash flow yield. It may be due to more fluctuations in capital gain yield than other variables.
Table 4 Estimated Relationship Between Capital Gain Yield and Fundamental Variables
The results are based on pooled cross-sectional data of 40 enterprises with 139 observations for the period of 1995/96 to 1999/00 by using linear regression model. The model is, CY = a + b1(E/P) + b2(LS) + b3(B/M) + b4(C/P) + Ui. Where, CY, E/P, LS, B/M and C/P are capital yield, earnings yield, market capitalization, book to market ratio and cash flow yield respectively. Results for various subsets of independent variables are presented as well. Models (1) Intercept Regression Coefficients of R2 SEE F 1.59 7.40 6.15 0.01 5.15 7.81 4.18 7.26
E/P LS B/M C/P 21.30 0.34 0.01 63.01 (3.50)* (1.26) (2) -143.09 9.19 0.05 61.98 (2.29)** (2.72)* (3) 45.03 -24.26 0.04 62.23 (4.95)* (2.48)* (4) 27.27 -0.01 0.00 64.07 (3.59)* (0.01) (5) -167.62 0.46 10.24 0.08 61.55 (2.63)* (1.67) (3.00)* (6) 60.56 1.34 0.26 -58.46 0.16 59.00 (0.68) (3.68)* (0.06) (3.49)* (7) -39.76 4.27 -31.54 -0.74 0.09 61.27 (0.46) (0.98) (2.08)** (1.84) (8) 118.23 2.57 2.60 -64.45 -1.55 0.19 58.11 (1.29) (3.88)* (0.58) (3.86)* (2.21)** Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com Notes: (1) Figures in parentheses are t-values. (2) * and ** denote that the results are significant at 1 percent and 5 percent level of significance respectively.
The t-statistics suggest that the book to market value coefficients are more significant and, therefore, has higher predictive power than other variables. In model 8, when all the fundamental variables are simultaneously included, tstatistics are found to be significant for all except size. Therefore, size may not play an important role in predicting capital gain yield than others. However, the models estimated are generally poor as revealed by F-statistics and coefficients of multiple determination (R2).
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Table 5 presents the regression results of total yield on earnings yield, size, book to market value and cash flow yield. The alternative specifications of the models reveal the positive relationship of total yield with earnings yield and size, whereas, negative relationship of total yield with book to market value and cash flow yield. Model 1 provides insignificant relationship between total yield and earnings yield, whereas, models 5, 6 and 8 provide significant relationship between total yield and earnings yield. Similarly, models 2 and 5 indicate the significant relationship between total yield and size, and models 6, 7 and 8 provide insignificant relationship between them.
Table 5 Estimated Relationship Between Total Yield and Fundamental Variables
The results are based on pooled cross-sectional data of 40 enterprises with 139 observations for the period of 1995/96 to 1999/00 by using linear regression model. The model is, TY = a + b1(E/P) + b2(LS) + b3(B/M) + b4(C/P) + Ui. Where, TY, E/P, LS, B/M and C/P are total yield, earnings yield, market capitalization, book to market ratio and cash flow yield respectively. Results for various subsets of independent variables are presented as well. Models Intercept (1) E/P 0.49 (1.80) Regression Coefficients of LS B/M C/P R2 SEE F
25.03 0.02 63.08 3.25 (4.11)* (2) -119.19 8.20 0.04 62.67 5.77 (1.88) (2.40)** (3) 47.51 -20.18 0.03 62.97 4.16 (5.16)* (2.04)** (4) 29.86 -0.20 0.01 64.24 0.34 (3.92)* (0.58) (5) -150.75 0.59 9.55 0.08 61.81 5.26 (2.35)** (2.14)** (2.79)* (6) 81.61 1.49 1.14 -59.53 0.16 59.17 8.02 (0.91) (4.07)* (0.26) (3.55)* (7) -25.44 3.66 -32.00 -0.93 0.09 61.66 4.06 (0.29) (0.83) (2.10)** (2.30)** (8) 131.69 2.56 3.17 -64.73 -1.35 0.18 58.56 7.05 (1.42) (3.83)* (0.17) (3.85)* (1.90) Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com Notes: (1) Figures in parentheses are t-values. (3) * and ** denote that the results are significant at 1 percent and 5 percent level of significance respectively.
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Of the four variables considered, book to market value has higher explanatory power than other variables as indicated by significant relationship between total yield and book to market value (Models 3, 6, 7 and 8). The cash flow yield is found to be weak in determining the total yield, since only model 7 provides the significant relationship between total yield and cash flow yield. However, the models estimated are generally poor as revealed by F-statistics and coefficients of multiple determination (R2).
4. Conclusions
This study addressed fundamentals of stock returns in the context of Nepal. It examines if dividend yield, capital gain yield and total yield are related to earnings yield, size, book to market ratio and cash flow yield. The study is based on pooled cross sectional data of 40 enterprises whose stocks are listed in NEPSE Ltd. and traded in the stock market. The overall results of study can be summarized as follows: Earnings yield and cash flow yield have significant positive impact on dividend yield, and an insignificant impact on book to market value, whereas, size has negative impact on dividend yield. In the case of earnings yield and cash flow yield, cash flow yield has been found to be more informative than earnings yield. Capital gain yield is positively influenced by earnings yield and size, whereas, the same is negatively influenced by book to market value and cash flow yield. Book to market value has been found to be statistically strong in predicting capital gain yield. Similarly, total yield is positively determined by earnings yield and size, whereas, the same is negatively determined by book to market value and cash flow yield. Book to market value has been found to be more informative than other variables. The positive relationship exists among earnings yield, book to market value and cash flow yield. However, the size is negatively related to these three variables.
23
References
Adhikari, Nabaraj, Corporate Dividend Practices in Nepal, An Unpublished Masters Degree Dissertation, FOM, TU, Kirtipur, (1999), 1-134. Ball, Ray, Anomalies in Relationships between Securities Yields and Yield Surrogates, The Journal of Financial Economics, Vol. 6, (1978), 103-126. Banz, Rolf W. and William Breen, Sample Dependent Results Using Accounting and Market Data: Some Evidence, The Journal of Finance, Vol. 41, (1986), 779-793. Banz, Rolf W., The Relationship between Returns and Market Value of Common Stocks, The Journal of Financial Economics, Vol. 9 (1981), 3-19. Basu, Sanjoy, Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficiency Market Hypothesis, The Journal of Finance, Vol. 32, No. 3, (June 1977), 663-682. ------------, The Relationship between Earnings Yield, Market Value and Return for NYSE Common Stocks: Future Evidence, The Journal of Financial Economics, Vol. 12, (1983), 129-156. Bernard, Victor and Thomas Stober, The Nature and Amount of Information in Cash Flows and Accruals, Accounting Review, Vol. 64, (1989), 624-652. Black, Fischer, Capital Market Equilibrium with Restricted Borrowings, The Journal of Business, Vol. 45, (1972), 444-455. Chan, Louis K., Yasushi Hamao and Josef Lakonishok, Fundamentals and Stock Returns in Japan, The Journal of Finance, Vol. 46 No. 5, (Dec. 1991), 1739-1764. Cook, Thomas and Michael Rozeff, Size and Earnings/Price Ratio Anomalies: One Effect or Two?, The Journal of Financial and Quantitative Analysis, Vol. 19, (1984), 449-466. Davis, James L., The Cross-Section of Realized Stock Returns: The Pre-COMPUSTAT Evidence, The Journal of Finance, Vol. 49, No. 5, (Dec. 1994), 1579-1593. Fama, Eugene F. and Keneth R. French, Dividend Yields and Expected Stock Returns, The Journal of Financial Economics, Vol. 22 (1988), 3-25. ----------, The Cross-Section of Expected Stock Returns, The Journal of Finance, Vol. 47, No. 2, (June 1992), 427-465. Fama, Eugene F., Efficient Capital Markets: II, The Journal of Finance, Fourth Coming (1991). Gupta, C.B., Business Organization and Management, (New Delhi: Prentice Hall of India Pvt. Ltd., 1978). Jaffe, Jeffrey, Donald Keim and Randolph Westerfield, Earning Yields, Market Values and Stock Returns, The Journal of Finance, Vol. 44, (1989), 135-148. Jagannathan, Ravi and Znenyu Wang, The Conditional CAPM and the Cross Section of Expected Returns, The Journal of Finance, Vol. 51, (March 1996), 3-53. Lakonishok, Josef, and Alan Shapiro, Systematic Risk, Total Risk and Size as Determinants of Stock Market Returns, The Journal of Banking and Finance, Vol. 10, (1986), 115-132. Lintner, John, the Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets, The Review of Economics and Statistics, Vol. 47, No. 1, (Feb. 1965), 13-37. Mahat, R.S., Capital Market, Financial Flows and Industrial Finance in Nepal, (Lalitpur: Sajha Prakashan, 1981).
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Manandhar, K.D., A Study of Dividend Policy and Value of the Firm in Small Stock Market: A Case of Nepal, Management Dynamics, Vol. 8, No. 1, (1998), 15-20. Markowitz, Harry, Portfolio Selection, Cowles Foundation Monograph, Vol. 16, (New York: Wiley, 1956). Pradhan, Radhe S., Stock Market Behavior in A Small Capital Market: A Case of Nepal, The Nepalese Management Review, Vol. 9, No. 1 (Summer 1993), 23-49. Reinganum, Mare, Mis-specification of Capital Asset Pricing: Empirical Anomalies Based on Earning Yields and Market Values, The Journal of Financial Economics, Vol. 9, (1981), 19-46. Ritter, Jay and Narin Chopra, Portfolio Rebalancing and the Tum-of-the-Year Effect, The Journal of Finance, Vol. 44, (1989), 149-166. Rosenberg, Bar, Keneth Reid and Ronald Lanstein, Persuasive Evidence of Market Inefficiency, The Journal of Portfolio Management, Vol. 11, (1984), 9-17. Ross, Stephen A., The Arbitrage Theory of Capital Asset Pricing, The Journal of Economic Theory, Vol. 13, No. 3 (Dec. 1976), 341-360. Sharpe, William F., Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk, The Journal of Finance, Vol. 19, No. 3 (Sept. 1964), 425-442. Timilsina, Sadakar, Dividend and Stock Prices: An Empirical Study, An Unpublished Masters Degree Dissertation, FOM, TU, Kirtipur, (1997). Verma, P.C., Financial Behaviour of Jute Industry in India, The Indian Economic Journal, Vol. 42, No. 2, (Oct.-Dec. 1994), 125-137. Wiggins, James B., The Earning Price and Standardized Unexpected Earnings Effects: One Anomaly or Two?, The Journal of Financial Research, Vol. 14, No. 3, (Fall 1991), 263275. Wilson, Peter, The Relative Information Content of Accruals and Cash Flows: Combined Evidence at the Earnings Announcement and Annual Report Release Date, The Journal of Accounting Research, Supplement, (1986), 165-200.
***
Development of Stock Market and Economic Growth in Nepal

- Dr. Bijay K.C. Introduction The relationship between stock market development and economic growth has received renewed attention of academicians and policy makers in the present decade both in the developed and developing countries as a result of the emerging equity market phenomenon and of the need to provide liquidity for privatization-linked equity issues. The growing importance of stock markets in the developing countries has opened up many avenues for research in the relationship between financial development and economic growth, with focus on developmental role of stock markets. Empirical studies in many developing countries suggest that every nation has a structure of financial system that exists side by side with its real infrastructure, and the differences in the national financial systems have profound impact upon the pace of economic growth of nations. Evidence shows that financial development of a nation overwhelmingly affects its economic growth. A countrys financial system may be bank-dominated or market-oriented. Each of these systems has different mechanisms for handling stakeholders interest and addressing corporate control issues and agency problems. Though historically countries seem to follow one of these paths for development of its financial system, in recent years, some countries are developing their financial systems through convergence between these two. Empirical studies show that banks and stock market play complementary roles in the initial stage of financial development of a country and neither of these is perfect substitute for the other. Financial system in Nepal is basically bank dominated. However it cannot be denied that stock market also has an important role to play in the development of the country. The present article aims to look at some of the issues in the development of financial sector, particularly in the context of the developmental role of stock market, and economic growth in Nepal and tries to determine the level of stock market development using various indicators.
Professor of Finance, Kathmandu University, School of Management
26
Growth of Financial Sector in Nepal During the last one and half decade the financial sector in Nepal has grown significantly. It is sad that despite a history of almost half a century of developmental efforts under different national plans, conscientious efforts to develop financial sector started quite late in Nepal. Although some efforts were made to develop countrys infrastructure during the Rana regime, they were more sporadic and aimed at fulfilling the need and the whims of the then Rana rulers. Efforts to achieve economic growth in the country in a planned way started only in 1956 with the adoption of the First Five-Year Plan by the government. Under different plans the government set targets for economic growth and adopted various policies and programs, which were directed towards developing infrastructure necessary for the creation of national wealth. Unfortunately, these policies and programs failed to take into account the need to develop the financial structure that ought to exist side by side with the development of infrastructure necessary for the growth of real sector. In one sense these policies were lopsided because they sought to enhance growth in physical assets of the nation by suppressing the development of financial sector of the country. The policy of the government to maintain control of the financial sector by restricting the entry of private sector into financial activities limited the growth of financial sector in the country. As a result the country had limited financial institutions to support its developmental activities for quite a long time. Till early eighties the country had only two commercial banks, two development banks, one provident fund and few insurance companies. As almost all of these financial institutions were under the government sector they operated more under social welfare concept than under commercial principles. As a result of the restrictive policy of the government, the gaps created in the resources needed for the development of the real sector and the resources available for it were met through foreign grants and loans under different plans. While this increased the countrys dependency on the foreign aid, it also made the government less concerned for the need to mobilize resources locally to meet the resource gap. Apparently, this led to tardy development of financial sector of the country where the real sector lagged behind the financial sector. The process of stock market development in the country actually started in 1976 when the government established Securities Exchange Centre to provide and develop market for securities, both the government bonds and corporate
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securities. However, visible impact on the development of financial sector was observed only when the government changed its restrictive policy and opened up hitherto closed financial sector to private sector and foreign participation in the establishment of banks. With the adoption of privatization and economic liberalization policy the process got further impetus and the financial institutions in Nepal grew at a faster pace especially in quantitative terms. By the end of 2003 the financial sector in Nepal included 17 commercial banks, 58 finance companies, 18 development banks, 17 insurance companies, 5 regional rural development banks, 34 saving and credit cooperatives, 116 postal saving banks and 44 non-government micro-credit institutions. In addition, there is one Employee Provident Fund, one Credit Guarantee and Deposit Insurance Corporation, and one Citizen Investment Trust. During this period some discernible improvements took place in the stock market. In 1993, Securities Board Nepal (SEBO) was established with the objectives to regulate, supervise, and monitor the securities market. Similarly, the Securities Exchange Centre was converted into Nepal Stock Exchange Limited (NEPSE) with the objectives to provide secondary market for securities transaction. An open out cry system was introduced by NEPSE for securities transaction, where the investors were allowed to deal in securities only through licensed brokers. The equity market activities grow with the development and reform in the financial sector. Over the past 10 years the stock market of Nepal has made some progress. For example, between the fiscal year1993/94 and 2002/03, the number of listed companies in NEPSE increased almost two-fold from 62 to 113 and the market capitalization value rose almost two and half times from Rs.14 billion to Rs.35 billion. Likewise, during the same period the number of securities listed with the exchange increased four times from 43 million to 160 million and the number of annual transactions increased eight times from around nine thousands to 69 thousands. During this period NEPSE index jumped from its base value of 100 to 204.86. Despite these progress stock market in Nepal is still at a developing stage and has to make visible impacts on the economic growth of the country. Stock Market Development and Long-term Growth Although the role of financial sector in the economic development of a nation remained controversial for some time, recent theories in finance suggest that
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stock markets do promote long-term growth. It has been experienced that the development of stock markets in the emerging nations passes through four main stages (Papaioannou & Duke, 1993, p.36). Development of equity markets in any country requires political and economic stability and growth-oriented policies as pre-conditions. At the second stage, equity prices rise and the investors gradually gain confidence in the equity market. They accept equity as an alternative to traditional bank deposits and government securities. As the second stage, equity markets gain more credibility and market liquidity increases. Investors long for rise in risk adjusted returns and demand a wide variety of securities to match their risk preferences. Rules and regulations are refined and the equity markets start functioning on the basis of self-discipline. Equity markets at this stage gradually get integrated to the international markets and attract foreign investors. At the third stage, equity markets become an integral part of the overall financial system. Investors get higher, less volatile returns and easily absorb new issues of stocks and bonds. The volume of trading increases as the equity markets become more liquid and firms go for initial public offerings to replace their debts. At this stage a mechanism for risk transfer develops, creating markets for equity and currency-hedging instruments such as derivatives and index products. At the final stage the equity markets get highly integrated with the global markets and the equity risk premiums match with the internationally competitive levels. Equity markets at this stage achieve stable growth and attain a mature state. Despite its history of more than 25 years with respect to the above-mentioned observation, the equity market in Nepal has barely entered the first stage of development. Due to current political and economic instability, absence of growth-oriented policies and weak regulatory framework of stock market has failed to gain investors confidence. Unavailability of timely information and weak supervision and monitoring has made the stock market highly risky for general investors. Investors have not yet accepted investment in stock as an alternative to bank deposits and government securities except in the case of stock of some commercial banks. (K.C. & Snowden 1997) By encouraging acquisition and dissemination of information, stock markets reduce cost of mobilizing savings and facilitate investments. Well-developed stock markets enhance efficiency of market for corporate control by mitigating the agency problems between the stockowners and managers. In countries where stock market discipline is effective, firms tend to be more productive, thereby
29
creating more wealth per unit of money invested.( Diamond and Verrecchia 1982; Jensen and Murphy 1990; Greenwood and Smith 1997). Stock markets help expansion of economic activity by providing liquidity to financial assets traded in them. Investments in real assets require long-term commitment of capital, however, investors are reluctant to commit their savings for long periods. Liquid stock markets make investment less risky because they allow savers to buy and sell financial assets they hold cheaply and quickly and restructure their portfolios any time according to their risk-return preferences. At the same time, firms enjoy permanent access to long-term capital through equity issues. By making assets less risky and providing easy access to permanent source of capital, liquid stock markets improve allocation of resources, boost investment and enhance long-term economic growth. Very liquid stock markets may sometime deter economic growth by encouraging investor myopia. It is argued that such stock markets may weaken investors commitment to exert corporate control because they prefer to sell the stocks of the misgoverned companies rather than to monitor and force managers to improve their performance. However, empirical studies suggest that greater stock market liquidity boosts and in many cases precede economic growth. Indicators of Stock Market Development in Nepal The level of stock market development and its impact on the national economy can be measured by using various indicators broadly classified into following categories (Demirguc-Kunt and Levine 1996): 1. 2. 3. 4. Stock market size Liquidity Concentration, and Volatility
Literature in finance examines the relationship between various attributes of stock market and economic growth of nations and has developed a set of indicators under these categories to conceptualise the nature of such relationship.
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Stock Market Size Generally large stock market size indicates developed stock market. One of the measures of stock market size is the number of companies and scrip listed with the stock exchange. Size of stock market increases with the increase in the number of listed companies. In Nepal the number of companies listed with the NEPSE was 66 in 1993/94, which increased to 108 in 2002/03. Similarly the number of scrip listed increased from 43 million to 160 million during the period. Similarly the paid up value of the listed securities was Rs.2.18 billion in 1993/94. In 2002/03 it was Rs.12.6 billion. It is, however, interesting to note that despite the increase in the number of companies and paid up value of the securities listed with the exchange, only about 12 percent of the companies registered with the Office of the Company Registrar as public limited period are listed with the NEPSE during the ten year. Most of the companies that are listed with the exchange belong to banking, finance, and insurance sectors. While only few companies from the trading, hotel, manufacturing, and aviation sectors are listed with the exchange, not a single company from power, information technology, and construction sectors has entered the organized stock exchange of the country. (SEBO, 2003 p.7). This indicates that firms tend to avoid stock market as an alternative source of long-term capital in Nepal. Significant increase in the number of companies registered as private limited in comparison to those registered as public limited during last one and half decade also supports this view. This has adversely affected the liquidity and supply of securities in the stock market. Another important measure of the stock market size is the market capitalization ratio, which is aggregate market value of the listed shares divided by Gross Domestic Product. This ratio indicates the relative importance of stock market to the national economy and assumes that stock market size is positively correlated with the ability to mobilize capital and diversify risk. As can be seen from Table No.1, the market capitalization ratio has, on an average, been only around .07 for the period between 1993/94 and 2002/03. It is important to remember that in countries with developed stock market this ratio is greater than 1 and in many developing countries it is between 0.2 and 0.4. Low market capitalization ratio in Nepal indicates that stock market is yet to show its impact on the economic activities of the country.
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Table 1 Market Capitalization and Number of Companies listed with NEPSE

(Rs. in million)
Years 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03
Market Capitalization
(Rs.)
Gross Domestic Product

(Rs.)
Market No. of Paid up Values of Capitalization Companies Listed Securities (Rs.) Ratio Listed 0.07 0.06 0.05 0.05 0.05 0.07 0.12 0.10 0.09 0.08 66 79 89 95 101 107 110 115 96 108 2182.2 2961.8 3358.5 4476.5 4959.8 6487.4 7347.4 8165.2 9685.0 12560.1
13872.00 12963.00 12295.00 12698.00 14289.00 23508.00 43123.33 40063.33 34704.00 35240.39
191596 209976 239388 269570 289798 330018 366251 393566 404482 428477
Sometime it is argued that stock market size as measured by the number of listed companies and the market capitalization ratio is not a good predictor of economic growth because it does not take into account the liquidity aspect of stock market. (Levine 1996,p.8). It is often seen that in countries where firms are closely held and family controlled, very few shares are actually traded in the stock market. In such case market capitalization does not bear significant relationship with the economic activity of the country. Liquidity Liquidity in the stock market parlance refers to the convenience and ease in buying and selling securities in the market. By allowing investors to alter their investment portfolios conveniently at any time and low cost, liquidity makes the financial assets less risky. This improves efficient allocation of resources and promotes long-term economic growth. There are two main indicators of market liquidity. One of these is the total value of shares traded in the stock market as a percentage of Gross Domestic Products. Although this indicator does not measure directly the cost of trading of shares, it does indicate the extent of ease in trading in stock market in a country. It is expected that the volume of organized trading of equities as a share of national output increase when such trading is less costly and easy. Evidence shows that countries with relatively
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liquid stock market tend to grow much faster than countries with illiquid markets. (Levine, 1996).
Table: 2 Measures of Market Liquidity of NEPSE
(Rs. in million)
Years 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03
Values of Shares Traded (Rs.) 431.34 1054.26 209.01 416.19 202.61 1485.55 1157.00 2335.91 1540.63 575.80
Value of Shares traded to GDP 0.002 0.005 0.001 0.002 0.001 0.005 0.003 0.006 0.004 0.001
Value of Shares traded to Market Capitalization 0.031 0.081 0.017 0.033 0.014 0.063 0.027 0.058 0.044 0.016
As we can see from the table, ratio of the value of shares traded to Gross Domestic Product was always below 0.005, except in the fiscal year 2000/01, during the ten-year period between 1993/94 and 2002/03. During this period the value of shares traded accounted, on an average, only for about 0.003 of Gross Domestic Product. In countries with developed stock market this figure is as high as .4 and in many developing countries the values of shares traded vary in a range of .001 to .01 of Gross Domestic Product. Low ratio of value of shares traded to Gross Domestic Product indicates that trading in equity relatively to the size of economy is very low in Nepal. Another measure of liquidity of stock market is the ratio of value of shares traded to market capitalization. This measure, also known as turnover ratio, equals the value of shares traded divided by market capitalization and is indicative of the trading relative to the size of stock market. A high turnover ratio may indicate low transaction cost and relative ease in buying and selling of shares. Experience shows that countries with high turnover ratio develop faster than countries with low turnover ratio. Countries with small stock market, as measured by the market capitalization ratio, may have a high turnover ratio and grow fast. In developed countries this ratio is greater than or very close to one
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whereas in many developing countries this ratio stands in the range of 0.15 to 0.3. In Nepal the turnover ratio has remained very low during the ten-year period between 1993/94 and 2002/03. This ratio was the highest in 1994/95, indicating sizable turnover of shares. As the table shows, the value of shares traded relative to both Gross Domestic Product and market capitalization is on decline since 2001/02, indicating growing illiquidity in the countrys stock market. Taken together these ratios i.e. market capitalization, value of shares traded to Gross Domestic Product, and turnover, indicate that the stock market in Nepal is very small relative to its economy, and highly illiquid and stock market in Nepal is yet to make its presence felt in the national economy. Concentration A countrys stock market is considered highly concentrated if few large companies dominate it. In other words, in a stock market which has high concentration shares of few companies account for major percentage of total market value and are traded most frequently relative to stocks of other companies. High concentration is not desirable as it adversely affects liquidity in the stock market. Concentration in a stock market is measured by computing the share of ten largest stocks to total market value of shares. Countries with family owned, closed enterprises and limited number of listed companies have high concentration ratio. Table 3 gives the market concentration ratio calculated on the basis of market capitalization in the stock market in Nepal. Table 3
Market Concentration Ratio in NEPSE Years 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 Market Concentration Ratio 0.71 0.73 0.68 0.66 0.65 0.68 0.71 0.58 0.60
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Countries with developed stock market have concentration ratios of about 0.2 of the market whereas in countries with undeveloped stock market this ratio is as high as .9. In Nepal the ratio was on an average around .67 over the past 10 years, which indicates that, the market value of shares of ten largest companies account for 67 per cent of the total market value. The concentration ratio is as high as .8 when it is computed on the basis of turnover. This indicates that the stock market in Nepal is highly dominated by largest ten companies in terms of either market capitalization or turnover. It is interesting to note that of the ten largest companies dominating the market in 2003 nine are commercial banks, indicating that the stock market in Nepal is highly dominated by the commercial banks. High concentration has adversely affected liquidity and significance of the stock market in the national economy. Volatility Volatility is one of the important indicators of development of a countrys stock market. Although high volatility in the stock market denotes risk in equity investment, it does not necessarily imply undeveloped stock market. It is generally expected that developed stock markets absorb risks in financial assets and offer higher return with less volatility. Put simply, it means that as an indicator of a countrys stock market development less volatility is preferred to high. Volatility may be measured as a twelve-month, rolling standard deviation of market returns. Higher standard deviation means higher volatility, and more risk.
Table 4 Volatility in the Nepal Stock Exchange Twelve-month rolling Value-traded- ratio to standard deviation volatility 26.47 0.0012 7.36 0.0111 4.11 0.0041 2.71 0.0121 4.57 0.0031 3.79 0.0167 5.53 0.0049 9.24 0.0063 12.79 0.0035 3.08 0.0053
Years 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03
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Although volatility in the stock market in Nepal was high during the initial years, it was on decline till 1996/97indicating that equity prices in the stock market tended to stabilize during this period. From 1998/99 onwards volatility in the stock market had wider fluctuation but it showed a tendency to rise consistently. Countries with high inflation rates seem to have higher volatility in the equity markets. Except in 1993/94, 2000/01, and 2001/02 volatility in the stock market in Nepal is less than the average volatility of other developing countries. The reason for this is mainly low volume of trading of equities due to low demand. Volatility in these three years was high due to increase in the volume of trading triggered by speculative motive of investors. Analysts argue that developed stock markets should not only provide high liquidity but also handle large volume of trading with less price swings. In other words a liquid market should allow large volume of trading with less volatility. One of the indicators to measure this is a ratio of value-traded-ratio to volatility. A high ratio indicates the ability of the stock market to provide liquidity and handle risk. Empirical evidence shows that this ratio is a good predictor of economic growth and countries with high ratios have grown much faster than countries with low ratios. These ratios for the stock market in Nepal are presented in column 3 in above table. These ratios indicate inability of stock market in Nepal to handle risk relatively to volume of trading of shares. A positive but very weak relationship is observed between volatility and volume of trading of shares in the stock market. Trends in the Indicators of Stock market Development Figure 1 presents the trend in the indicators of stock market development in Nepal for the period between 1993/94 and 2002/03. Market capitalization ratio was on rise for the period between 1996/97 to 1999/00 again declined from 2000/01 on wards. Turnover ratio and value traded ratio to volatility showed wide fluctuations during the period. It is interesting to note that none of these indicators revealed a consistent trend during this period, indicating that the development of stock market in Nepal lacks a definite direction and is not guided by clear-cut policies and actions. Due to low volume of shares traded and wide fluctuations, the stock market in Nepal has been highly illiquid and volatile.
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Figure 1
Trend of Indicators of Stock Market Development in Nepal 0.14 0.12 0.10
Ratio
Market Capitalisation Ratio Value of shares traded to GDP Turnover Ratio Value -traded ratio to volatility
0.08 0.06 0.04 0.02 0.00

99 00 01 02 03 94 95 96 97 98 3/ 94/ 95/ 96/ 97/ 98/ 99/ 00/ 01/ 02/ 9 19 19 19 19 19 19 19 20 20 20
Years
Summary and Conclusion The relationship between financial development and economic growth, with focus on developmental role of stock markets, has been in debate for some time in the past. Empirical studies suggest that financial development does matter and stock markets do spur economic growth. Unfortunately, in Nepal, despite a history of about half a decade of planned economic activities to develop real sector of the country, little attention was paid to the development of financial sector. Over the past one and half decade, financial sector, despite many problems has developed significantly in Nepal. However, most of the developments were confined to the banking sector. Stock market has virtually remained stalled because of the low priority in the government's financial reform policies. Various measures of stock market development indicate that the stock market in Nepal is underdeveloped and has failed to show impact on the overall national economy. Small market size has made it vulnerable to manipulation and price rigging. Low turnover ratio and value-traded-ratio to volatility, and high concentration ratio indicate that the stock market in Nepal is highly illiquid and risky. Investors tend to avoid stock market because they do not have options to
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invest in securities according to their risk-return preference. Similarly firms shun it because stock market is less reliable source of raising funds for them. Due to this financial system in Nepal has remained basically bank-dominated. References
Arestis, Philip; Panicos O. Demetriades, & Kul B. Luintel (2001) Financial development and economic growth : The role of stock markets. Journal of Money, Credit, and Banking 33 (February). 16 41 Demirguc-Kunt, Asli & Ross Levine (1996) Stock markets, Corporate finance, and Economic growth: An overview The World Bank Economic Review 10 (May), 223 239. Demirguc-Kunt, Asli & Ross Levine (1996) Stock market development and financial intermediaries: stylized facts. The World Bank Economic Review 10 (May), 291 321 Diamond, Douglas W., & R.E. Verrecchia (1982) Optimal Managerial Contracts and Equilibrium Security Prices. Journal of Finance 37 (May). 275-87 Greenwood, Jeremy, & Bruce Smith (1997) Financial markets in development and the development of financial markets. Journal of Economic Dynamics and Control 21 (January). 145-82 Jensen, Michael C. & Kevin J. Murphy (1990) Performance Pay and Top Management Incentives. Journal of Political Economy 98 (April). 225 - 64 K.C., Bijay & P.N. Snowden (1999) Pricing shares on a nascent market: the Nepal Stock Exchange 1994-96. World Development 27s (June). 1083 1096 Levine, Ross. (1996) Stock markets: A spur to economic growth Finance & Development, 33 (March). 7- 10. Papaioannou, Michael G. & Lawrence K. Duke.(1993) The Internationalization of Emerging Equity Markets Finance & Development, 30 (September). 36 -39. Securities Board, Nepal. (2004) Annual Report (2002-03). Securities Board Nepal, Kathmandu Securities Board, Nepal (2004) Ten Years of Securities Board (in Nepali), Securities Board Nepal, Kathmandu Walton, Michael (1997) The maturation of the East Asian miracle Finance & Development, 34 (September) 7- 10.
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Eligibility for Trading of Securities and Challenges

- Pramod Bhattarai* Listing means registration of securities that are floated by corporate sector to raise funds for the establishment and operation of a company. The importance of listing cannot be overemphasized with few words. The company by means of listing arranges liquidity on the floated securities. The Securities and Exchange Board of India (SEBI) guideline defines listing as admission of the securities of a public limited company on a recognized stock exchange which provides a forum for the purchase and sale of securities. If the listed company is in need of additional fund, it can raise such required fund from the market. Besides, listing also facilitates to value the securities daily on the trading floor. The listing has several advantages like the investor gets periodic reports of the listed companies which help them to know company performance, the transaction of listed companies are reported in daily newspapers and they are able to know the intrinsic value of their investment. If all other things remain constant, the investors attempt to sell higher volume of securities at higher prices and tend to buy less number of securities at higher prices. If the market price of the particular securities increases beyond the intrinsic value of the securities then the investors holding that securities starts to sell, which in turn, increases the selling pressure. The increased selling pressure due to overvaluation of securities or over pricing reduces the demand and ultimately the price will come down and equals the intrinsic value of the securities. In the same way, if the securities are priced below the intrinsic value or net value the demand for such securities increases and the increased demand and lower supply of securities increases the market price, which again levels up with the intrinsic value of the securities. In fact, transactions are be made at the price where both the bid and ask price matches. Therefore, Capital Assets Pricing Model (CAPM) assumes that capital market has to be in a state of equilibrium; if not, the market will move towards the equilibrium position. Over-pricing and under-pricing are temporary phenomena; the market price should equal the
Acting Manager, Nepal Stock Exchange Ltd.
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intrinsic worth of the securities. It is the listing that facilitates occurrence of such situation in the market. Price is also a function of information and investors' perception. If the investors perceive that the particular company will do better in future and also if the present situation is far better than the forecast situation then such investors may be ready to pay higher price as compared to others. In this situation the investors cannot be blamed as being irrational. They are rational but, the prevailing economic situation and quality of information affects their decisions as some investors trade on the basis of asymmetric information. Listing Provision Different stock exchanges incorporated in different countries have their own listing criteria depending on their geo-political and economic status. Stock exchange provides the opportunity to invest when people have surplus funds and to exit when they are in need of funds and also want to minimize the risks and maximize the return. CAPM assumes that if there exists several financial instruments having different rate of returns, but the same level of risks, investors prefer the high rate yielding securities. On the other hand if there exists the same rate yielding securities with different risk levels, the investors prefer less risky instruments because the investors are risk averse. Therefore, Securities Exchange Act 1983 of Nepal has made provision for listing considering the fact of giving exit to the investors. Section 8 of Securities Exchange Act, 1983 prohibits securities trading without being listed. This means that all the securities of public limited company must be listed in the stock exchange to make them eligible for trading. The listing by-laws has clearly spelled out that all issued and allotted securities should be listed under the section 11 of the Act. The Act has defined the term "issue" as all the issue made by issuing announcement or by private placement to sell the securities. It has a wide coverage indicating all transactions before listing are void. However, the securities listing by-laws spell out the minimum requirements to be eligible for listing, which includes minimum number of shareholders to be 500, the minimum paid up capital to be Rs.2.5 million above others. Besides this, several information and documents along with dues should be submitted. Now the question can be raised- What will happen to the securities of those companies, which do not meet such criteria as Nepal does not have over-the-counter (OTC) market. It reveals that some of the existing public limited companies are violating the existing laws by trading without being
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listed on the exchange. In other words, listing is not compulsory but the transactions of securities without listing is against the prevailing laws of the country. In fact, this is the major weakness of our legal enforcement regime. Grouping of Listed companies Nepal Stock Exchange Ltd. (NEPSE) has developed and executed the system for the grouping of listed companies. It has developed certain criteria for it. Such criteria includes- paid up capital of the company to be Rs.20 million, the number of shareholders to be 1000, the company must have furnished all the information on timely basis and as prescribed by the listing by-laws, the net worth per share should not be less than paid up value and the company must be in profit for the last three years. Companies that meet the above said criteria are categorized in group "A" and the rest in group "B". If a company does not meet any one criterion from the first two criteria, the company will be kept in group "B". Although it may appear unfair for the company when put among the sick companies the listed companies are, however not interested whether to be in group "A" group "B" as they do not have any incentives to be in group "A". If certain incentives are provided to companies in group "A" they might be encouraged to be on this group. Earlier 5 percent tax was exempted to the listed companies. It is also good to adopt the policy to provide tax incentives to the "A" group companies. De-listing of securities De-listing means cancellation of registration of listed securities from the stock exchange. It is said that listing facilitates the investors to exit from investment and this is also one of the targets of the stock exchange. However, if de-listing is executed the objectives of the Act cannot be attained. Actually, this provision is contradictory and impracticable in our context. As the provision for listing says no securities can be traded without listing, on the other hand, several conditions are given for de-listing on section 14 of the Act. This provision titled De-listing of Securities also consists the provision for suspension or de-listing. The conditions for de-listing as per the provisions are
If companies engage in activities that are contradictory to what the Act says. If directives or orders issued by the stock exchange are not obeyed by the companies.
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If stock exchange feels it is necessary to de-list or suspend the transactions of the listed companies to protect the interest of the investors.
Section 8 of Securities Exchange Act, 1983 makes the listing compulsory to make securities trading eligible whereas the de-listing provision made in section 14 of the same Act, if implemented, makes the securities illiquid. The Act also spells out the protection of the investors' interest. In this contradictory situation, how can the interest of the investors' be protected? In the absence of OTC market, de-listing of a company could trap their investment for unknown period of time. In the US even if the company is listed, it can trade in OTC. However, in order to be de-listed, the opinion from the audit committee must be obtained, the board of directors of the exchange must approve the de-listing proposal, and 20 to 60 working days must be given to the general public to react on it. After which, the de-listed company can be traded on OTC market. In our case, in order to enlist the securities the decision from the board of directors is essential . This board also consists the representatives from the general public. Therefore, the basic requirement for de-listing is the approval from the BOD. Besides this, the alternative arrangement for providing liquidity should also be made. Recently, NEPSE has de-listed Nepal Bank Ltd. making its securities illiquid. The bank had about 10,000 shareholders. Under the financial sector reform program, Nepal Rastra Bank took over the management of the bank and contracted out the same to the foreign management group. Despite their best efforts if the situation deteriorates causing loss both to the shareholders and depositors then what will be the role of central bank? Will the management take the responsibility? This is a very critical point and all the investors should be aware of this. In the course of attaining their commitments, the management committee of the bank requested the stock exchange to de-list the bank. Their basic logic for de-listing the bank was that the market price of the share did not reflect the performance, as the bank was in huge loss with very high levels of NPL/NPA. However, the prevailing Act does not have provision to de-list on the request of the listed company. NEPSE sought the opinion of the central bank on this regard and was informed that it is logical to de-list the bank. The board of directors of NEPSE approved the proposal and the bank was de-listed. However, the consequences are that the investment of the general public has become illiquid. Recently, news was published that the bank is going to buy back its own share. In fact, according to the Companies Act, 1997 no company can buy back its share. Such shares are known as Treasury Shares in financial terminology, and the recently promulgated
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Bank and Financial Institutions Ordinance has permitted it. However, this should be done through secondary market creating sinking fund and others so that the investors can be benefited. It has been said that the bank is going to buy its own share at the price fixed by its management. In this light, the rights and powers empowered to the management committee should be questioned as well as their authority to request for de-listing. Conclusion and Recommendations The market price of the securities equals the intrinsic value of the securities and the worth of the securities depends upon the performance of the company. Investors should be provided with an exit point to retrieve their investment. On this regard, it can be said that de-listing is a practical solution in the context of our economy. In the absence of an efficient and organized market, several rumors can be spread in the market, leading to anxiety among investors, which the large investors can capitalize on by taking control the company's management. It hinders the daily valuation of listed securities accurately as ample manipulation can be done when such distortions exists in the market. All the public limited companies registered in the country must be listed with stock exchange to make them eligible for trading. It also meets the expectation of the Securities Exchange Act. Nepal does not yet have OTC market and such market can be partially created by making listing possible to all the public limited company by creating special "General Listing" category similar to OTC standards. Once the companies are listed, they are required to furnish information as prescribed by the law of the country to the investors. The grouping of companies helps to separate better organization from sick organization. The companies that are not disseminating information and not paying annual fee regularly are placed on "Z" group. The general public is notified of the "Z" group companies in order to create pressure through exposure. Companies, which do not respond within 6 months of NEPSE request for information, will be de-listed. This also facilitates the privatization program of the country in our case and also facilitates to identify the performance of such organization by the regulator as well as by the investors. It also helps them to make more effective investment decision.
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Supervisory role of regulators are very important for the listed companies. But due to the conflicting provisions of existing Acts and misinterpretation of the provisions therein creates a big confusion among the regulators. Their consensus of opinion is quite essential to develop and operate a sound financial system in the country. Capital market is one of the major components of the financial sector and the listing de-listing is one of the key components of capital market system. In order to make effective decisions, a high-level committee would be very useful. The members of the committee should be senior officers of Nepal Rastra Bank, Securities Board, NEPSE, Company Registrar's office and Ministry of Finance. ***
Corporate Information Disclosure in Nepalese Securities Market

- Paristha N. Poudyal Introduction There is a saying that an information is not an information unless it is communicated. This saying highlights the importance of dissemination or disclosure of information. In the context of information dissemination, management experts have also presented a question, "if a tree falls in a forest and no one hears it, does it make any noise?" They are of the opinion that this question must be answered negatively as there is no dissemination of information even if it occurred in reality. Thus, dissemination of information is more important than the information itself. Such dissemination or disclosure of information is of utmost importance in the securities market too. Reliable, standard and timely disclosed information is the backbone of securities market. On one hand, information helps an investor to decide whether or not to invest in the stock of a certain company and on the other, it contributes to the development of a fair, credible and transparent securities market. When the securities market becomes more transparent, it can maintain and boost investors' confidence and such confidence will help the entrepreneurs and corporate bodies to raise necessary funds from the public. In case of an issuing company, the important information to the investors are the information regarding the nature and objective of business, background of the promoters and directors, past performance and future prospects, financial status, risk factor etc. Similarly, in case of listed companies, the information that are important to investors are price sensitive information such as declaration of cash and stock dividend, change in management, business expansion or contraction, take over and merger etc. Other important information are quarterly reports, semi-annual and annual reports of the companies regarding their operational results. All these information affect the market price of shares. Listed companies should comply to timely disclosure of required information that will help to maintain market price of their shares according to their performance or activities.
Deputy Director, Securities Board, Nepal
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Provisions regarding information disclosure Present securities legislations in Nepal have made different provisions regarding corporate information disclosure. One of such provisions is that an issuing company, at the time of public issue, should publish prospectus that contains information such as introduction, objectives, financial position, details of promoters and directors, risk factors of its business etc. The public issue approval guideline of Securities Board (SEBO) also requires the issuing companies to make additional disclosures in the prospectus. Thus, prospectus is an informative document on which basis investors can make rational investment decision. Once the issuing company lists its securities in the stock exchange for secondary transaction, it becomes a listed company. It is mandatory for such listed companies to disclose all price sensitive information continuously to the stock exchange once such information become available or generated in the company. They are also required to submit semi-annual reports within sixty days after the end of that period and annual reports within four months after the end of a fiscal year to the stock exchange and SEBO. If they fail to file their audited financial report for more than two years, Nepal Stock Exchange Ltd. (NEPSE) can de-list the company as per the provision of its Securities Listing Bye-laws. Securities Listing Bye-laws of NEPSE have prescribed that all the abovementioned information and reports disclosed by listed companies are to be made public by NEPSE. NEPSE places these information on its notice board and some information on its website. As per the provision of Companies Act, 1997, public companies are required to prepare their annual books of accounts within five months after the end of a fiscal year and they should make necessary arrangements for their shareholders to see the books of accounts. The Act also requires the public companies to notify their shareholders regarding the conduction of annual general meeting (AGM) along with the agendas of the meeting. They are also required to send the minutes of AGM to their shareholders within thirty days after its conduction. Companies Act, 1997 requires all the corporate bodies including the listed companies to prepare their income statement, balance sheet and cash flow statement in the prescribed format.
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Initiatives taken With the objective of increasing transparency in the securities market, SEBO has been continuously making the listed companies aware of information disclosure requirements as prescribed by securities legislations. In 2000, SEBO published a booklet covering all the provisions related to information disclosure highlighting the importance of information disclosure in the securities market. SEBO, in 1996, reviewed the status of information disclosure. As SEBO found poor status of information disclosure, it proposed to amend the Securities Exchange Act, 1983. Accordingly, second amendment in the Act was made in 1997, which made it mandatory for the listed companies to disclose their semi-annual reports in addition to the annual reports. The amendment made it mandatory for the listed companies to submit their semi-annual and annual reports to SEBO in addition to the stock exchange. With the objective of discouraging non-compliance to the provisions of information disclosure, SEBO has been publishing the names of non-complying companies in its annual reports. Public notices were also published to strongly discourage the non-compliers to comply with the information disclosure provisions. It is very important for the disclosed information to be uniform, reliable and standard. One of the key factors that contributes to standardize the information is the accounting standard as it helps to prepare the financial statements in a fair, efficient and transparent manner. In this regard, the Accounting Standard Board, established by HMG/N as per the provision of Institute of Chartered Accountants of Nepal Act, has developed four standards namely NAS 01: Presentation of financial statements, NAS 02: Net profit or loss for the period, fundamental Errors and Changes in Accounting Policies, NAS 03: Cash Flow Statements and NAS 04: Inventories. As per the tentative schedule of Institute of Chartered Accountants of Nepal, all companies from 16 July 2004 have to prepare their accounts following the standards developed. Credit rating system also plays an important role in disclosure of reliable corporate information. In 1999, SEBO had prepared a policy draft regarding the operation and regulation of such system. Unfortunately, not much development has taken place in this direction.
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Status of information disclosure The current status of information disclosure in Nepalese securities market cannot be taken as satisfactory. The issuing companies are mostly found to present rosy picture in their prospectus, forecasting high net worth, high net profit and high dividends, which are found to differ significantly from the actual performance. A study of SEBO has also shown significant difference in the projected and actual financial results of issuing companies. Regarding the information disclosure of the listed companies, most of them have not been able to disclose their semiannual and annual reports within the prescribed time. They are also found to be lagging in disclosing price sensitive information. As per the annual reports of SEBO of different fiscal years, the status of the disclosure of semi-annual and annual reports of the listed companies is as follows: Table 1: Disclosure of annual reports of the listed companies
Fiscal Year Total number of listed company Number of company disclosing annual report Percentage of companies disclosing annual report
1999/00 2000/01 2001/02 2002/03
110 115 96 108
68 67 68 67
61.82 58.26 70.83 62.04
The number is lower than the previous fiscal year as NEPSE de-listed 25 companies for noncompliance with the reporting requirement.
Out of the total listed companies, companies disclosing their annual reports within four months after the end of fiscal year is 8.33 percent in fiscal year 2001/02 and 4.63 percent in fiscal year 2002/03. Table 2: Disclosure of semi-annual reports of the listed companies
Fiscal Year Total number of listed company Number of company disclosing semi-annual report Percentage of companies disclosing semi-annual report
1999/00 2000/01 2001/02 2002/03
110 115 96 108
8 9 5 6
7.27 7.83 5.21 5.56
Table 2 shows that the level of compliance with the requirement of disclosing semi-annual report is very poor.
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Issues and Suggestive Measures Following are some of the issues regarding our present system and practices in the area of information disclosure and suggestive measures to resolve the issues.
Although prospectus normally contains all the important information about the issuing company, prospectus prepared by the listed companies are lacking international standards. Therefore, with a view to make the prospectus more informative and comprehensive, consideration should be given to review the prescribed contents of prospectus. The actual performance and track record of an issuing company is more important than its financial projections. On this light more emphasis should be given to the past performance of an issuing company rather than its financial projections. Hence, the present requirement of presenting financial projection in the prospectus should be reviewed. It is in practice that some securities market regulators play an important role in the effective enforcement of the accounting standards by undertaking the job of reviewing reports of the listed companies. However, SEBO is lacking necessary legislative measures to review such reports. In this perspective, necessary provisions should be made to allow SEBO to review the financial statements of listed companies against Nepal Accounting Standards. There is lack of uniformity and consistency in semi-annual and annual reports of listed companies. Furthermore, these reports do not cover all aspects of their operation. Therefore, to have better disclosure of the operating results of listed companies, initiatives should be taken to develop a standard format for semi-annual and annual reports. Moreover, provision should be made to publish their annual and other periodic financial statements in national level newspapers. Similarly, the provision to submit quarterly reports should also be considered. Prevailing rules and regulations have different provisions regarding information disclosure. As per the Companies Act, 1997, corporate bodies are required to disclose their yearly operations within six months after the end of a fiscal year, whereas securities legislations have prescribed four months for the same. Bank and Financial Institutions Ordinance and Insurance Act also have different provisions on this regard. Such provisions should be reviewed to eliminate inconsistencies.
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As the corporate information is not disclosed on time, Nepalese securities market has the characteristics of rumor-based market. In such a market, investor will make investment decision based on general hearsay, which results in formation of market price of shares differently than what it should be. In this respect, there should be a system to penalize heavily the noncompliers with information disclosure provisions. On the basis of rumor, the market price of a share may go up or down in an abnormal way and now there is no mechanism to check such ups and downs. Consideration should be given to develop a system to halt the trading of shares until the correct information comes from the concerned listed company.
Although prevailing securities legislations have provisions for imposing penalty to the non-complying companies, necessary procedures for taking such actions are lacking. Initiatives should be taken to develop such procedures by making separate provisions for taking action to the non-compliers regarding information disclosure. Present system of de-listing securities to penalize the non-compliance with reporting requirement is not investor friendly. It prevents their right to sell their securities. So, consideration should be given to adopt other types of sanctions in case of failure to file reports to stock exchange. There is lack of adequate provisions in the present securities legislations regarding the identification of trading based on inside information and taking penal action in case of such activities. As practice of such trading is an obstacle in developing efficient securities market, initiatives should be taken to strongly discourage such trading. Nepalese securities market is lagging in the use of information technology. Initiatives should be directed towards making better use of such technology, which helps to adopt electronic corporate reporting system that saves both time and cost. SEBO, NEPSE and Company Registrar's Office (CRO) should develop web sites containing all kinds of corporate information and keep them updated. Transparency of corporate sector can also be enhanced by making the corporate bodies to develop their own web sites, which incorporates price sensitive information and periodic reports.
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Nepalese securities market is lacking credit rating system, which, among other things, is supposed to rate various types of securities by analyzing the risk factor involved and publish their ratings for the consumption of investors. Hence, initiatives should be taken to establish such a system.
Conclusion The role of securities market is vital in the economic development of a country. It provides a medium to mobilize financial resources from the non-productive sector to the productive sector. However, we cannot think of an efficient securities market unless it is transparent enough to win the confidence of the investors and other stakeholders. In this respect, concerned authorities should collaborate to address all the relevant issues concerned with information disclosure as well as give higher priority to enhance the transparency level of the market.
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IOSCO Principles of Securities Regulation and Nepalese Regulator - Niraj Giri International Organization of Securities Commission (IOSCO) is an international grouping of securities regulatory agencies. It was established in 1983 with the objective to assist members to carry out their mission, to enhance cooperation to promote high standards of regulation in order to maintain just, efficient and sound markets, to exchange information on their respective experiences in order to promote the development of domestic markets, to unite efforts to establish standards and an effective surveillance of international securities transactions and to provide mutual assistance to promote the integrity of the markets by a rigorous application of the standards and by effective enforcement against offences. IOSCO has grown rapidly since its creation and now IOSCO's membership stands at 181 members. It comprises of regulatory bodies from countries that have day-to-day responsibility for securities regulation and administration of securities laws. These members are categorized into three different groups, namely- Ordinary Members, Associate Members and Affiliate Members. The organization's members regulate more than 90% of the world's securities markets. IOSCO is recognized today as one of the world's key international standard setting bodies. Cooperation and transfer of expertise, in particular between developed and emerging markets, is at the heart of its mission. Core Objectives Of Securities Regulation Securities markets are vital to the growth, development and strength of market economies. They support corporate initiatives, finance the exploitation of new ideas and facilitate the management of financial risk. As they have a greater role in the development of a nation, they need to be regulated, and in such a way that it facilitates capital formation and economic growth. Regulation should aim to ensure that investors are given fair access to market, market facilities and price information. It should also promote market practices that ensure fair treatment of orders and a price formation process that is reliable as well as market efficient. In an efficient market, the dissemination of relevant information has to be timely
Deputy Director, Securities Board, Nepal
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and widespread and should be reflected in the price formation process. Hence, the regulation of the market should be based on the three core objectives;

Protection of investors Ensure fair, efficient and transparent market Reduction of systematic risk
Investors should be protected from misleading, manipulative or fraudulent practices including insider trading and the misuse of clients' assets. Full disclosure of information material to investors is the most important means for ensuring investor protection. This makes investors more capable of assessing the potential risks and rewards of their investment and thus helping them to protect their own interests. As a key component of disclosure requirement, accounting and auditing standards should be in place and should be of internationally acceptable standard. Similarly, the regulators' approval of exchange and trading system operators and of trading rules help to ensure fair market. The fairness of the markets is closely linked to investor protection and, in particular, to the prevention of improper trading practices. Market structures should not unduly favor some market users over others. Transparency can be defined as the degree to which information about trading (both for pre-trade and post-trade information) is made public. Pretrade information concerns the posting of firm bids and offers as a means to enable investors to know, with some degree of certainty, whether and at what prices they can deal. Post-trade information is related to the prices and the volume of all individual transactions actually concluded. Regulation should ensure the highest levels of transparency. Although regulators cannot be expected to prevent the financial failure of market intermediaries, regulation should aim to reduce the risk of failure (including through capital and internal control requirements). Where financial failure nonetheless does occur, regulation should seek to reduce the impact of that failure, and, in particular, attempt to isolate the risk to the failing institution. Market intermediaries should, therefore, be subject to adequate and ongoing capital and other prudential requirements. If necessary, an intermediary should be able to wind down its business without loss to its customers and counter parties or systemic damage. Risk taking is essential to an active market and regulation
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should not unnecessarily stifle legitimate risk taking. Rather, regulators should promote and allow for the effective management of risk and ensure that capital and other prudential requirements are sufficient to address appropriate risk taking, allow the absorption of some losses and check excessive risk taking. An efficient and accurate clearing and settlement process that is properly supervised and utilizes effective risk management tools is essential. There must be effective and legally secure arrangements for default handling. This is a matter that extends beyond securities laws to the insolvency provisions of a jurisdiction. The three objectives are closely related and, in some respects, overlap. Many of the requirements that help to ensure fair, efficient and transparent markets also provide investor protection and help to reduce systemic risk. Similarly, many of the measures that reduce systemic risk provide protection for investors. Further, matters such as thorough surveillance and compliance programs, effective enforcement and close cooperation with other regulators are necessary to give effect to all three objectives. IOSCO Principles of Securities Regulation Based on these three core objectives, IOSCO has adopted a comprehensive set of Objectives and Principles of Securities Regulation that is also known as the IOSCO Principles. These principles set out a broad general framework for the regulation of securities, including the regulation of securities market, market intermediaries, issuers of securities and management and operation of collective investment schemes. These principles today are recognized by the world financial community as international benchmarks for all markets. The IOSCO principles are as follows; A. Principles Relating to the Regulator 1. The responsibilities of the regulator should be clear and objectively stated. 2. The regulator should be operationally independent and accountable in the exercise of its functions and powers 3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. 4. The regulator should adopt clear and consistent regulatory processes.
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5. The staff of the regulator should observe the highest professional standards including appropriate standards of confidentiality. B. Principles for Self-Regulation 6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets. 7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. C. Principles for the Enforcement of Securities Regulation 8. The regulator should have comprehensive inspection, investigation and surveillance powers. 9. The regulator should have comprehensive enforcement powers. 10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program. D. Principles for Cooperation in Regulation 11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts. 12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts. 13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers. E. Principles for Issuers 14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors decisions.
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15. Holders of securities in a company should be treated in a fair and equitable manner. 16. Accounting and auditing standards should be of a high and internationally acceptable quality. F. Principles for Collective Investment Schemes 17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme. 18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets. 19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investors interest in the scheme. 20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme. G. Principles for Market Intermediaries 21. Regulation should provide for minimum entry standards for market intermediaries. 22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake. 23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters. 24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.
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H. Principles for the Secondary Market 25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. 26. There should be ongoing regulatory supervision of exchanges and trading systems, which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. 27. Regulation should promote transparency of trading. 28. Regulation should be designed to detect and deter manipulation and other unfair trading practices. 29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption. 30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk. Nepalese Regulator Securities Board, Nepal (SEBO) was established by HMG/N in 1993 as an apex regulator of the securities market under the Securities Exchange Act 1983. Its objective is in line with the regulatory bodies of other countries such as to regularize and manage the securities market and protect investors' interest. Since a decade has passed of its establishment, I think it is time to assess the regulator in terms of international benchmark and best practices. However, one should keep in mind that, often there is no single correct approach to regulatory issues. Legislation and regulatory structures vary between jurisdictions and reflect local market conditions and the historical development. Ever since its establishment, SEBO has been performing the role of a regulator as well as that of a market developer. In both the roles, SEBO has not been able to perform satisfactorily though it has made significant achievements along the way. The work of SEBO is being hampered by the duplication and overlapping provisions in the laws regarding regulatory duties like enforcement and supervision, entry and exit of market intermediaries etc. This, in fact, is the essence of the principles relating to regulator. The responsibilities of the regulator are still not clearly and objectively stated in the legislations and it still
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does not have adequate powers and resources to perform its functions and to exercise its powers. It also lacks the operational independency. SEBO does not have a comprehensive inspection, investigation and surveillance authority, which have hampered its effort to build a fair, efficient and a credible market Another aspect that comes into the forefront is the performance of NEPSE. Selfregulatory organization is a valuable complement to the regulator in achieving the objectives of securities regulation. The present regulation has provisions for the development of NEPSE as a self-regulatory organization, which gives it the authority to regulate some part of the securities market like trading and market intermediaries' activities. But NEPSE has not been able to develop as a selfregulatory organization. All of these indicate that Nepalese regulator distinctly lags behind on the principles developed by IOSCO. It has been operating as a police force without the firearms. It has not been able to instill a sense of duty in the market participants that a strong regulator is watching their activities. However, Nepal's entry into WTO and her effort to attract foreign investment have made it very important that its regulation and market mechanism are in line with international best practices. For this to happen, the IOSCO principles should be one of the major guiding forces for our future market reform initiatives. Besides SEBO, which still has not taken IOSCO membership should look forward to immediately joining the organization. We are still in a stage where we are working for the development of basic infrastructures of the market. In such a scenario, the IOSCO forum would be ideal in broadening our horizon and developing our regulation and mechanism from the experiences of other regulatory agencies.
***
The Essence of Corporate Governance: Lessons to be learnt from the Sub-continent

- Abin Bhakta Pradhan Corporate governance is an essential safeguard of a stable corporate sector. As Asia emerges from the economic crisis, most institutions in the region want to introduce good corporate governance. Good governance of corporate sector is the sine qua non of a healthy economy and an efficient financial system. It can reduce the cost of capital and enhance shareholder value. The focus on governance has been re-invigorated especially after the Asian financial crisis in 1997. The crisis has, in part, been attributed to serious inadequacies in the governance of banking and financial sector. Good corporate governance rarely works in isolation. It needs to be accompanied by good governance in the major constituents of the economy including the governance of central banks, banking supervisory agencies and in the real and corporate sectors. The post-crisis period has created an environment where most of the major actors in Asia are now willing to implement governance reforms not only as a way to ensure survival but also as a competitive weapon. Following are some of the major pillars of corporate governance, which was compromised by the South Asian countries leading to the Asian financial crisis: Legal regime, Regulatory framework and Enforcement Mechanisms: In most of the south Asian countries the provisions for good governance was either missing from key legislation and regulations or were not effectively enforced. While non-existence of key legislation and regulations to regulate financial and securities markets lead to serious shortcomings in instilling good governance, laws that were inconsistent, confusing or redundant were the major cause of the financial crisis. Some of the key legislations that lacked provisions for good corporate governance were, to name a few Corporate, Securities, Bank and Financial Institutions, Bankruptcy, Commercial, Secured Transactions Laws. Loopholes in the legislation gave rise to weak monitoring and supervisory roles of the regulatory institutions, such as the central banks. Weak enforcement due to
Mr. Pradhan is currently associated with Asian Development Bank
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severe entrenchment of the management system in bureaucracy and politicization was the key reason for widespread corruption making all reform activities meaningless. Corporate Ownership, Composition and Control: Concentration of ownership has been the major obstacle to the independence of the board of directors from the management. The highly concentrated and family based ownership of corporate groups resulted in governance structure that depended largely on internal control systems. Corporate financing relied excessively on bank loans and Companies financed long-term investments with short-term debt. They were in effect the controlling shareholders who maintained the majority of outstanding shares and could hardly be replaced from the board. They are also known to enhance control over companies through crossshareholdings, by setting up their own banks and investing shares among nonfinancial companies within their group and in other groups companies. Due to collusion between big businesses and political elite, banks lent on the basis of who the borrower is rather than on the basis of the soundness of the project. Banks had significant presence as members of affiliated business groups which led to the easing of due diligence and monitoring standards when lending to group members. Capital Markets: Listing requirements for companies that used the capital markets to raise funds for their operations were not adequate. Over-lending by banks, inefficient investment and excessive diversification of corporations and underdeveloped stock markets were other results of poor governance. Perfunctory screening of loan projects and debtors and extension of loans based on cross-payment guarantees were other elements affecting the capital markets. Implicit guarantees by Governments on bank loans to large businesses resulted in large nonperforming loans (NPL) in the banks. Board of Directors: Control and ownership were not separate and most of the decisions were made by directors representing controlling shareholders, who were in most cases members of the family business. Agency problem due to conflict of interest between the
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controlling shareholders and minority shareholders was prevalent. Directors were basically handpicked by the controlling shareholders from the senior managers and were automatically approved at the annual general meeting. Most of the independent directors were controlling shareholders from affiliated firms. Creditors: Creditors were mostly inactive in monitoring debtor firms and relied mainly on guarantees and collateral. Loan agreements and debt indentures did not include strict covenants. Even when the covenants were violated, the creditors did not declare defaults. At the highest level the Government is responsible for introducing measures to address the weaknesses in the corporate governance. Following were some of the major recommendations provided to the Government - post Asian financial crisis - to those south Asian countries most drastically affected by the crisis to improve their governance structure. 1. Strengthen the functioning of Board of Directors The fiduciary duties of care and loyalty, and related liabilities on corporate directors can and should be imposed in a variety of ways. It could include compliance with effective anti-corruption laws, securities laws, corporate laws, bankruptcy laws, environment laws, stock exchange listing requirements, as well as laws that strengthen minority shareholders rights and contractual terms of private equity or strategic equity investment. Activism of large institutional investors can also impel corporate governance reforms. In case of the bank supervisors, they should consider codifying objective criteria for the disqualification of bank directors. Since the major part of the cost of failed banks is usually borne by the government, at the expense of the taxpayers, they should technically be allowed to impose serious penalties on bank directors who are held accountable for banking as well as other corporate mis-governance. Essentially the law could be applied in a manner that imposes liability on directors if they are found to be guilty of gross negligence or of simple negligence.
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In 1994, the influential American Law Institute promulgated its Principles of Corporate Governance, a summary of recommended corporate governance law standards. These endorsed director liability for inattention to corporate compliance systems. Directors should have legal duties to ensure that corporate activities are conducted within the boundaries set by law. While this does not mean that compliance in day-to-day corporate operations must be overseen directly by board members, it does mean that monitoring duties concerning law compliance must be responsibly delegated. The following table summarizes a pro-active role of directors more accurately.
THE TEN COMMANDMENTS FOR DIRECTORS 1. 2. 3. Be honest and forthcoming in all matters related to the institution. Prepare for and attend board meetings. Leave your personal interests and those of your family and associates outside the boardroom. 4. Consider the impact of your actions on the institution, its owners and customers, and the surrounding community. 5. Evaluate proposals from management and other directors carefully. 6. Think independently. 7. Voice your opinion, even if it is unpopular. 8. Insist that proposals that do not make sense to you be clarified, modified, or rejected. 9. Take personal responsibility for the safety, soundness, and profitability of the institution. 10. Set an example for board management, employees, and competitors.
Source: Michael Patriarca. "The Role and Responsibilities of a Savings Institution Director", Perspectives, Federal Home Loan Bank of San Fransisco, Fall 1998, p.4
2. Improve Listing Requirements Stock exchange listing requirements are another tool by which the quality of corporate governance can be influenced in the financial sector. The listing requirements can call for disclosure of the corporate governance practices in the annual reports of listed companies, including banks. It would be useful if the director's could certify that the practices are in compliance with a relevant code of best practice. For example, in U.K., directors of listed companies, including banks, need to make a statement about compliance with the Cadbury Code of Best Practice in annual reports and explain areas of non-compliance. Reforms in
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the structure and governance of stock exchanges themselves will be a positive influence on corporate and bank governance. The Korea Stock Exchange, the Stock Exchange of Thailand and the Kuala Lumpur Stock Exchange have begun to raise the bar of corporate governance. Institutions that are listed on the Korean Stock Exchange were previously required to have only a quarter of their board as independent members. Following the economic crisis, the number of independent directors required has been raised to half in 1999. In December 1997, the Stock Exchange of Thailand published a booklet titled The Role, Duties and Responsibilities of The Directors of Listed Companies. Mr. Singh Tangtatswas, Past-President of the Krung Thai Bank, stated, the main aim is to make the management of all the companies listed on the Stock Exchange of Thailand more transparent, efficient and effective, and so increase the confidence of all investors in the securities of every listed company. Under the guidelines, it was recommended that all listed companies, including banks, should establish Audit, Nomination, and Remuneration committees. Kuala Lumpur Stock Exchange (KLSE), with the assistance of PriceWaterhouseCoopers, prepared a comprehensive report titled Corporate Governance: Survey of Institutional Groups and Corporate Governance: Survey of Public Listed Companies. The Malaysian Securities Commission has also published corporate governance standards on its website. The KLSE Chairman stated It must be appreciated that the success of these measures is dependent not only on the government and its regulatory agencies, but also on the co-operation and commitment of all parties involved in corporate governance. The KLSE has also made a monetary contribution to the Malaysian Institute of Corporate Governance. According to Anne Simpson of the Pensions Investment Research Consultants, UK, the requirements for training of directors and for controlling shareholders not to vote when they have a conflict of interest were some of the positive features of corporate governance in Malaysia. 3. Protection of minority shareholders rights The corporate law should be reviewed and amended to mitigate pervasive control of large shareholders, who are able to finance risky and unprofitable projects by
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easily overruling minority representation. The laws could be amended to empower minority shareholders by raising the majority percentage of votes required on critical corporate decisions and mandating minimum representation of minority shareholders on the board. It should also have provisions requiring company management to get prior approval of shareholders to undertake major investments and raise capital in national and international markets 4. Improve prudential regulations and governance for banking operations Quality governance of central banks and other bank supervisory agencies is an important pre-requisite for good governance in the banking industry since the regulators set the example. The Bank for International Settlements (BIS) has enshrined independence of banking supervisors as the first precondition in its Core Principles for Effective Banking Supervision. It states that "An effective system of banking supervision will have clear responsibilities and objectives for each agency involved in the supervision of banking organizations. Each such agency should possess operational independence and adequate resource. A suitable legal framework for banking supervision is also necessary, including provisions relating to authorization of banking organizations and other ongoing supervision; powers to address compliance with laws as well as safety and soundness concern; and legal protection for supervisors. Arrangements for sharing information between supervisors and protecting the confidentiality of such information should be in place". Central bank examiners have traditionally followed the CAMEL methodology for analysis and rating the soundness of banks. This analysis methodology may not capture the full range of governance risks in a bank. Rating agencies have also followed a similar framework for rating banks. The rating methodologies employed by central banks, rating agencies creditors and investors do not appear to explicitly include the analysis of governance risks. Given the widely-held view that a key factor contributing to bank failure in Asia, was inadequate bank governance systems, it may be worthwhile to expand the rating methodology to include governance as a key risk factor. Perhaps the abbreviation CAMGEL will be more appropriate in the future, where the G would stand for governance.
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5. Mergers, Acquisitions and Consolidations An active merger and acquisition market also provides an impetus to good governance of corporate sector. Hurdles to smooth implementation of mergers can lead to a sense of complacency amongst entrenched bank managements and boards. Again, the environment in Asia has so far been favorable for introducing legal reforms, including labor market reforms that reduce or eliminate the impediments to bank merger and acquisition activity. This is justified by the need to recapitalize banks, the need to end the credit crunch and the need to minimize the adverse effects on employment in a large number of distressed banks. Several bank regulators in the region favored the notion of bank consolidation. These include Indonesia, Japan, Korea, Malaysia, Singapore and the Philippines. Amongst the different types of impediments that need to be addressed are limits on foreign ownership of banks; dual-classes of shares; disenfranchisement of certain categories of shareholders; encouragement of labor mobility through tax and labor market reforms, such as rules for early vesting of pension benefits and portability of pensions; and tax and accounting changes which are M&A friendly. Directors have special duties when banks are involved in an M&A transaction. Directors, including independent directors run the risk of acting primarily in their own interest rather than the bank or the general body of the shareholders and the attendant liability for breach of fiduciary duties. The directors have a fiduciary duty to act fairly with respect to shareholders. A common flow of the directors of acquiring banks is to overpay for a target as mentioned in a recent BIS study. Conversely, the directors of a target bank may reject a good offer contrary to the interests of its general body of shareholders. If a banks long term plan involves a merger, the next item on the boards agenda should be to form a special committee consisting of disinterested independent directors to manage that process, review documentation and ensure that the entire board is fully informed on all proposals, especially on competing bids. Major governance issues have arisen in the Philippines & Malaysia about the role of government linked institutions in supporting or mandating bank mergers. Under what conditions should state-linked pension funds take sides with an acquiring bank? Perhaps, the solution might be to privatize and parcel out the fund management activity of state-linked pension funds to a number of
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competing, private and professional fund managers and institute procedures to avoid conflicts of interest and insulate the investment activity of pension funds from political interference. In Malaysia, the issue has arisen as to under what circumstances can or should the central bank mandate bank mergers? Clear and transparent criteria for such actions should be spelt out in fairness to all shareholders. Intervention by bank supervisory agencies is usually justified in situations of: (i) systemic risk, (ii) depletion of bank capital to a level much below that deemed appropriate under the BIS Capital Adequacy guidelines; (iii) provision of liquidity from taxpayer sources for purchase of bad loans or to prevent a run on the bank; and (iv) failure of existing shareholders to invest additional capital after a reasonable opportunity has been given to them. In these types of situations the issue becomes one of fairness to taxpayers and fairness to bank shareholders. If bank capital is essentially lost, the shareholders must bear the loss and prompt intervention in the form of government temporary takeovers, mandated mergers or purchase and assumption resolution may be justified. 6. Anti-Corruption Legislation Banking collapse in Asia has been partly attributed to corruption. Commercial banks are highly vulnerable to the "cancer of corruption". Thus a policy to introduce best governance practices in banks should be accompanied by an effective anti-corruption law together with suitably empowered enforcement agencies. Even in the U.S. the Foreign Corrupt Practices Act was passed after some well-publicized cases of corporate corruption. Indonesia has taken a positive step by passing an anti-corruption law. Implementation of the Bank for International Settlements (BIS) Core Principles also serves to tackle corruption in banks that is manifested in the form of connected lending. One of the Core Principles requires that: " In order to prevent abuses from connected lending, banking supervisors must have in place requirements that banks lend to related companies and individuals on an armslength basis that such extensions of credit are officially monitored, and that other appropriate steps are taken to control or mitigate the risks." The evasion of regulatory ceilings on such lending is a key governance concern in banks. According to the report of a World Bank Mission to Indonesia few years ago, following were some of the possible steps highlighted to combat corruption:
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Make immediate progress in transparency and information. While creating a more open environment is a long-term process, there are actions the government could take immediately. Action could be taken to promulgate regulations, and create the necessary institutional capacity to implement, in order to create:

a "freedom of information" measure that makes all government actions open unless there is a specific, agreed upon necessity for secrecy; "whistle blower" protection that prevents the use of legal intimidation to suppress legitimate complaints, a requirement for the declaration of assets of all major public officials; prohibitions against conflict of interest in government decision making, legislation to support establishment of watchdog agencies such as the Independent Commission Against Corruption in Hong Kong.
7. Governance Education As the rules of the game get tighter, the need for professionalism in bank directorships is increasingly critical. Establishment of Institutes of Directors Asia-wide is now gaining a new priority. The U.K. based Institute of Directors grants the professional governance and qualification of the Chartered Director. Such professional directorship training will contribute to enhancing the quality of board directors and bank governance. Many U.S. business and law schools include board training in their curriculum a practice that should be adopted in Asian schools of business, law, economics, accountancy and financial analysis. 8. Independent Spotlight Independent think tanks, associations, institutes, newspapers and magazines in the region should be encouraged to throw the spotlight on board dynamics and governance issues in Asia. Wider publicity of strengths and weaknesses in corporate governance and the resultant transparency will trigger debate in boardrooms and spur a beneficial long-term effect on the quality of corporate governance in Asia. The efforts of major US-centric magazines such as Business Week and Fortune, which issue scorecards of the best and worst boards currently, cover only US institutions and corporations. Similar efforts by locally based independent and disinterested actors may have a favorable outcome for the quality of corporate governance in Asia.
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9. Protection of creditors rights This mainly involves the reinforcement of Bankruptcy Law to provide sufficient confidence to the creditors in the smooth entry and exit from the financial markets. In addition the Law should also help in the orderly restructuring, recapitalization and liquidation of corporate assets. Other equally important measures recommended to the government of those countries for improved governance, which are self-explanatory, are as follows: 10. 11. 12. 13. 14. 15. 16. Improve accountability of controlling shareholders and the board Improve managerial transparencies Removal of cross-guarantees of loans among group members Adherence to international accounting and auditing standards Voting rights to Independent Directors and institutional investors Enforcement of improved disclosures of financial information Establishment of function specific committees such as Audit, Governance, Nomination, Compensation, Compliance, and Risk Management Committees 17. Revision of all key legislations including, Corporate and Bankruptcy laws 18. Minimize government intervention in bank and corporate management Conclusion This paper shows that the principles of corporate governance are actually derived from common principles of business ethics rather than from some complicated mathematical algorithm. Nevertheless, its importance should not be underplayed since the consequences can be costly, or catastrophic in the worst case. Being an intangible asset, good governance requires attention and investment of time, money and the need for recourse to sources of professional governance expertise and advice. A growing realization of the benefits of good corporate governance is already occurring in Asia. Many Asian companies have reconstituted their boards since the Asian Crisis. As the corporate culture moves forward with this re-invigorated mantra, good corporate governance should remain at the top of the agenda in Asia. ***
Secondary Market: Limited Opportunities

- Mr. Jagdish Agrawal Stock exchanges in many countries have a long history of more than one century. These stock exchanges have faced so many ups and downs during this period including sacking of brokers. We must note that just ten years period is not sufficient to make a history of a stock exchange but the Nepal Stock Exchange Ltd. (NEPSE) has created a history. All the features of a stock exchange have been applied and the possible happenings in a secondary market have already taken place during this short span of period. The big bullish period, the long bearish period, the unprecedented market capitalization, the quite fair market driven by innocent and honest market intermediaries, the quite unfair market driven by unfair practices, the rumor driven market, the big changes in ownership of joint venture banks, the addition and subtraction in the listed companies, etc. are some of the key events in the history of the Nepalese stock market. There are changes in the NEPSE since the inception of open out cry system of trading in 1993. The noted changes are the shifting of the office from a rented house to owned house, the introduction of computer hardware and software systems in the clearance, appointment of two brokers as members of NEPSE's Board of Directors, the shifting from T+5 system of settlement to T+3 system and changes in Rules and Regulations in favor of the market, etc. However, it can be argued that the most needed changes, which are fundamental for development of a stock exchange, are still to be introduced. Some of these have been categorically explained in this paper. The electronic system of trading: NEPSE is still following the old and outdated open out cry system of trading. Such a system is neither efficient nor scientific. The online trading system or an advanced electronic system of trading should be introduced without any further delay. The automation in the clearance system: Presently the investors have to physically deliver or receive the share certificates for sales and purchases made.
Mr. Agrawal is a Chartered Accountant and also associated with the stock brokering business in Nepalese securities markets
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'Netting Out' system of delivery of shares should be introduced and the system should generate daily broker-wise statement, which shows the net share certificate or net amount payable by a broker. The system should be IT-based. The De-mat system of securities: There are so many disadvantages of keeping physical share certificates, as a proof of ownership on the shares. The hurdles like lengthy system of clearance from NEPSE, a big time taken by the listed companies for transfer of ownership, etc., can be overcome by introducing demat system. The chances of fake certificates, loss of certificates, etc., can also be minimized, by converting from paper based share certificates to electronic equivalents. Lack of mutual funds: Even in developed countries most of the investors are dependent on the mutual funds for investment in secondary markets. It is only because most of the investors have little knowledge on conducting financial analysis of the listed companies. Mutual funds get regular services of qualified financial analysts and the investments in securities made by them are based on their regular studies of available financial figures and regular watch of the factors affecting the market. An investor may rely more on a mutual fund and may invest in it instead of investing in shares of listed companies, which holds higher risk. In Nepal, presently, there are two mutual funds: one established by NIDC Capital Markets and another by Citizen Investment Trust. Both of these mutual funds are not successful in attracting investment from general public. The rules for establishment of a mutual fund by private sector including banks and finance companies should be favorable and market oriented. They should have direct approach to participate in primary market and have direct access to the trading floor of NEPSE, like other market makers. The concept of secondary market was developed specially for the promotion of portfolio management of big business houses and big investors. But the concept has completely failed in our country due to restrictions on their direct participation in the market. Market makers, on the outset, had played a safe game to fill up the gap for mutual funds and institutional investors. However, as of today there are no market makers in the floor of NEPSE.
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Opening of secondary market for foreigners: From the very beginning I am in favour of allowing foreign investors to participate in the secondary market up to a certain percentage of the outstanding shares of a company. Specially, I am of the view that the foreigners residing in Nepal should be allowed to participate in the secondary market. The demand of shares can increase by many folds by doing so. Absence of corporate investors: Some of the finance companies had tried hard to participate in the secondary market but the changes in the regulations governing investment in shares by a bank or a finance company has compelled them to stop the purchase of shares; rather, they off-loaded some of their holdings. One has to understand that only the big investors like banks and finance companies can afford the expenses incurred in the analysis of the market. A restriction on them to participate freely in the secondary market means a restriction on the system as a whole. Absence of rating agencies: True, scrutinized, and credible information about the listed companies are not available because of the absence of credit rating agencies. Absence of regulation over financial information from the listed companies: Secondary market is a calculative market based on financial information of the listed companies. It should be mentioned that information is not received on time and the available information does not meet the required standards. The Accounting Standards Board has till date issued four Accounting Standards, which are applicable from July 16, 2004. These Standards are not sufficient to compel a listed company to generate financial figures, which are true and fair. Taragaon Regency Hotels Limited had come out with its annual accounts for the fiscal year 2002-2003, which are in major deviation from the International Accounting Standards and also from the generally accepted accounting principles. The figures of loss during operation were capitalized treating the loss as for trial period, so that the book value of the shares does not decrease to the face value of the shares. Recently, the market price of shares of Bank of Kathmandu Ltd., had increased to Rs.218 from Rs.200 because of a rumor that the Bank has earned Rs.21 crores as profit. Investors have no time to confirm the unpublished figures and to know whether the income of Rs.21 crores is before
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provisions and taxes or after that. How an unpublished report was made available to the investors is a point worth noting down. Regulators must be sure that information is reaching to the public in time and that the quality of such information is held high. Effective interventions made to minimize rumor and unauthenticated figures from creating unwanted noise in the market. Privatization of stock exchange: In spite of a HMG/N's policy and the interest of donor community to privatize the stock exchange, the process of privatization has been quite slow. Out of seven members of Board of Directors of NEPSE only two representatives are from the market intermediaries. The Chairman is nominated by Ministry of Finance. Majority of Directors should have be from the person having qualification and experience with regard to capital market and the chairman should also be selected from these experts. Progress of secondary market can be difficult without effective operation of NEPSE. I have observed that lots of investors have large funds to invest but there is dearth of opportunities. Bank interest rates are going down, Government bonds are rarely available, there is a persistent slump in the real estate business, and the bullion market is unorganized, which can capitlized by secondary market. The primary market seems to be doing well as they are usually subscribed especially with issues of banks and financial companies. But the secondary market is solely dependant on one or two industrial companies, banks, financial companies, and insurance companies. Ample opportunities for developments are available in Nepal. The big water resource, the favorable time zone, the center for natural resources including the Everest, the big consumer markets in neighbor (India, China, Pakistan, Bangladesh, etc.), are all favorable conditions for economic development of this country. But, we are very much unfortunate not to explore the opportunities. Our country is passing through a turbulent phase resulting to the deteriration of the economy. Most part of our budget is being expended for administrative and security expenses. The heavy loss in public infrastructure, frequent closure (Bandha) of markets and transport systems, and overall insecurity feelings in the
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general public have damaged the overall economic situation and the image of the country. Secondary markets have direct relation with the economic growth. Economic growths come with more earning capacity, opportunities to save and also the opportunity to invest. It must also be noted that economic growth is, to a great extent, dependant on the industrialization in a country. Some of the multinational organizations have established their subsidiaries in Nepal but most of them are in the form of private limited corporate. Dabur Nepal, Asian Paints and so many others are performing well but adding nothing directly to secondary market. The position shows lack of policy with regard to corporate farming in Nepal. One or two of the listed industrial companies are helpful for the secondary market. The performance of one of such companies is notable despite a host of unfavorable conditions. Extract from Directors Report of Nepal Lever Limited: Exports were on the decline from 2000/01 consequent to the fiscal changes introduced in the Indian Budget and with the emergence of many new tax-exempt zones in India. Further withdrawal of the rebate on income tax on profits on exports and the high costs in manufacturing for exports from Nepal have made the exports business unviable. It means not only the domestic but the international circumstances were also not in favor of our industries. Under such circumstances the financial results of Nepal Lever Limited was quite commendable. The table below shows the key indicators.
Particulars Sales (Rs. in million) Cost of sales (Rs. in million) Gross profit (Rs. in million) % of Gross Profit to sales Net profit after tax (Rs. in million) % of Net Profit to sales Earning per share (Rs.) % of export to sales Fiscal Year 2001/02 1236 938 298 24 43 3.48 46 29
2000/01 1541 1221 320 21 68 4.41 74 54
2002/03 1245 843 402 32 93 7.47 101 18
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The above figures show that the year 2001/02 was not a good period for the industry but timely planning for development of domestic market had helped the industry to grow in 2002/03. Those companies which are either rely on major raw materials available in local market or the volume of products that is consumed in the country, are running successfully. Besides a handful of companies, the secondary market is facing acute shortage of companies that are running in profit. Some of the hotels are playing a leading role in promoting tourism industry but the internal disturbances have made their efforts very difficult. Necon Air, the only reputed listed company from the services sector, has almost closed its business due to heavy losses. It still has heavy liabilities for to the Nepal Civil Aviation Authorities towards landing and parking fees, besides other heavy dues. In a nutshell, the financial sector has solely taken the burden to run the secondary market in the country. In spite of the overall unfavorable conditions, the banks and finance companies are making progress but the growth rate is very nominal. During the year 2001/02 Nepal Rastra Bank had come with strict policy for loan loss provision. During that year the net profits of almost all the banks and finance companies had declined due to stricter loan loss provision as per the new provisions. But the year 2002/03 is a year of better feelings for them. Financial figures of 2002/03 of some banks are given below.
Shareholders Shareholders Fund Fund*
(Rs. in Million) (Rs. in Million)
Name of the Bank Standard Chartered Bank (Nepal) Ltd. Nepal Investment Bank Ltd. Himalayan Bank Ltd. Nepal SBI Bank Ltd. Everest Bank Ltd. Bank of Kathmandu Ltd. Nepal Industrial & Commercial Bank Ltd. Laxmi Bank Ltd. Development Credit Bank Ltd. * Including loan loss provision
EPS
(Rs.)
Book Value
(Rs.)
Book Value*
(Rs.)
1369 639 1063 570 613 579 552 327 168
1701 789 1906 897 754 892 695 328 184
149 40 49 11 26 18 5 10
403 216 248 134 135 125 110 99 105
500 267 444 211 166 192 139 99 115
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The P/E ratios as on April 17 2003 of these banks are given here.
Name of the Bank Standard Chartered Bank (Nepal) Ltd. Nepal Investment Bank Ltd. Himalayan Bank Ltd. Nepal SBI Bank Ltd. Everest Bank Ltd. Bank of Kathmandu Ltd. Nepal Industrial & Commercial Bank Ltd. Development Credit Bank Ltd. P/E Ratio 10.74 19.78 16.43 23.36 19.77 11.94 33 16.20
The above figures show that there are favourable opportunities to invest in shares especially with the shares of commercial banks. In conclusion it can be said that the investors have lost their confidence on the secondary market not only because the existing few listed companies are not performing well but also due to fear of internal unrest that could further deteriorate the economic conditions of the country. Some of the corrections as suggested above may substantially increase opportunities to invest in the secondary market. Needless to say, the situation of our country must improve in order for investors to be eager to invest more confidently. ***
Securities Markets in Nepal

-Mr. Nabaraj Adhikari Introduction Securities markets facilitate the exchange of financial assets by bringing together buyers and sellers of securities. Securities markets provide an effective way of raising money for commercial enterprises and at the same time provide an investment opportunity for individuals and institutions. Securities markets have both theoretical and practical perspectives. Securities markets provide value and significance to the financial assets. Practically, the activities of buying and selling securities on the securities markets are extremely important for the allocation of capital within economies. The securities markets serve as a reliable guide to the performance of companies, and thereby promoting efficiency. The act of raising funds by issuing shares to the general public in Nepal started in 1937. Though, the development of securities markets could not be a national policy for a long time, the then industrial policy of Nepal led to institutional development of securities markets with the establishment of Securities Exchange Center in 1976. Securities Exchange Center used to manage and operate primary and secondary markets of long-term government securities and corporate securities. After some years of establishment policies and programs were made to develop and promote stock exchange, issue manager, underwriter, securities dealer, stock broker and portfolio manager in the markets with the objective of avoiding possible conflict of interest between various market participants. With the objective of regulating securities transactions and protecting interest of investors, Securities Exchange Act was enacted in 1983. The Act provided some legal and institutional basis for the securities markets development. The first amendment in the Act in 1993 led to the establishment of Securities Board, Nepal (SEBO) to regulate and manage securities markets. The Securities Exchange Center was converted into Nepal Stock Exchange Ltd. (NEPSE) with the objective of operating and managing secondary transactions of securities. After this conversion, the open out cry system of trading among stock brokers started.
Officer, Securities Board, Nepal
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The second amendment of the same Act was made in 1997. This amendment made provisions for registering securities businesspersons in SEBO. The amendment also made mandatory provisions for the listed companies to submit semi-annual and annual reports to SEBO. Regulatory Mechanism SEBO is the apex regulator of securities markets in Nepal. It provides licenses to stock exchange and securities businesspersons (stockbroker, securities dealer, market maker and issue manager). It approves public issues of securities. NEPSE is the market operator and it provides membership to securities businesspersons. Listed companies, and securities businesspersons report their performance to SEBO and NEPSE. As there are different provisions in the Companies Act, 1997 regarding approval of prospectus, allotment of securities, transfer of ownership, disclosures, and other relating aspects of securities, the Company Registrar's Office (CRO) also has a role in regulating securities markets in Nepal. Performance Some major indicators that indicate the performance of securities markets are number of issue approval, amount of issue approval, number of listed companies, number of traded companies, annual turnover, market capitalization, turnover on market capitalization, market capitalization on nominal GDP at market price and NEPSE index etc. Table 1 presents the performance of securities markets in Nepal. Table 1: Performance of Securities Markets
(Rs. in Million)
S.N. 1 2 3 4 5
Major Indicators
Number of Issue Approval Amount of Issue Approval Number of Listed Companies Number of Traded Companies Annual Turnover
Fiscal Year 1998/99 1999/00 2000/01 2001/02 2002/03 5 258.0 107 69 9 630.31 110 69 9 115 67 16 96
*
17 854.42 108 81 575.80
717.20 1555.11
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1499.98 1157.03 2344.16 1540.63
77
S.N. 6 7 8
Major Indicators
Market Capitalization Turnover on Market Capitalization (%) Market Capitalization on Nominal GDP at Market Price (%) NEPSE Index (Points)
#
Fiscal Year 1998/99 1999/00 2000/01 2001/02 2002/03 23508.0 43123.3 46349.4 34703.9 35240.4 6.38 7.12 2.68 11.77 5.06 11.78 4.44 8.58** 1.63 8.22#
9
* **
216.92
360.70
348.43
227.54
204.86
25 companies were de-listed Preliminary Estimate of GDP Revised Estimate of GDP Source: SEBO, Annual Report, 2002/2003.
The above table shows that number and amount of issue approval during the past five year has been increasing except in the fiscal year 2002/03 where it decreased. Similarly, the numbers of traded companies have remained almost constant each year except in the fiscal year 2002/03, where it increased noticeably. However, annual turnover, market capitalization and the ratio of turnover on market capitalization have been fluctuating during the said period. These indicate that the performance of Nepalese securities markets is not stable though it is improving gradually. Issues The provisions incorporated in the existing securities laws and supporting regulations do not provide adequate power to the securities market regulator for effective regulation. The securities rules and regulations have not specified the liabilities of the directors in case of a company is de-listed by NEPSE. The term "insider trading" and the "insiders" are not clearly defined and there is no provision regarding investigation and penalty. Moreover, there are overlapping and duplicating provisions in various laws creating hindrance in effective enforcement. The public issue process falls under the jurisdiction of more than one regulator, i.e., CRO and SEBO making the fund raising process costly. Companies generally hesitate to disclose adequately the material information and risk factors associated with their business while going public. Markets lack infrastructures such as central depository system for securities, over the counter market, and e-trading system necessary for promoting securities market standards and its dynamism. There is lack of accounting and auditing standards against which financial reports can be reviewed. Securities market is dominated by risky
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instrument, i.e., equity share. There are very few issues of corporate bonds and mutual funds in the markets. Corporate bonds, the corporate bond issue practice is yet to be popular due to lack of benchmarking interest rate provided by government securities and lack of incentives to the issuers. There are no clear provisions regarding the entry and exit process of securities businesspersons in the securities markets. The Membership of Stock Exchange and Transaction Bye Laws, 1998 states that companies interested to operate as securities businesspersons can apply for membership only when NEPSE publishes a notice for the same. Whereas, the Securities Exchange Act, 1983 states that the Stock Exchange can only grant membership to those companies registered as securities businesspersons in SEBO. Full-fledged brokerage firms are yet to be developed in the markets. There are two securities dealers but are not working. The markets lack market makers and investment advisors. Institutional investors such as employee provident fund, insurance and pension funds, Citizen Investment Trust etc. can play great role in stabilizing market prices of securities. However, their participation in the market is virtually lacking due to lack of incentives and the present level of securities markets. These are some of the major issues of Nepalese securities markets that need to be addressed to make it an important alternative for capital mobilization. Prospects Capital plays a vital role in the economic development of a country. Being a capital deficient country, Nepal has to make every endeavor to mobilize available capital efficiently. Securities markets provide mobility of the scattered savings. Retail investors with limited capital fund could also participate in the industrial development process of the country through their investment in the securities. However, both individuals and institutions are putting most of their savings into bank deposits and bullion markets because of the present state of the securities markets. Thus, long-term savings that should be invested in the securities markets are going into short-term investments. Presently, stock exchange facility is available only in Kathmandu valley. Hence, there is a scope of expanding this facility in other regions of the country. Privatization of public enterprises such as Nepal Telecommunication Corporation, Royal Nepal Airlines and other public enterprises using share sale mode of privatization as announced by HMG/N in
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the budget speech of FY 2003/04 could provide a huge investment opportunity in the securities markets. Tourism and hydropower sector can be the backbone for Nepal's economic development. Hydropower projects, in particular, are long-term investment projects and Nepalese banks, which normally lend for short-term purpose, can not be a suitable source of financing. Hence, the issue of debt securities for this purpose could provide a strong dynamic for the development of the securities markets in Nepal. Development of the securities markets depends crucially on the quality of financial information. HMG/N has established Accounting Standards Board and Auditing Standards Board for improving accounting and auditing standards. These Boards have developed some accounting and auditing standards to be implemented in the country. It is expected that the implementation of these standards would improve quality of financial information. Improved financial information would help to make informed investment decisions in the securities markets leading to efficient securities markets in the country. The Tenth Five Year Plan (2002-2007) has objectives such as developing and expanding securities market as an important source of long-term funds, increasing the depth and breadth of the market, modernization of the stock exchange etc. regarding the capital market development. Corporate and Financial Governance Project, which presently is in the inception phase of its implementation, has the objectives of strengthening institutional capability of SEBO and CRO, modernizing NEPSE and establishing central depository system of securities. Successful implementation of these plans and projects could bring institutional investors into the markets, encourage the creation of new savings vehicles, and lead individuals to invest more in corporate debt and equity. ***
Financial Projection and Actual Results of the Issuer Companies

DHRUBA TIMILSINA ABSTRACT This study compares projected net worth per share and net profit of the companies in the prospectuses at the time of initial public offering of equity shares in Nepalese securities markets with the actual results shown by their annual reports. The study revealed significant deviation in the financial projection and the deviation in almost all the cases are found to be negative. Further, the study revealed that the deviation in financial projection is more significant in cases of the companies from non-finance group compared to that of the finance group.
Financial projection can be prepared for various purposes like supporting business plan, budgeting for fund, issuing securities to the public etc. Various models and methods are applied for the financial projections. Since the financial projections are made under certain assumptions, the accuracy of the projected financial results is dependent on those assumptions prepared to accompany the projections (Newbury, 1958). In securities markets of many countries, it is mandatory for issuer companies to disclose financial projections in the prospectus while going public. Prospectus is an important legal document, which provides information about the issuing company and the securities. It includes company's information on major functioning, capital, financial situation, management, promoters and directors, operational status and the future prospects. As per the provision of section 7(f) of Securities Exchange Act 1983, before issuing securities, public companies have to register their securities to the Securities Board (SEBO) and get issue approval. Similarly, Companies Act 1997 in section 20(1) has made provision for the public companies to publish prospectus before issuing its securities to the public. According to the section 20(2) of the same Act, the prospectus should first be approved from the Company Registrars Office.
Officer, Securities Board, Nepal
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To make the prospectus informative, Companies Act 1997, Securities Exchange Act 1983 and the regulation, directives and by-laws issued under the Securities Exchange Act 1983 have made various provisions. Some of these provisions have given emphasis on the disclosure of financial projections of the issuer companies. As per the provision of section 21.1(r) of the Companies Act 1997, the prospectus should include projected income and expenditure at least of the last three years. Similarly, while registering its securities to SEBO, section 17.2(l) of Securities Exchange Regulation, 1993, has made the provision that the company should submit along with the application, the audited profit and loss account and balance sheet of past three years and projection for the same for the next three years. This provision is further clarified in Securities Registration and Issue Approval Guidelines 2000, which in section 6.2(f) states that the issuing company should clearly state in its prospectus the projected net worth, projected profit and loss account, projected balance sheet for the three years as well as the basis of projection, name, address, qualification and experience of the person or institution involved in the financial projection. This guideline in section 2.11 further states that the issuing company at the time of registering its securities in SEBO, along with the application should also submit the remarks of the experts, stating that he/she is satisfied with the projected balance sheet, profit and loss account and other financial information included in the prospectus and with the basis for projection. As financial projection gives the future prospects of the company, securities market legislation has given importance to its incorporation in the prospectus. It should help the investors to make better investment decision during public offering of the securities. Investors' concern towards the financial projection is its accuracy. However, the accuracy of projected financial indicators is always debatable. Many studies argue that there is always a significant deviation in projected financial situation. In Nepalese securities markets the financial projections of most of the issuer companies are highly overstated (SEBO, 1999). It is obvious that forecasting accuracy of the companies enhances their credibility resulting in higher pubic response to the subsequent equity offerings. However, in case of Nepal, as per the documentation of SEBO, the major surprise is that though the companies are frequently presenting the biased projection of financial situations, investors' responses are found to be indifferent. Studies have shown that the managers'
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attitudes to window-dress their accounting pictures while offering its securities to the public. Jain and Kini (1992) in their study found declining post issue operating performance of the IPO firms and argue that one of the reasons for the decline of performance may be due to the fact that the managers of the issuing companies attempt to window-dress their accounting numbers prior to going public leading to overstated pre-IPO performance and understated post-IPO performance. Review of literatures revealed that the studies comparing projected and actual financial results of IPO firms are rarely found. Though some researches have documented considerable variation in firms' management forecasts and have offered possible reasons for these variations, they are not regarding the financial forecasting of the IPO firms. Francis and Soffer (1997) in their study provided evidence on the market reaction to earning forecast revision. Brous (1992) examined the earning expectations and release of unfavourable information. Ackert, Church and Shehata (1997) investigated how individual behaviour is applied by the presence of forecast bias, where the bias is systemic and upward. Hirst, Koonce and Miller (1999) examined that the investors reaction to management earning forecast is a joint function of the form of the forecast and managements' prior forecast accuracy. In this study, I have made attempts to compare; the projected net worth per share and the net profit of the issuer companies to the actual and, the deviations in these financial indicators between the issuer companies of finance and non-finance group. However, in this study simple comparison of the projected and actual financial results have been made using mean absolute deviation method for testing projection accuracy and the result may differ if more sophisticated statistical tools are applied. The underlying assumptions and the accuracy of those assumptions are not analysed. Qualifications and experiences of the persons making financial projections are ignored and so far as I came to know from the review of securities acts and regulations, the qualification, experiences and other criteria are not prescribed in the Nepalese context and this study ignores the possibility of higher deviation in financial projection due to the involvement of less qualified personnel. This study has only taken the cases of initial public
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offering of the equity shares. The cases of additional offerings of equity and other types of securities are ignored. This study has been organized into three sections. Section 1 deals with the study methodology, Section 2 consists of results and discussion and finally the conclusions are presented in Section 3. 1. Methodology Sampling and the Data As this study compares the projected net profit and projected net worth per share of the issuer companies with the actual one the data used in the study are all secondary. The sources of data for the projections are obtained from the companies' prospectus prepared at the time of their initial public offerings and the actual results are obtained from the annual reports of the respective years. For the purpose of this study issuer companies, which have gone to initial public offering of equity (hereafter called IPO companies) in between the fiscal years 1996/97 and 1999/2000, are categorized into finance and non-finance group. In this study bank, finance companies and insurance companies are included in finance group and manufacturing and processing companies and hotels in nonfinance group. Only those companies were selected, which have obtained issue approval from SEBO, their prospectus have been published and includes projected net worth per share and projected net profit for the three years and annual reports for the respective projected period were available. Table 1 Selection of Sample
Group Finance Group Non-finance Group Total Total number of IPO Companies 26 7 33 No. of Sampled IPO Companies 5 5 10 Sampling Percentage 19.23 71.43 30.30
As mentioned in table 1, five companies each from finance and non-finance group are selected. Equal number of sample from each groups is taken for the purpose of comparing deviation in the financial projection in between the two
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groups, though it constitute different sampling percentage. The companies and the fiscal year for which the data are used in this study are given in table 2. Table 2 List of Sampled IPO Companies
S.N. Sampled IPO Companies Data Used for the Fiscal Year 1st Year 1999/00 2000/01 1999/00* 1997/98 1999/00 1996/97 1995/96 1996/97 2000/01 1999/00 2nd Year 2000/01 2001/02 2000/01* 1998/99 2000/01 1997/98 1996/97 1997/98 2001/02 2000/01 3rd Year 2001/02 2002/03 2001/02 1999/00 2001/02 1997/98 1998/99 2002/03 2001/02
Finance Group 1 NIC Bank Ltd. 2 Nepal Development Bank Ltd. 3 NB Finance and Leasing Co. Ltd. 4 Alliance Insurance Ltd. 5 Sagarmatha Insurance Ltd. Non-finance Group 6 Nepal Bitumin and Barrel Co. Ltd. 7 Bhrikuti Pulp & Paper Ltd. 8 Shree Ram Sugar Mills Ltd. 9 Oriental Hotels Ltd. 10 Taragaon Regency Hotels Ltd.
* Provisional financial reports are taken
Calculation for Measuring Projection Accuracy In this study mean absolute deviation (MAD) is calculated for comparing, quantitatively, the accuracy of projection. MAD measures projection error by calculating the average difference between projected and actual values and is computed using the following equation. [Sum (actual value projected value)]
Number of Values
MAD 1 =
The negative mean absolute deviation implies that the actual value is lower than projected one while positive mean absolute deviation implies that the actual value is higher than projected one.
1
Targett, David (1997)
85
2. Result and Discussion Projected and actual net worth per share and net profit of the sampled IPO companies for the fiscal year as mentioned in table 2 are obtained for the first year, second year and third year and the absolute deviation of each year and mean absolute deviation for the three year is calculated for each of the companies. Then the average of the mean absolute deviation is compared between the companies of the finance and non-finance group. Mean Absolute Deviation in net worth per share Table 3 presents mean absolute deviation in the projected net worth per share of the individual companies. Higher deviation is found in case of Bhrikuti Pulp & Paper Ltd. and the deviation is negative, while in case of Sagarmatha Insurance Ltd. the deviation is positive. However, the average value of all the mean absolute deviation is found to be -36.00 i.e. on an average the actual net worth per share is lower than the projected value. Table 3 Mean absolute deviation in the projected net worth per share (Rs.)
S.N. 1 2 3 4 5 6 7 8 9 10 Actual Value -Projected Value 1st Year 2nd Year 3rd Year NIC Bank Ltd. -0.38 -9.13 -23.86 Nepal Development Bank Ltd. -0.91 -7.75 -27.00 NB Finance and Leasing Co. Ltd. 1.46 0.33 -23.62 Alliance Insurance Ltd. -3.22 -15.87 Sagarmatha Insurance Ltd. 8.11 5.40 5.92 Nepal Bitumin and Barrel Co. Ltd. -81.7 -82.13 Bhrikuti Pulp & Paper Ltd. -43.25 -88.33 -172.18 Shree Ram Sugar Mills Ltd. -46.31 -74.73 -117.59 Oriental Hotels Ltd. -14.36 -61.86 -98.03 Taragaon Regency Hotels Ltd. -0.84 -6.29 -10.38 Average Sampled IPO Companies Mean Absolute Deviation -11.12 -11.89 -7.28 -9.54 6.48 -81.92 -101.25 -79.54 -58.08 -5.84 -36.00
Mean Absolute Deviation in net profit Table 4 shows that the average of the mean absolute deviation in projected net profit is -67.16. Highest mean absolute deviation is found in case of Bhrikuti
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Pulp & Paper Ltd. The result shows that the projected net profit is significantly higher than the actual net profit. This result is consistent with some previous researches. Table 4 Mean absolute deviation in the projected net profit (Rs. in Million)
S.N. 1 2 3 4 5 6 7 8 9 10 Sampled IPO Companies NIC Bank Ltd. Nepal Development Bank Ltd. NB Finance and Leasing Co. Ltd. Alliance Insurance Ltd. Sagarmatha Insurance Ltd. Nepal Bitumin and Barrel Co. Ltd. Bhrikuti Pulp & Paper Ltd. Shree Ram Sugar Mills Ltd. Oriental Hotels Ltd. Taragaon Regency Hotels Ltd. Average Actual Value -Projected Value 1st Year 2nd Year 3rd Year 6.15 -2.95 0.89 3.26 -0.20 -24.62 -63.13 -87.54 -2.98 -15.26 0.47 0.13 3.84 1.57 -268.22 -94.05 -195.86 -156.47 -73.68 -43.10 -8.16 -8.41 2.73 -355.90 -118.87 -133.27 -199.58 Mean Absolute Deviation -23.50 -20.44 -2.27 -4.14 3.28 0.69 -216.25 -92.02 -138.89 -178.03 -67.16
Comparing Mean Absolute Deviation of finance and non-finance group The above results reveal that in an average the actual result is lower than the projected net worth per share and net profit. Table 5 shows comparisons of average of the mean absolute deviation in the projected net worth per share and the net profit between the finance and non-finance groups. It is found that the deviation is considerably higher in non-finance group than in finance group. Table 5 Average of the mean absolute deviation
S.N. Group 1 2 Finance Group Non-finance Group Average of the Mean Absolute Deviation in Net Worth per Share -6.67 -65.33 Average of the Mean Absolute Deviation in Net Profit -9.41 -124.90
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3. Conclusion From this study, it can be concluded that both the financial indicators tested show the negative deviation in the projection. It means that the IPO companies while offering their securities to the public overstate their accounting figures. Therefore, due consideration should be given either to improve the projection accuracy or to review the incorporation of financial projections in the prospectus of the issuer companies. References:
Ackert, Lucy F., Church, Bryan K. and Shehata, Mohamed; An Experimental Examination of the Effects of Forecast Bias on Individuals Use of Forecasted Information The Journal of Accounting Research, Vol. 35, No. 1, Spring 1997. Brous, Peter Alan; Common Stock Offerings and Earnings Expectations: A Test of the Release of Unfavourable Information The Journal of Finance, Vol. 47 No. 4, September 1992. Francis, Jennifer and Soffer, Leonard; The Relative Informativeness of Analysts Stock Recommendations and Earnings Forecasts Revision The Journal of Accounting Research, Vol. 35, No. 2, Autumn 1997. Hirst, Eric D., Koonce, Lisa and Miller, Jeffrey; The Joint Effect of Managements Prior Forecast Accuracy and the Form of its Financial Forecasts on Investors Judgement The Journal of Accounting Research, Vol. 37, Supplement 1997. Jain, Bharat A. and Kini, Omesh; "The Post-Issue Operating Performance of IPO Firms" The Journal of Finance. Vol. 49, No. 5, September 1994. Ministry of Law and Justice; "Companies Act (1997)", Kathmandu: Nepal Law Books Management Board. Ministry of Law and Justice; "Securities Exchange Act, 1983 (1st and 2nd Amendment)", Kathmandu: Nepal Law Books Management Board. Ministry of Law and Justice; "Securities Exchange Regulation, 1993, (2nd Amendment)", Kathmandu: Nepal Gazette, 1998. Newbury, Frank D., Business Forecasting Principles and Practice McGraw Hill Book Company Incorporation, USA, 1958. Securities Board, Nepal; "Securities Registration and Issue Approval Guidelines, 2000", Kathmandu. Securities Board, Nepal; A Comparative Study on Projected and Actual Profit/(Loss) of Issuing Companies 1999. Targett, David; The Management of Business Forecasting", Analytical Decision Making, McMillan India Ltd., 1997. Thomas, Shawn; Firm Diversification and Asymmetric Information: Evidence form Analysts Forecasts and Earning Announcements Journal of Financial Economics, Vol. 64, No. 3, June 2002.
***
Public Offering of Securities

- Mr. Deepesh Vaidya and Mr. Pravin Raman Parajuli Public offering of various securities like equity shares (both ordinary as well as right share issue), debentures, bonds etc. to the general public by corporates as well as the government are made through the Merchant Bankers (MBs). As such the MBs work as intermediaries between the fund concentrated groups (the general public and institutions) and the fund deficit groups (corporates) to cater the needs of both through efficient fund mobilization. The MBs are mainly engaged in creating and expanding primary and secondary market for securities and money market providing advisory services to corporations as well as managing their investment portfolio. The capital market mobilizes the savings of individuals/institutional investors as investment in shares, debentures, bonds, mutual funds and other financial instruments, which in turn are deployed for productive purposes in various sectors of the economy which have potential to yield a higher return on their investments. Thus, public offering involves raising of funds for governments or corporations from the public through the issuance of various securities in the primary market and is often the only major source of obtaining large sums of fixed rate, longterm funds. Equity issuance formed a significant portion of total issue in the capital market since FY 1993/94 till FY 2002/03, which accounted for 76.42% of the total shares (Ten Year of SEBO, 1993-2003). The issuance of such securities is a viable opportunity for risk-seeking investors who wish to take greater risk for higher return. The risk-averse investors on the other hand would seek to invest on securities like bonds issued by corporations and government, debentures, preference shares etc., which would provide them fixed return over a period of time with very little on their investment. The corporate bonds/debentures of only four institutions viz. Sri Ram Sugar Mills Ltd., Bottlers Nepal Ltd., Himalayan Bank Ltd. and recently that of Nepal Investment Bank Ltd. have been issued in the capital market till date. Of these, debentures issued by Bottlers Nepal Ltd. and Sri Ram Sugar Mills Ltd. have already matured. This itself speaks for the
Mr. Vaidya and Mr. Parajuli are associated with Nepal Merchant Banking and Finance Ltd.
89
need to increase the issuance of more viable risk-averse investment opportunities to cater for that category of investors. The issuance of hybrid instruments including bonds is likely to gain momentum in the near future, as the capital adequacy requirement (CAR) of the financial institutions are being strictly monitored by Nepal Rastra Bank as part of financial sector reform strategy/plan. An efficient capital market is one where the stock/security price reflects all information related to it. The information is of utmost importance to all the active participants/investors (in the secondary market) to make their investment decision whether it be purchase of new shares or sale of existing holdings. The information is mainly in the form of Audited reports, Annual reports and other bulletins that the institutions have to submit to the regulatory authorities and for information to the general public within stipulated period of time. The information reflects the financial health and soundness of institutions as well as its future prospects. The positive or the negative spiral that is created in the market through positive or negative dissemination of institutions information has a direct bearing on its share price. Number of problems our capital market currently facing are explained as under: The stock price reflects little or no information about the Company, which is a requisite for a smooth and efficient functioning of the capital market system. This information sharing deficiency of the Companies with Nepal Stock Exchange Limited (NEPSE) have resulted in determination of stock prices through speculation with major dominance on the market by the speculators. This has resulted in a negative attitude amongst the general public/investors towards investment in the capital market, which in turn is clearly evident from the decreasing level of participation of the general public during the Initial Public Offering as well as in the Secondary market. The decline in the investor's confidence level on the capital market is also clearly visible from the NEPSE Index which had reached a level high of 360.70 in FY 1999/00 but since the burst of the capital market bubble in FY 2000/01, it has been declining with NEPSE Index of 227.54 in FY 2001/02 and 214.08 in FY 2002/03 (Ten Year of SEBO, 1993-2003).
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The decreasing level of participation of the general public in the capital market (both primary and secondary markets) can also be attributed to the following factors: 1. Centralized stock exchange located in Kathmandu with no diversification into regional branches to cater the needs of the investors there. 2. We are still following the open out cry system that has been replaced in most of the countries around the world. This system makes the physical presence of brokers on the stock floor compulsory to undertake any transaction. 3. Such restricted access has resulted in a very low participation of out-ofvalley investors mainly in the secondary market. The problem does not arise for primary issue as collection centers are designated at various parts of the country for investors convenience but once they become the shareholders of some company, their reach to stock floor to actively participate in the capital market is limited. 4. Although few brokers provide services to their out-of-valley investors via consulting firms operating at regional levels, the transaction cost to be borne by such investors is very high.
The maximum volume of transactions that occurs in NEPSE each year is mainly from sectors like banks, finance companies and insurance. Their transaction volume accounts for 60% - 90% of the total volume transacted (Tenth Year of SEBO, 1993-2003). This shows the dominance of these sectors over sectors like hotels, manufacturing and processing and others. This is attributed to existing regulation, requiring every financial institution to offer its prescribed portion of issued shares to the general public, which, at present is 30% (as per Bank and Financial Institutions Ordinance, 2004). Similarly, Insurance Board also requires every insurance company with its registered office in Nepal to offer 20% of its issued shares to the general public. The other sectors, however, are not bound by any such regulations. Further, banking and financial sectors are better regulated than other sectors in the country resulting in higher confidence among the investors. Companies that go public by offering a certain portion of their issued shares to the general public neither receive any special tax benefits or tax holidays nor special concessions which motivates them to offer their shares to the
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general public. In addition, these Companies often face continuous hassles from the public through their involvement in the Companys management, which negatively affect their productivity and efficiency. This is considered as one of the major impediments to the corporate in offering their shares to the general public and for the same reason, their participation in the capital market. The present law in the country requires lengthy approval process from the concerned regulatory authorities before offering shares to the general public. Financial institutions are first required to obtain an approval from the Company Registrar's Office (CRO), then from Securities Board (SEBO) and then register with Nepal Rastra Bank. The recently passed Bank and Financial Institutions Ordinance 2004, requires the financial institutions to get their prospectus finally registered in NRB even after getting the permission from SEBO. This has resulted in duplication of work. If any changes are recommended by NRB at this stage i.e. after receiving the final issue approval from ROC and SEBO, the same changes has to be approved by all regulatory bodies too before seeking its final issue approval from the NRB. This would further delay the process.
Thus it is recommended that the deficiencies highlighted above to be improved upon for the overall efficiency of our capital market, detailed as under: Approval process should be streamlined to make it easy and hassle free. If possible, one window policy should be adopted in providing approval. NEPSE has to ensure that all companies share all relevant information on a timely basis so that the stock price reflect their companys status more accurately. An independent analysis on the latest security offers in the capital market by professionals should be encouraged. This benefits the potential investors in making informed investment decisions. Economic Journalism is encouraged to come forward in this connection to fulfil their responsibility to the society. Increase awareness amongst the general public about the capital market, regarding nature of risk and return, through promotional campaigns, seminars, publications, and programs in FM/TV etc.
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NEPSE can expand its services to the regional levels rather than just concentrating solely in the valley. They should also replace the old and outdated open cry system with on-line trading system following international standards. Issuance of directives by regulatory authorities not to solicit unaccounted payments to the shareholders other than dividend. Discourage the possibilities of insider's trading through improved corporate governance and initiate strict corrective measures for compliance. Encourage active participation of other sectors of the economy besides banks, finance companies and insurance through the enforcement of good corporate governance. Independent rating agencies should be encouraged to establish here so that the potential investors will have a confident picture of the financial health and future prospects of organizations/instruments.
***
Regulation of Nepalese Securities Market and Investors' Protection

- Mr. Basu D. Upadhayay Securities market in Nepal, till the recent past, had all the characteristics of an underdeveloped economy. It was characterized by the absence of professional promoters, underwriting agencies, market intermediaries, organized market, regulatory bodies, and rules and regulations. However, after the restoration of democracy in 1990, a trend towards an organized stock market can be marked with numerous developments in the Nepalese securities market, removing its earlier deficiencies. A detail legislative code has been adopted by the Government to protect the investors' interests. The Securities Exchange Regulation, 1993, provides for those reforms in stock exchange trading methods and practices. The Regulation has added further functions, powers and duties of the Securities Board, Nepal (SEBO). The regulation has authorized the SEBO for internal housekeeping matter, made provision regarding licensing stock exchange and their subsequent operation, specified requirements for the registration and listing of securities along with authority for the registration of market intermediaries such as brokers, market makers, dealers and issue managers. Under chapter II of the regulation, different provisions regarding allowances and benefits as well as duties, powers and functions of chairman of SEBO have been prescribed. Similarly, other provisions regarding funding, accounting and auditing are also specified by the regulation. The Companies Act, 1997, marks an important stage in the development of corporate enterprises in Nepal. The provisions made under this act especially relevant to the securities market are provisions regarding the issuance and publication of the prospectus, which is necessary for public issue of securities. As per this provision, the details of the content of prospectus are prescribed and the prospectus is to be approved by the Companies Registrar's Office (CRO). Under this act, different provisions have been made for the establishment of a company (either public or private) and its liquidation, conduction of Annual General
Mr. Upadhayay is associated with Rural Development Society, Nepal (RDS, Nepal), Bhaktapur
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Meeting (AGM), incorporation of Memorandum and Articles of Association, issue of shares and debentures, preparation of annual accounts and their audit and the annual report . Securities Exchange Act, 1983 (Second Amendment) provides reforms in securities market regulating practices. It can be taken as the very important legislation of the securities market. The act has been formulated to systematize and regularize the stock exchange in order to maintain the economic interest of the people. It also contributes to the economic development of the country, to protect the interest of the investors and to increase the participation in the industrial sectors. For this purpose, this act provides legal framework for the securities regulatory system by establishing SEBO as an apex regulatory body . As per this act, SEBO provides license for the operation of stock exchange, registers securities and grants issue approval, supervises and monitors stock exchange and market intermediaries. This act also enables SEBO to issue directives and make by-laws and guidelines and also allow the stock exchange to frame by-laws. Similarly, some provisions have been made regarding inside information and other forbidden activities, however, they are not covered broadly. In order to manage sales and promotion of securities and make the sales and issue manager accountable for their services, SEBO has issued the Securities Issue Management Guidelines, 1998. This guideline has been made as per the provision of Section 35 of the Securities Exchange Act, 1983 (Second Amendment). The guideline further specified various provisions regarding disclosure, application for registration of securities, agreement between issue manager and issuing companies, execution procedures of the sales management and code of conduct to be specified etc. Similarly, Share Allotment Guidelines, 1994 issued by SEBO make the share allotment procedures fair and transparent. The directives were intended to create broader ownership according to the mass participation policy. Thus, from the foregoing brief discussion, it is clear that the Securities Exchange Act, 1983 (second amendment) and Securities Exchange Regulation, 1993 set up a general framework for regulating securities market, which has facilitated and encouraged the development of securities market of Nepal.
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Despite these, the securities market of Nepal is still in a nascent stage as it still has many issues specially related to regulation and investors' protection. The major deficiencies and further suggestions can be discussed below: SEBO and NEPSE are operating under the government ownership. This has put breaks on the development of Nepalese securities market. The ownership of NEPSE should be handed-over to the private and develop it as a selfregulatory organization. It helps SEBO to regulate the activities of NEPSE and market intermediaries. The current securities legislations do not have sufficient room for regulation and enforcement. It is therefore recommended that SEBO should be strengthen by amending rules and regulations, providing it with adequate regulatory powers. This can enable SEBO to carry out investigations and enforcement activities. A strong regulator will help but not nearly as much a clearly regulatory framework. The prevailing securities legislations are silent on the transfer of shares including paperless trading, validity of transfer deed, transfer deed fees and duration of receiving share certificate. In most developed countries, securities transaction, the transfer of securities ownership, known as clearing is now done electronically. This should be followed in Nepal and a Central Depository System (CDS) should also be established. These will make hassle free securities transaction. Securities Exchange Act, 1983 (second amendment) provides prohibition in insider trading. But it lacks clear-cut pictures to prohibit such trading. This creates problems in the enforcement of the provision. In the context of developed capital market, the United States Securities Exchange Act, 1934 prohibits corporate insiders from short selling. In the United States it is illegal for any one to enter into a securities transaction, if he or she has taken advantages of inside information about the company that is unavailable to other people involved in the transaction. This prohibition includes not only insiders but also those to whom they give such secret information. The securities legislation lacks creation of Investor's Protection Fund. It is required to compensate the investors in the event of loss incurred on account of defaults committed by stock brokers. Each member of the stock exchange should obtain insurance cover with a view to protecting the investors against
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the loss of documents in transit or by fire and in the event of fraudulent acts committed by its staff members. With a view to professionalizing the existing members, stock exchange and concerned authorities must conduct from time to time refresher courses. Member of the stock exchange and others associated with the working of the capital market should have reasonable background in corporate finance, capital market, economics and financial engineering etc. References
Ministry of Law and Justice (MOLJ), Company Act (1997), (Kathmandu: Nepal Law Books Management Board), pp. 259-352. MOLJ, Securities Exchange Act (1st and 2nd Amendment (1983), (Kathmandu: NLBMB) pp. 151-162. MOLJ, Securities Exchange Regulation (2nd Amendment), 1993, (Kathmandu: Nepal Gazette, 1998) Nepal Stock Exchange Ltd., Membership and Transaction By-Laws (1998), (Kathmandu: 1998), pp. 1-38. NEPSE, Securities Listing Bye-Laws (1996), (Kathmandu: 1996) Upadhyay, Basu D. Share Price Behaviour in Nepal (2001). Unpublished Masters Degree Thesis, Central Department of Management, Tribhuvan University.
NEPALI SECTION
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lwtf]kq sf/f]af/ M o;sf] sfg'gL kIf

d'/nL k|;fb zdf{
g]kfndf lwtf]kq sf/f]af/;DaGwL :ki6 sfg'gL Joj:yfsf] Oltxf; s/La aL; jif{sf] dfq /x]sf] 5 . lwtf]kq sf/f]af/sf] ;~rfng / Joj:yfkg;DaGwdf sfg'gL Joj:yf lwtf]kq sf/f]af/ P]g @)$) af6 z'? ePsf] xf] / o; P]gdf xfn;Dd b'O{ k6s ;+zf]wg e};s]sf] 5 . k|f/Dedf >L % sf] ;/sf/n] hf/L u/]sf lwtf]kqx? v/Lb, laqmL ug]{ u/fpg] Joj:yfsf nflu cfjZos sfg'gL Joj:yf ug{ / To;sf] nflu pko'Qm ;+:yf v8f ug{ o; P]gsf] lgdf{0f ePsf] lyof] . o; P]gn] ;]So'l/6L v/Lb laqmL s]Gb|sf] :yfkgf u/L ;/sf/L lwtf]kqsf] sf/f]af/ ;~rfng Pj+ To;sf] Joj:yfkg;DaGwdf Go'gtd\ dfq Joj:yf u/]sf] kfOG5 . @)$& ;fndf ax'bnLo k|hftGqsf] k'g:yf{kgf ;u;Fu} a9]sf] cfly{s s[ofsnfknfO{ ;d]6\g tyf k'FhLahf/sf] k|jw{g Pj+ ljsf;sf nflu tTsfn sfod /x]sf] sfg'gL Joj:yf ckof{Kt 7x/ eof] . k'FhLahf/df lghL If]qsf] k|j]zn] ubf{ ;]So'l/6L v/Lb laqmL s]Gb| cfkm}n] ahf/ Joj:yfkg / lgodgsf] sfo{ ubf{ Pp6} ;+:yfn] lgodg lgsfo / sfo{Gjog lgsfosf] ?kdf sfd ubf{ x'g ;Sg] Conflict of Interest ;d]tnfO{ Wofgdf /fvL @)$(*!! df lwtf]kq sf/f]af/ P]g, @)$) df klxnf] ;+zf]wg ul/of] . pQm ;+zf]wgn] ;]So'l/6L v/Lb laqmL s]Gb|nfO{ g]kfn lwtf]kq ljlgdo ahf/ ln= df kl/0ft ug]{ / ;+ul7t ;+:yfn] cg'dltkq k|fKt u/L lwtf]kq ahf/ ;~rfng ug{;Sg] Joj:yf uof] . ;fy} ;+zf]wgn] lwtf]kq af]8{sf] :yfkgf ug]{ gofF Joj:yf u/L af]8{nfO{ k'FhLahf/sf] lgodg lgsfo (Regulatory Body) sf] ?kdf :yflkt uof] . lwtf]kq sf/f]af/ P]gdf ePsf] klxnf] ;+zf]wg kZrft lwtf]kq af]8{sf] :yfkgf u/L lwtf]kq sf/f]af/nfO{ lgoldt / Jojl:yt u/L nufgLstf{sf] lxtsf] ;+/If0f / ;Daw{g ug]{ tyf lwtf]kq ahf/sf] ljsf;df 6]jf k'ofpg] ;d]t lhDd]jf/L pQm af]8{nfO{ lbOof] . ;fy} lwtf]kq sf/f]af/ ug]{ u/fpg] p2]Zon] lwtf]kq ahf/ ;~rfng ug{ rfxg] ;+ul7t ;+:yfn] cg'dltkq lng'kg]{ Joj:yf u/L tTsfn sfod /x]sf] ;]So'l/6L v/Lb laqmL s]Gb|nfO{ lwtf]kq sf/f]af/ P]g @)$) f/f g} g]kfn lwtf]kq ljlgod ahf/ ln= (Nepal Stock Exchange Ltd.) df kl/0ft u/L ;DklQ tyf bfloTj ;d]t ;f]xL ;+:yfdf ;g]{ Joj:yf ul/of] . o;/L
>L zdf{ clwjQmf x'g'x'G5
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lwtf]kq sf/f]jf/ P]gdf ePsf] klxnf] ;+zf]wgn] sfof{Gjog lgsfo / lgodg lgsfosf] 5'f 5'} Joj:yf uof] . o;sf ;fy} ;fj{hlgs?kdf lgisfzg x'g] lwtf]kqx? lgisfzgk"j{ lwtf]kq af]8{df btf{ ug'{kg]{ Joj:yf ;d]t ul/of] . To;}u/L lwtf]kqsf] sf/f]af/ -v/Lb, laqmL tyf ljlgdo;DaGwL sfd_ lwtf]kq ahf/sf ;b:odfkm{t ug{'kg]{ Joj:yf ;d]t ul/of] . P]gsf] kl/R5]b % df ;+zf]wg u/L af]8{sf] ljz]if clwsf/sf ;fy} lg/LIf0f tyf hfrFa'em ug{ ;Sg] clwsf/ ;d]t yk ul/of] . o;/L lwtf]kq sf/f]af/ P]g, @)$) df ePsf] k|yd ;+zf]wg kZrft dfq lgodg lgsfo (Regulatory Body), lwtf]kq ahf/ (Stock Exchange) / lwtf]kq ahf/ dWo:y ;+:yf (Market Intermediaries) ;d]tsf] Joj:yf u/L jf:tljs ?kdf lwtf]kq ahf/sf] :j?k sfod ePsf] b]lvG5 . o; P]gdf ePsf] k|yd ;+zf]wgn] ;+:yfut ;+/rgfdf kl/jt{g Pj+ ;'wf/ eO lwtf]kq ahf/n] jf:tljs :j?k k|fKt u/]sf] / To;kl5 lwtf]kq ahf/df kF'hL kl/rfngsf] dfqf a9\g'sf] ;fy} ahf/ r/dtf (Boom) lt/ pGd'v eof] h;sf] sf/0f ahf/nfO{ :jR5, k|lt:kwL{ / :j:y /fVg P]gdf ePsf k|fjwfgx? kof{Kt ePgg\ . ahf/df leqL sf/f]af/, em'f ljj/0fsf] k|:t'lt cflb h:tf ljs[ltx? b]lvg yfn]sf] / To:tf ljs[ltx? lgoGq0f ug{] plrt / kof{Kt Joj:yf gePsf]n] P]gsf] bf]>f] ;+zf]wg ckl/xfo{ eof]] . lwtf]kq sf/f]af/ P]gdf bf]>f] ;+zf]wg u/L lwtf]kq Joj;fo ug{rfxg] lwtf]kq Joj;foLn] lwtf]kq af]8{df btf{ eO k|df0fkq lng' kg]{ Joj:yfsf ;fy} lwtf]kq Joj;foLn] /fVg'kg]{ Go'gtd k'FhL, lng kfpg] ;]jf z'Ns, k|df0fkq lnFbf hdfgt /fVg' kg]{ nufotsf Joj:yfx? u/L lwtf]kq Joj;foLx?nfO{ :jcg'zfl;t u/fpg]tkm{ ljz]if hf]8 lbOof] . lwtf]kq Joj;foLn] P]g ljkl/t sfd u/]df btf{ k|df0fkq g} vf/]h ug]{ Joj:yf ;d]t ul/of] . o; cltl/Qm af]8{df btf{ ePsf lwtf]kq Joj;foLnfO{ dfq ;b:otf k|bfg u/L lwtf]kq ahf/df sf/f]af/ ug]{ cg'dlt lbg'kg]{ Joj:yf klg ul/of] . ;fy} lwtf]kqsf] leqL sf/f]af/ ug{ gx'g] tyf lwtf]kqsf] sf/f]af/ d"Nodf cg'lrt k|efj kfg{ gx'g] Joj:yf u/L To:tf] sfo{ u/]df ;hfo x'g] ;d]t Joj:yf ul/of] . lwtf]kq sf/f]af/ P]g @)$) df b'O{ k6s ;+zf]wg u/L Jofks kl/jt{g Pj+ ;'wf/ ul/Psf] ePtf klg Pl;ofnL ljsf; a}+ssf] cfly{s ;xof]udf ljutdf ePsf] cWoogn] ;f] ;'wf/ ckof{Kt b]vfpg'sf] ;fy} sfg'gdf g} Jofks ;'wf/ ug'{kg]{ ;'emfj lbPsf] lyof] . lwtf]kq af]8{
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/ lwtf]kq ahf/sf] If]qflwsf/, vf;u/L lwtf]kq Joj;foLsf] btf{ / ;b:otf k|bfg ug]{;DaGwdf pTkGg ljjfb, g]kfn lwtf]kq ljlgdo ahf/ ln= df /x]sf] >L % sf] ;/sf/sf] :jfldTj, lwtf]kq ahf/sf] ;+u7gfTds :j?k tyf b08 ;hfo;DaGwL :ki6 sfof{ljLwsf] cefjn] klg P]g k|efjsf/L x'g g;s]sf] b]lvof] . To;}u/L sDkgL /lhi6f/sf] sfof{no / lwtf]kq af]8{sf] If]qflwsf/df k/]sf] bf]xf]/f]kg / If]qflwsf/sf] :ki6 ;Ldfg x'g g;s]af6 klg P]gsf] sfof{Gjog kIf k|efjsf/L x'g ;s]g . oL ;a} s'/fnfO{ b[li6ut u/L Pl;ofnL ljsf; a}+ss} cfly{s ;xof]udf cGt/f{li6o sfg'gljb\sf] ;d]t ;+nUgtfdf ljBdfg P]gnfO{ vf/]h u/L gofF P]g agfpg] qmddf lwtf]kq;DaGwL P]g sf] d:of}bf ePsf] 5 . o;/L ljBdfg lwtf]kq sf/f]af/ P]gdf b'O{ k6s ;+zf]wg u/L Jofks kl/jt{g ul/Psf] ePtf klg o;n] lwtf]kq sf/f]jf/sf] lgodg tyf Joj:yfkgsf] ;Dk"0f{ kIf ;d]6g g;s]sf] ljleGg cWoogaf6 ;d]t k'i6L x'g cfof] . o; cltl/Qm nufgLstf{x?sf] lwtf]kqdf nufgL ug]{ rfxgf j9b} uPsf], k'FhL ahf/sf] ljsf;df lwtf]kq sf/f]af/sf] cxd\ e"ldsf /xg] / nufgLsftf{sf] lxtsf] ;+/If0f / ;Djw{g tyf lwtf]kq ahf/sf] ;d'lrt ljsf;sf nflu cfly{s ck/fwsf] ;d]t plrt lgoGq0f u/L sf/f]af/nfO{ :jR5 / k|lt:klw{ agfpg gofF sfg'g g} agfpg' kg]{ / oL ;a} Joj:yfx? e}/x]sf] P]gdf ;+zf]wgaf6 dfq} ;Dej gx'g] b]lvof] . t;y{ jt{dfg lwtf]kq sf/f]af/ P]g @)$) vf/]h u/L lwtf]kq;DaGwL P]g th'{df u/L ;+;b lj36g x'g' k"j{ g} ;+;bdf k|:t't e};s]sf] lyof] . t/ ;+;b lj36g ePsf] sf/0f pQm k|:tfljt P]g ;+;baf6 kfl/t x'g ;s]g . o; P]gsf] cf}lrTo / cfjZostfnfO{ dx;'; u/L o;nfO{ cWofb]zs} ?kdf eP klg Nofpg] k|of; e}/x]sf] 5 . k|:tfljt cWofb]z -o; kl5 P]g elgPsf]_ df s] s:tf] Joj:yf ul/Psf] 5 / ljBdfg P]gdf ;+zf]wg gu/L gofF P]g agfpg'sf] cfjZostf / cf}lrTo ;Da4 ;a}sf] rf;f]sf] ljifo x'g;S5 . o; kl/k|]Iodf k|:tfljt P]gsf d'Vo d'Vo ljz]iftfx?sf] oxfF pNn]v ug'{ ;fGble{s g} x'g]5 . k|:tfljt P]gsf] d:of}bfnfO{ s]nfpFbf pQm P]gsf d'Vod'Vo ljz]iftfx? lgDg adf]lhd /x]sf 5g\ . != P]gn] lwtf]kq af]8{nfO{ cfjZos clwsf/;lxtsf] s]Gb|Lo lgodg lgsfosf] ?kdf :yflkt u/]sf] 5 / cGt/f{li6o:t/sf] lgodg k4tLsf] ;d]t Joj:yf u/]sf] 5 . @= lwtf]kq af]8{nfO{ :jtGq / :jlgoldt agfpg af]8{sf] ;+/rgfnfO{ km/flsnf] agfO{ af]8{sf ;b:ox? lgo'Qm ubf{ k]zfut ljz]if1x? ;d]t /xg ;Sg] Joj:yf ul/Psf] 5 . #= af]8{sf s[ofsnfk e/kbf]{, kf/bzL{ tyf lhDd]jf/Lk"0f{ agfpg cfjZos Joj:yf ug'{sf] ;fy} af]8{sf] jflif{s k|ltj]bg ;fj{hlgs ug]{ ;d]t Joj:yf ul/Psf] 5 .
102
$= P]gn] lwtf]kqsf] ;fj{hlgs lgisfzg ug{;Sg] u/L :yflkt ;+:yfn] cfkm"n] lgisfzg ug{] lwtf]kq lgisfzg ug{'cl3 lwtf]kq af]8{df btf{ ug'{kg]{ Joj:yf u/]sf] 5 . o; cltl/Qm ;fj{hlgs lgisfzg ePsf lwtf]kqx? dWo] lwtf]kq ahf/df ;"rLs/0f ePsf lwtf]kqsf] sf/f]af/ lwtf]kq ahf/n] lgodg ug]{ / lwtf]kq ahf/df ;"rLs/0f gePsf jf x'g g;s]sf jf ;"rLs/0f vf/]h ePsf lwtf]kqsf] sf/f]jf/sf] lgodg lwtf]kq af]8{n] ug]{ ljz]if Joj:yf ul/Psf] 5 . %= lwtf]kq btf{ tyf lgisfzg cg'dlt;DaGwL Joj:yfnfO{ ;/nLs/0f ug'{sf] ;fy} k|efjsf/L agfOPsf] 5 . ^= ljj/0fkq l:js[t ubf{ bf]xf]/f] gk/f]; tyf kf/blz{tf ;d]t sfod /xf]; eGg] p2]Zon] ljj/0fkq lwtf]kq af]8{n] l:js[t ug]{ / sDkgL /lhi6f/ sfof{non] btf{ ;Dd dfq ug]{ Joj:yf ul/Psf] 5 . &= ljBdfg sfg'gL Joj:yfcGtu{t ;"rLs/0f gePsf jf ;"rLs/0f vf/]hdf k/]sf lwtf]kqsf] sf/f]jf/;DaGwdf s'g} Joj:yf 5}g . t/ k|:tfljt P]gn] ;"rLs/0f gePsf jf ;"rLs/0f vf/]h ePsf lwtf]kqsf] nflu 5'} ahf/ Joj:yf ug{ ;lsg] k|fjwfgsf ;fy} To:tf] sf/f]af/sf] plrt lgodgsf] ;d]t Joj:yf u/]sf] 5 . *= ;+ul7t ;+:yfn] k|sflzt u/]sf] em"f jf unt ;"rgf jf hfgsf/L jf ljj/0fsf] cfwf/df s'g} nufgLstf{n] lwtf]kqdf nufgL u/]sf] sf/0fn]] xfgL gf]S;fgL Joxf]g{ k/]sf] v08df To:tf nufgLstf{nfO{ Ifltk"lt{sf] Joj:yf u/L Ifltk"lt{ sf]ifsf] :yfkgf ug]{ ;d]t Joj:yf ul/Psf] 5 . (= P]gdf lwtf]kq ahf/sf] sfd, st{Jo / clwsf/nfO{ cGt/f{li6o:t/sf] agfOPsf] 5 / lwtf]kq sf/fjf/nfO{ lgoldt, ;'Jojl:yt tyf kf/bzL{ agfO{ lwtf]kq ahf/nfO{ :j cg'zfl;t ;+:yfsf] ?kdf ljsl;t ug{ cfjZos k|fjwfgx? /flvPsf] 5 . !)= lwtf]kq x:tfGt/0f;DaGwL sfd sf/jfxLnfO{ l56f] 5l/tf] tyf k|efjsf/L agfpg s]Gb|Lo lwtf]kq lgIf]k k2tL (Central Depository System) :yfkgf ug{ ;lsg] cfjZos Joj:yf /x]sf] 5 . !!= lwtf]kq ahf/nfO{ lwtf]kq ;"rLs/0f u/]sf ;+ul7t ;+:yf / cfkm\gf ;b:o /x]sf lwtf]kq Joj;foLnfO{ cfjZostf cg';f/ lgb]{zg lbg ;Sg] clwsf/ k|bfg ul/Psf] 5 . !@= lwtf]kq Joj;fonfO{ :ki6?kdf jlu{s/0f ug'{sf] ;fy} Pp6} 5fgfd'lg ;a} k|sf/sf lwtf]kq Joj;fo;DaGwL ;]jfx? pknAw u/fpg ;lsg] yk Joj:yf u/]sf] 5 .
103
!#= P]gn] a}+s tyf ljQLo ;+:yfn] lwtf]kq Joj;fo ug{rfx]df ;xfos sDkgL v8f u/L To:tf] ;xfos sDkgLdfkm{t dfq ug'{kg]{ Joj:yf u/]sf] 5 . t/ o:tf] Joj:yf tTsfn nfu" gu/L To:tf] ;xfos sDkgL vf]Ng cfjZos ;do k|bfg u/L >L % sf] ;/sf/n] lglZrt ;do tf]ls nfu" ug{ ;Sg] Joj:yf ul/Psf] 5 . !$= P]gdf lwtf]kq Joj;foLsf] tkm{af6 sfd ug]{ k|ltlglwsf] lgo'lQm;DaGwL Joj:yf ul/Psf] 5, h;n] ubf{ sf/f]af/df ;+nUg JolQm klxrfg ug{ / lhDd]jf/ agfpg ;lhnf] x'g]5 . ;fy} Pgn] To:tf] JolQmsf] of]Uotf lgwf{/0f ug{'sf ;fy} k|ltlglw lwtf]kq af]8{df btf{ x'g' kg]{ / cg'dltkq lng'kg]{ ;d]t Joj:yf u/]sf] 5 . o;n] sf/f]af/nfO{ a9L :jR5 / e/kbf]{ agfpg ljz]if d2t ub{5 . o; cltl/Qm k|ltlglw / k|ltlglw lgo'Qm ug]{ lwtf]kq Joj;foLsf] lhDd]jf/L ;d]t :ki6 ul/Psf] 5 . !%= ;fd"lxs nufgL, Psf+s tyf o:t} cGo art of]hgf (Collective Investment Schemes) ;~rfng ubf{ To:tf of]hgf lwtf]kq af]8{df btf{ u/L cg'dltkq lng' kg]{ Joj:yf ul/Psf] 5 . o:tf art of]hgfx?sf] lgoldt ?kdf cg'udg tyf ;'kl/j]If0f ug]{ / sf/f]af/nfO{ lgoldt u/fpg] clwsf/ lwtf]kq af]8{nfO{ lbOPsf] 5 . ;fy} art of]hgfsf] ;DklQsf] ;+/If0f;DaGwdf cfjZos Joj:yf u/L ;~rfng sfo{ljlw lgodf/f tf]lsg] Joj:yf ul/Psf] 5 . !^= s'g} sf/0fn] sDkgLsf] ;fwf/0f ;ef x'g g;s]df jf lgoldt n]vf k/LIf0fsf] lgldQ sDkgLsf] n]vf k/LIfs lgo'Qm x'g g;s]df To:tf] sDkgLsf] ;fwf/0f ;ef af]nfpg], cfly{s ljj/0fx? z]o/jfnfx?sf] hfgsf/Lsf] nflu k|sfzg u/fpg] clwsf/ lwtf]kq af]8{nfO{ lbO{Psf] 5 . o; cltl/Qm pQm P]gdf lwtf]kq af]8{n] nufgLstf{sf] lxt ;+/If0fnfO{ Wofgdf /fvL To:tf sDkgLsf] lx;fj lstfj ljz]if1f/f hf+r u/fpg ;Sg] ;d]t Joj:yf /x]sf] 5 . !&= P]gdf lwtf]kqsf] leqL sf/f]af/, d"Nodf cg'lrt ptf/ r9fj u/fpg], ahf/df cg'lrt k|efj kfg]{, em"7f jf e|fds ;"rgf jf hfgsf/L k|jfx ug]{, hfn;femk"0f{ sf/f]af/ ug]{, ljj/0f jf sfuhftx? n'sfpg] h:tf sfo{x?nfO{ ck/fw dfgL To:tf sfo{ ug]{ u/fpg]nfO{ ;hfosf] Joj:yf ul/Psf] 5 . !*= P]gdf lwtf]kq sf/f]af/;DaGwL ck/fwsf] cg';Gwfg ug]{, d'2f rnfpg] tyf ck/fwsf] lsl;d / uDeL/tfsf] cfwf/df ;hfo ug]{ ;d]t Joj:yf /x]sf] 5 . o;sf ;fy} hl/jfgf lwtf]kq af]8{n] g} klg ug{ ;Sg] / s}b s} ;hfo ug'{kg]{ ePdf cbfnt hfg'kg]{ Joj:yf ul/Psf] 5 .
104
!(= Ps sDkgLn] csf]{ sDkgL lnbf jf s'g} sDkgLsf] Joj:yfkg sAhf ug]{ p2]Zon] Ps} k6s jf k6sk6s u/L z]o/ v/Lb u/]df To;nfO{ kf/bzL{ agfpg] tyf lgoldt agfpg];DaGwdf klg P]gdf cfjZos Joj:yf ul/Psf] 5 . o;/L k|:tfljt P]g lwtf]kq sf/f]af/nfO{ lgoldt, Jojl:yt, kf/bzL{ / k|lt:kwL{ agfO{ nufgLstf{sf] lxt ;+/If0f ug{'sf] ;fy} :jR5 sf/f]af/f/f lwtf]kq ahf/sf] ljZj;gLotfdf clej[l4 u/L ;du| k'hL ahf/sf] ljsf;df 6]jf k'ofpg w]/} xb;Dd ;xfosl;4 x'g]df lljwf b]lvb}g . xfn >L % sf] ;/sf/n] Pl;ofnL ljsf; a}s+sf] cfly{s ;xof]udf ;du| k'FhLahf/sf] ljsf;sf nflu lwtf]kq ahf/, lwtf]kq af]8{ / sDkgL /lhi6f/sf] sfof{nonfO{ ;d]t ;zQmLs/0f u/L k|ljwL ljsf; ;d]t u/fpg ljb]zL ljz]if1sf] 6f]nL sfo{/t u/fO/x]sf] k|l/k|]Iodf k|:t't P]g kfl/t eO o; cGtu{tsf lgod, ljlgod / lgb]{lzsfx? ;d]t aGg' cltg} h?/L 5 . ;fy} To:tf lgod, ljlgod / lgb]{lzsfx? agfpg] sfddf ljz]if1 6f]nLsf] ;xof]u a9L nfek|b x'g] s'/fdf klg b'O{ dt gxf]nf . ctM k|:tfljt P]g jt{dfg kl/k|]Iodf cWofb]zs} ?kdf eP klg oyfzSo rfF8f] cfpg' h?/L b]lvG5 .
***
lwtf]kqsf] ;fj{hlgs lgisfzgM ;d:of tyf ;dfwfgsf ljsNkx?

ljgob]j cfrfo{ k[i7e"ld s'g} klg ;+ul7t ;+:yfnfO{ cfjZos kg]{ k'FhLsf] dfu k"/f ug{ pknAw ljleGg dfWodx? dWo] lwtf]kqsf] ;fj{hlgs lgisfzg Ps k|d'v dfWodsf] ?kdf /x]sf] 5 . g]kfndf lj=;+= !(($ df la/f6gu/ h'6 ldN; ln= sf] z]o/ laqmL ePkZrft ;fj{hlgs lgisfzg ug]{ k|yfsf] z'?jft ePsf] xf] . tTkZrft lj=;+= @)## ;fndf ;]So'l/6L v/Lb laqmL s]Gb|sf] :yfkgf ePkl5 ;du|df lwtf]kq ahf/;DaGwL sfdsf/jfxLx? pQm s]Gb|af6 x'g yfNof] . lj=;+= @)%) ;fndf lwtf]kq ahf/nfO{ lgoldt / Jojl:yt ug{ lwtf]kq sf/f]af/ P]g, @)$) sf] klxnf] ;+zf]wgkZrft k;FhL ahf/sf] lgodg lgsfosf] ?kdf lwtf]kq af]8{sf] :yfkgf eof] . o;kZrft ;+ul7t If]qdf lwtf]kqsf] ;fj{hlgs lgisfzg u/L cfjZos k'FhL k|fKt ug]{ qmd a9\b} uPsf] kfO{G5 . cfly{s jif{ @)%).%! b]lv cfly{s jif{ @)^).^! sf] kmfu'g d;fGt;Dddf ljleGg If]qsf ;+ul7t ;+:yfx?n] ?= ^ ca{ $# s/f]8 #( nfv %) xhf/ d"No a/fa/sf] lwt]fkqsf] ;fj{hlgs lgisfzgsf nflu lwtf]kq af]8{af6 cg'dlt lnPsf 5g\ . o;/L cg'dlt lng] ;d"xsf ;+ul7t ;+:yfx?df jfl0fHo a}+s -!%_, ljsf; a}+s -#_, ljQ sDkgL -%^_, aLdf sDkgL -!!_, xf]6n -#_, pTkfbg tyf k|zf]wg sDkgL -@)_, Jofkf/ sDkgL -!_ tyf cGo -$_ ;d"x /x]sf 5g\ . o;} k[i7e"ldnfO{ b[li6ut u/L ;fj{hlgs lgisfzgdf hfg;Sg] sfg'gL k"jf{wf/x?, ;fj{hlgs lgisfzg ug]{ k|s[of tyf xfn b]lvPsf ;d:of / To;sf] ;dfwfgsf j}slNks pkfox?;DaGwdf 5f]6s/Ldf ljj]rgf ug{ vf]lhPsf] 5. sfg'gL k"jf{wf/x? ;fj{hlgs lgisfzg dfkm{t ;j{;fwf/0fnfO{ lwtf]kq laqmL u/L k'FhL p7fpg rfxg] ;+ul7t ;+:yfx?n] ljleGg P]g, lgod, lgb]{lzsfdf ePsf] Joj:yfx? k"/f ug'{kb{5 . k|d'v ?kdf ;fj{hlgs lgisfzgdf ljj/0fkq tof/ u/L :jLs[lt k|fKt ug]{ Joj:yfsf nflu sDkgL P]g, @)%#, ;fj{hlgs lgisfzg ug{ k|:tfj u/]sf] lwtf]kqx?sf] btf{ u/L cg'dlt k|fKt ug]{ Joj:yfsf nflu lwtf]kq sf/f]af/ P]g, @)$) / lwtf]kq sf/f]af/ lgodfjnL, @)%) /x]sf 5g\ . o;}u/L lwtf]kq ;fj{hlgs lgisfzg k|s[ofnfO{ cem ;/n, Jojl:yt / kf/bzL{
clws[t, lwtf]kq af]8{, g]kfn
106
u/fpg lwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%&, z]o/ afF8kmfF6 ;DaGwL lgb]{lzsf, @)%! tyf lwtf]kq btf{ tyf lgisfzg k|aGw lgb]{lzsf, @)%$ x? /x]sf 5g\ eg] ;fj{hlgs?kdf lgisfzg ePsf lwtf]kqx?sf] v/LblaqmLsf nflu lwtf]kq ahf/df ;"rLs/0f;DaGwdf lwtf]kq ;"rLs/0f ljlgodfjnL, @)%# /x]sf] 5 . ;fj{hlgs lgisfzg k|s[of ;fj{hlgs lgisfzgdf hfg] ;+ul7t ;+:yfn] sDkgL P]gsf] Joj:yfcg'?k lwtf]kq af]8{df btf{ ePsf lwtf]kq Joj;foLsf] ?kdf sfo{ ug]{ lgisfzg tyf laqmL k|aGws jf cGo ljz]if1af6 ljj/0fkq tof/ ug'{kb{5 . o;/L tof/ ul/Psf] ljj/0fkqdf k|d'v?kdf sDkgLsf] gfd, 7]ufgf, p2]Zo, z]o/ k'FhL, ljQLo l:ylt ;Defljt hf]lvd tyf cGo ljj/0f tyf hfgsf/Lx? pNn]v ug'{kb{5 . pQm ljj/0fkq >L % sf] ;/sf/, pBf]u, jfl0fHo tyf cfk"lt{ dGqfno, sDkgL /lhi6f/sf] sfof{noaf6 :jLs[t u/fpg' kb{5 . o;}u/L lwtf]kq sf/f]af/ P]g, @)$) cg';f/ lwtf]kq ;fj{hlgs lgisfzg ug'{cl3 To:tf] lwtf]kq lwtf]kq af]8{df btf{ u/L lgisfzg cg'dlt lng'kb{5 . o;sf nflu :jLs[t ljj/0fkqsf ;fy} lwtf]kq sf/f]af/ lgodfjnL, @)%) tyf lwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%& n] Joj:yf u/] adf]lhdsf] cGo ljj/0fx? ;+nUg u/L af]8{df lgj]bg lbg'kb{5 . o;/L lgj]bg k|fKt ePkZrft af]8{n] pQm lgj]bg;fy ;+nUg ljj/0fkq tyf cGo sfuhftx? k|rlnt P]g, lgod, lgb]{lzsf adf]lhd eP gePsf] hfFra'em u/L gk'u ePsf ljj/0fx? dfu ug]{ tyf c:ki6 ljj/0fx?nfO{ :ki6 u/fpg] h:tf sfo{x? ;DkGg u/L lwtf]kq af]8{n] lwtf]kq lgisfzg cg'dlt k|bfg ub{5 . o; qmddf af]8{n] ;+ul7t ;+:yfn] tof/ u/]sf] ljj/0fkqdf pNn]v ul/Psf] ljj/0f tyf hfgsf/Lsf] ;Totfk|lt ;DalGwt sDkgL, o;sf ;+rfns / ;DalGwt ljz]if1sf] hjfkmb]xLtf /x]sf] / pQm sDkgLsf] Joj:yfksLo, k|fljlws / cfly{s kIfsf] ljZn]if0ffTds cWoogaf6 lgisfzg tyf laqmL k|aGws ;Gt'i6 x'g'sf] ;fy} ljj/0fkqdf plNnlvt cfly{s ljj/0fx? / cGo hfgsf/L tYout, k"0f{ / ;xL b]lvPsf]n] nufgLstf{x?nfO{ nufgL;DaGwL lg0f{o lng d2t x'g] egL lgisfzg tyf laqmL k|aGwsn] af]8{;dIf tf]lsPadf]lhd k]z u/]sf] Due Diligence Certificate nfO{ ;d]t d'Vo cfwf/sf] ?kdf lng] u/]sf] 5 . lwtf]kq lgisfzg cg'dlt k|fKt ug]{ qmddf ljBdfg P]g, lgodn] tf]s]cg';f/ lgisfzgstf{ sDkgL tyf lgisfzg tyf laqmL k|aGwsx?sf] lhDd]jf/L;DaGwdf ;j{;fwf/0f
107
nufgLstf{x?nfO{ a'em\g ;/n x'g] tyf nufgL;DaGwL hf]lvdaf/] nufgLstf{x? ;hu x'g d2t k'Ug] s'/fnfO{ b[li6ut u/L ljj/0fkqsf] aflx/L k[i7df /xg] u/L ljj/0fkqdf pNn]lvt ljj/0f tyf hfgsf/Lx?sf] ;Totfk|lt lgisfzgstf{ sDkgL tyf To;sf ;~rfns / ;DalGwt ljz]if1x?sf] hjfkmb]xLtf /x]sf] . lgisfzgstf{ sDkgLsf] Joj:yfksLo, k|fljlws / cfly{s kIfsf] ljZn]if0ffTds cWoogaf6 lgisfzg tyf laqmL k|aGws ;Gt'i6 x'g'sf] ;fy} ljj/0fkqdf n]lvPsf cfly{s ljj/0fx? / cGo hfgsf/L tYout, k"0f{ / ;xL b]lvPsf]n] nufgLstf{x?nfO{ nufgL;DaGwL lg0f{o lng d2t x'g] egL lgisfzg tyf laqmL k|aGwsn] lwtf]kq af]8{df kfngfkq -Due Diligence Certificate_ k|:t't u/]sf] 5 . of] lwtf]kq ldlt ======== df lwtf]kq af]8{df btf{ e} lgisfzg cg'dlt k|fKt ePsf] 5 . lwtf]kqsf] nufgLdf x'g ;Sg] hf]lvd af/] nufgLstf{ :jo+n] ljrf/ ug'{kg]{5 eGg] hfgsf/L /fVg'kg]{ Joj:yf /x]sf] 5 . o;}u/L s'g} lglZrt d"Nodf ;fj{hlgs lgisfzg ePsf] z]o/ bf]>f] ahf/df ;"rLs/0f ePkl5 lgisfzg d"NoeGbf km/s d"Nodf sf/f]af/ x'g;Sg] / ;f] af/] nufgLstf{x?nfO{ ;hu u/fO{ nufgL ug'{k"j{ sDkgLn] ug]{ ePsf] sfddf lglxt ;Defljt cfly{s hf]lvdsf cltl/Qm lwtf]kqsf] d"No kl/jt{g;DaGwL hf]lvd af/] hfgsf/L lbg cfjZos x'g] x'gfn] ;DalGwt sDkgLsf] ljj/0fkqdf lwtf]kqsf] lgisfzg d"Non] ;"rLs/0fkZrft lwtf]kq ljlgdo ahf/df x'g] sf/f]af/ d"No ghgfpg] / lwtf]kqdf d"No kl/jt{gsf] hf]lvd /xg] s'/f pNn]v ul/Psf] x'g'kb{5 eGg] hfgsf/L /fVg'kg]{ Joj:yf ;d]t /x]sf] 5 . ;d:of tyf ;'wf/sf ljsNkx? ;+ul7t ;+:yfx?n] ;fj{hlgs?kdf lgisfzg ug{ k|:tfj u/]sf] lwtf]kqx?sf] btf{ tyf lgisfzg cg'dlt k|bfg ug]{ sfo{nfO{ cem ;/n, kf/bzL{ tyf Jojl:yt agfO{ ;+ul7t ;+:yfx?nfO{ k'FhL ahf/df k|j]z ug{ k|f]T;fxg ug{sf] nflu ljBdfg Joj:yfx?df b]lvPsf ;d:ofx?nfO{ ;dfwfg ug{ cfjZos b]lvPsf] 5 . o;} k[i7e"lddf k|d'v?kdf lwtf]kq lgisfzgsf] qmddf b]lvPsf ;d:of tyf ltgsf ;dfwfgsf nflu ckgfpg pko'Qm x'g;Sg] j}slNks pkfox? b]xfocg';f/ /x]sf 5g\ . != ljBdfg Joj:yf cg';f/ ;fj{hlgs lgisfzgsf] k|s[ofdf lwtf]kq af]8{ / sDkgL /lhi6f/sf] sfof{no u/L b'O{ j6f lgodg lgsfox?sf] k|ToIf ;+Ungtf /x]sf] x'Fbf ;fj{hlgs lgisfzg ug]{ ;dofjlw nfdf] x'g hfg] tyf lgodg lgsfosf] hjfkmb]xLtfdf lglZrttf gx'g] x'gfn] ;fj{hlgs lgisfzgdf hfg] k|s[of Pp6} lgodg lgsfoaf6 ;DkGg x'g;Sg] u/L P]g, lgoddf ;+zf]wg ug'{kg]{ cfjZostf b]lvPsf] 5 .
108
@= ;fj{hlgs lgisfzgdf hfg rfxg] ;+ul7t ;+:yfx?n] k"/f ug'{kg]{ cj:yf / zt{x? ;DaGwdf k'g/fjnf]sg u/L sDtLdf # jif{ k"j{ ;~rfng l:ylt -track record_ ePsf] / kl5Nnf] jif{ d'gfkmfdf ;~rfng eO pQm jif{sf] n]vfk/LIf0f ePsf] ljQLo ljj/0f k|sflzt u/]sf tyf lgisfzg ug]{ ;Dk"0f{ lwtf]kqx?sf] k|Tofe"lt -Underwriting_ u/]sf ;+ul7t ;+:yfx?n] dfq ;fj{hlgs lgisfzg ug{ kfpg] Joj:yf ug{ pko'Qm x'g] b]lvG5 . #= s'g} ;+ul7t ;+:yfx?n] ;fj{hlgs lgisfzg ubf{ lwtf]kqsf] lstfaL d"Nosf] cfwf/df lgisfzg d"No tf]Sg;Sg] Joj:yf ug{ pko'Qm x'g] k[i7e"lddf xfnsf] Joj:yfnfO{ k'g/fjnf]sg ug'{kg]{ b]lvPsf] 5 . $= ;+ul7t ;+:yfx?n] ljj/0fkqdfkm{t k]z u/]sf ljQLo ljj/0fx?nfO{ k'g/fjnf]sg ug{ ;/n xf];\ eGg] p2]Zon] pgLx?n] k]z ug]{ ljQLo ljj/0fx?df Ps?ktf Nofpg cfjZos b]lvPsf] 5 . %= k|rlnt P]g, lgodsf] Joj:yfcg'?k ;fj{hlgs lgisfzgdf k|ToIf?kdf ;+nUg lwtf]kq Joj;foLsf] ?kdf sfo{/t lgisfzg tyf laqmL k|aGwsx?sf] ;]jfnfO{ cem a9L k]zfut?kdf ljsl;t ug'{kg]{ b]lvG5 . ^= ljBdfg sDkgL P]gsf] Joj:yfcg'?k af]8{sf] afF8kmfF6 lgb]{lzsfdf ;s];Dd ;a} cfjb]sx?nfO{ z]o/ afF8kmfF6 ug]{ / olb cTolws?kdf z]o/ dfu ul/Psf] cj:yfdf sd z]o/ dfu ug]{ z]o/jfnfx?nfO{ a9L ef/ lbg] eGg] Joj:yfn] cfjb]sn] /fd|f] 7fg]sf] z]o/df cfj]bgsf nflu b/vf:t lbFbf ;fgf] ;d"xdf cgfjZos?kdf a9LeGbf a9L b/vf:t lbg] k|j[lQ /x]sf] b]lvG5 . o;n] ubf{ /fd|f nufgLstf{x? z]o/df nufgL ug{af6 al~rt x'g] / lgisfzgstf{ sDkgLnfO{ b/vf:t lng], k|zf]wg ug]{ / afF8kmfF6 ug]{ sfo{df a9L vr{ nfUg] b]lvPsf] x'Fbf xfnsf] Joj:yfnfO{ k'g/fjnf]sg u/L ;dfg'kflts afF8kmfF6 -Proportionate Allotment_ k|0ffnL jf cGo pko'Qm k|0ffnL cjnDag ug'{kg]{ b]lvG5 . &= s'g} klg ;+ul7t ;+:yfn] cfkm\gf] z]o/ k'FhL a9fpg xsk|b z]o/ hf/L u/L tf]lsPsf] Dofbleq cfjZos dfqfdf b/vf:t kg{ gcfO{ afFsL /xg uPsf] z]o/ laqmL ug]{ tyf lgisflzt z]o/sf] %) eGbf sddfq laqmL eO{ afF8kmfF6 x'g g;s]sf] cj:yf l;h{gf x'g;Sg] b]lvPsf] ;Gbe{df o;/L xsk|b z]o/ hf/L ubf{ afFsL /x]sf] z]o/x? laqmL ljt/0fsf nflu a9L dfu ug]{ ;d"x / sd dfu ug]{ ;d"xaLr afF8kmfF6 ug]{ k|s[of ckgfpg] jf ;fljssf z]o/wgLx?nfO{ cfkm"n] kfPsf] xsdWo] ;Dk"0f{ jf cf+lzs xs
109
lghn] cGo JolQmnfO{ x:tfGt/0f ug{;Sg] Joj:yfsf nflu cfjZos gLlt agfpg'kg{] cfjZostf b]lvPsf] 5 . *= ;DalGwt ;+ul7t ;+:yfn] lgisfzg tyf laqmL k|aGwsdfkm{t lgisfzg;DaGwL cfx\jfgkq tyf cGo ;"rgfx? ;fj{hlgs ug]{ qmddf a9fO{r9fO{ ug{;Sg] ;DefjgfnfO{ b[li6ut u/L o;;DaGwdf cfjZos gLlt cjnDag ug'{kg]{ b]lvG5 . (= lwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%& sf] bkmf @# df cfkm"n] lgisfzg u/]sf] lwtf]kqsf] ;DaGwdf jf cfkm"n] u/]sf] lgisfzg;DaGwL s'g} sfo{;DaGwdf u'gf;f] ;'Gg] tyf ;dfwfgsf nflu cfkm\gf] ;+:yfdf 5'} OsfO{ v8f u/L jf :ki6?kdf tf]sL oyfl;3| ;dfwfg ug]{ Joj:yf ldnfpg'kg]{5 eGg] Joj:yf /x]sf]df ;f]xLcg'?ksf] Joxf]/f v'nfO{ To:tf u'gf;f ;'Gg / ;dfwfg ug]{ clwsf/L jf zfvfsf] gfd ;d]t tf]sL ljj/0fkqdf ;dfj]z u/fpg] Joj:yf ug{ pko'Qm b]lvG5 . !)= z]o/df dfq nufgL ug]{ p2]Zo lnO :yflkt OGe]i6d]G6 jf cGo sDkgLx?n] ;+:yfks z]o/ v/Lb u/L sDkgLsf] tkm{af6 ;d]t ;~rfns ;ldltdf k|ltlglwTj ug{;Sg] / ltgLx?df sf] sf] ;~rfns 5g\ eGg] hfgsf/L -Disclosure_ gx'g] x'Fbf pgLx?sf] hjfkmb]xLtf -Accountability_ :ki6 gx'g] tyf Insider Trading x'g;Sg] ;Defjgf /xg uO{ ahf/df gsf/fTds c;/ kg{;S5 . To;}n] ;+:yfkssf] ?kdf /x]sf] ;+ul7t ;+:yfx?n] cfkm\gf] ;+:yfsf] ;+:yfksx?sf] JolQmut ?kdf klxrfg u/fpg pgLx?sf] kl/ro;DaGwL hfgsf/L -Disclosure_ ug{ nufpg] Joj:yf ug{ pko'Qm x'g] b]lvG5 . !!= xsk|b z]o/ hf/L ubf{ k|sflzt ul/g] ljj/0fkqdf ;+ul7t ;+:yfsf] sDtLdf ! dlxgfsf] lwtf]kq ahf/df ePsf] sf/f]af/sf] l:ylt emNsg] lsl;dsf] ljj/0fx? ;d]t ljj/0fkqdf ;dfj]z u/fpg pko'Qm x'g] b]lvG5 . !@= lwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%& sf] bkmf !( df v'nf?kdf jf kl/kq ljlwf/f lgisflzt lwtf]kqx? ;fj{hlgs?kdf sf/f]af/ x'g;Sg] u/fpg lgisflzt lwtf]kqsf] afF8kmfF6 ePsf] $% lbgleq lwtf]kq ljlgdo ahf/df ;"rLs/0f u/fO{ v/Lb laqmLsf] Joj:yf ldnfpg'kg]{5 / o;/L tf]lsPsf] cjlwleq ;"rLs/0f x'g g;s]sf] cj:yfdf ;f] sf] dgfl;a dflkmssf] sf/0f vf]nL af]8{df lgj]bg lbPdf af]8{n] ;"rLs/0f x'g] Dofb a9Ldf tL; lbg yk ug{ ;Sg]5 eGg] Joj:yf /x]sf]df ;fj{hlgs lgisfzgdf uPsf k|foM h;f] ;+ul7t ;+:yfx?n] pQm Joj:yfcg'?k Dofb yk ug]{ u/]sf] b]lvG5 . o;/L Dofb ykL afF8kmfF6 ePsf] &% lbgleq klg ;"rLs/0f gePsf] cj:yf cfO/x]sf] ;Gbe{df ;fj{hlgs lgisfzgsf] cj:yfdf g} lwtf]kqx? ;"rLs/0fsf]
110
nflu lwtf]kq ljlgdo ahf/af6 :jLs[ltkq k|fKt ug]{ Joj:yf ug]{ jf af]8{sf] lgb]{lzsf] Joj:yfcg';f/ lwtf]kq afF8kmfF6 ePsf] $% lbgleq ;"rLs/0f ul/;Sg'kg]{ Joj:yfnfO{ pQm lbgleq lwtf]kq ljlgdo ahf/df lgj]bg lbO;s]sf] x'g'kg]{ eGg] Joj:yf ug{ pko'Qm x'g] b]lvG5 . !#= ;fj{hlgs lgisfzgdf cgfjZos?kdf b/vf:t xfNg] k|j[lQnfO{ /f]Sg];DaGwdf ;DalGwt nufgLstf{sf] gful/stfsf] gDa/ b/vf:t kmf/fddf clgjfo{?kn] /fVg nufpg] / kl5 k|df0fkq jf lkmtf{ e'QmfgL lnFbf clgjfo{?kdf gful/stfsf] k|df0fkqsf] k|dfl0ft k|ltlnlk /fVg] Joj:yf ug]{ tyf gfjfnssf] xsdf b/vf:t lbFbfsf] avtdf g} >L % sf] ;/sf/, kl~hsflwsf/Lsf] sfof{noaf6 hf/L ul/Psf] hGdbtf{ k|df0fkqsf] k|dfl0ft k|ltlnkL /fVg nufpg] Joj:yf clgjfo{?kdf ug{ nufpg] Joj:yf ug'k { g]{ b]lvG5 . !$= ;fj{hlgs lgisfzgdf hfgrfxg] ;+ul7t ;+:yfx?n] k|rlnt P]g, lgod, lgb]{lzsfx?sf] k"0f{ kfngf u/]sf] kfngfkq -Compliance Report_ k]z ug'{kg]{ / s'g} s}kmLot -Remarks_ eP ;f] ;d]t k]z ug'{kg]{ Joj:yf ug{ pko'Qm x'g] b]lvG5 . pk/f]Qmfg';f/sf ;d:of tyf ;'wf/sf ljsNkx? dWo] P]glgoddf ;fd~h:otf Nofpg ul/g'kg{] ;DaGwdf gofF lwtf]kq P]g tyf sDkgL P]gsf] d:of}bf ljwfog k|s[ofdf /x]sf] 5 . To:t} xsk|b z]o/sf nflu xs x:tfGt/0f ug{ ;Sg], ;fj{hlgs lgisfzg / afF8kmfF6 sfo{nfO{ Jojl:yt ug{] h:tf sfo{x?sf nflu af]8{sf] lgb{]lzsfx?df k'g/fjnf]sg e}/x]sf] 5 . ;fy} gofF P]gx?sf] sfof{GjogkZrft pk/f]Qmfg';f/sf ;d:ofx?sf] ;dfwfg x'ghfg] ck]Iff ug{ ;lsG5 .
***
lwtf]kq af]8{sf] ;+:yfut Ifdtf clej[l4M Ps cfjZostf

d~h' pkfWofo
kl/ro
lwtf]kqsf nufgLstf{x?sf] xslxt ;+/If0f u/L lwtf]kq ahf/sf] ljsf; ug{sf] nflu lwtf]kq sf/f]af/nfO{ lgoldt / Jojl:yt ug]{ p2]Zon] lwtf]kq sf/f]af/ P]g, @)$) df ePsf] k|yd ;+zf]wgcGtu{t lj=;+= @)%) h]i7 @% ut] lwtf]kq ahf/sf] k|d'v lgodg lgsfosf] ?kdf lwtf]kq af]8{sf] :yfkgf ePsf] xf] . lwtf]kq sf/f]af/ P]g, @)$) tyf lwtf]kq sf/f]af/ lgodfjnL, @)%) n] u/]sf] Joj:yfcg';f/ lwtf]kq af]8{sf k|d'v sfo{x?df lwtf]kq ahf/;DaGwdf cfjZos gLlt lgodx? th{'df ug{], lwtf]kqx? btf{ u/L lgisfzg cg'dlt k|bfg ug{], lwtf]kq ljlgdo ahf/ ;~rfng ug{rfxg] / lwtf]kq Joj;fo ug{rfxg] ;+ul7t ;+:yfx?nfO{ cg'dlt k|bfg u/L ltgLx?sf] ;'kl/j]If0f tyf cg'udg ;d]t ug{] / lwtf]kq ahf/;DaGwdf cWoog, cg';Gwfg tyf r]tgf clej[l4 ug{] h:tf sfo{x? /x]sf 5g\ . pk/f]Qmfg';f/sf sfd sf/jfxLx? ;Dkfbg ug{sf nflu kof{Kt sfg'gL clwsf/ pko'Qm ;+u7g 9fFrf, bIf hgzlQm, ;an cfly{s cj:yf cflbsf] cfjZostf /xg] tyf ;f] df k'g/fjnf]sg u/L af]8{sf] ;+:yfut Ifdtf clej[l4nfO{ ljz]if hf]8 lbg'kg]{ cfjZostf /x]sf] 5 .
;+:yfut Ifdtf clej[l4 ;DaGwdf af]8{sf k|of;x? ;+u7g Joj:yfdf ;'wf/

k|f/Dedf lwtf]kq sf/f]af/ P]g, @)$) n] k|d'v?kdf lwtf]kqsf] k|fylds lgisfzg sfo{nfO{ lgoldt / Jojl:yt ug{] tyf :6s PS;r]Ghsf] sfdsf/jfxLsf] /]vb]v ug{] lhDd]jf/L k|bfg u/]cg'?k af]8{n] k|fylds lgisfzg tyf ahf/ k|zf;g dxfzfvf / :6s PS;r]Gh tyf ahf/ cg'udg dxfzfvf gfds b'Oj6f dxfzfvfx?sf] Joj:yf u/L sfo{ ub{} cfPsf] lyof] . To; ;dodf af]8{df ^ hgf sd{rf/Lx?sf] Joj:yf lyof] . lwtf]kq sf/f]af/ P]g, @)$) df ePsf] bf]>f] ;+zf]wgn] lwtf]kq af]8{nfO{ lwtf]kq Joj;foLx?sf] btf{ u/L lgodg ug{] / ;"rLs[t ;+ul7t ;+:yfx?sf] ;"rgf k|jfxsf] :t/ clej[l4 ug{] h:tf yk lhDd]jf/Lx? k|bfg u/]cg';f/ pQm lhDd]jf/Lx?nfO{ k|efjsf/L?kdf
112
lgjf{x ug{] p2]Zon] af]8{n] cfly{s jif{ @)%%.%^ df Ps gofF ;+u7g 9fFrfsf] ljsf; u/L sfo{ ug{ ;'? uof] . pQm ;+u7g 9fFrfcg'?k af]8{df % j6f dxfzfvfx? /x]sf lyP eg] To; ;dodf af]8{sf] sd{rf/Lx?sf] ;+Vofdf j[l4 eO{ !( k'u]sf] lyof] . af]8{df a9\b} uPsf] sfo{ef/nfO{ c? k|efjsf/L?kn] ;Dkfbg ug{sf nflu cfly{s jif{ @)%^.%& df af]8{sf] ;+u7gdf ahf/ lgodg ljefu tyf cg'udg tyf ljsf; ljefu sf] Joj:yf u/L k|To]s ljefucGtu{t ## j6f dxfzfvfx?sf] Joj:yf ul/of] . cfly{s jif{ @)%*.%( sf] cGt;Dddf af]8{df hDdf @% hgf sd{rf/Lx? /x]sf lyP . o:t} cfly{s jif{ @)%(.^) df af]8{sf] ;+u7g 9fFrfdf k'g/fjnf]sg u/L tNnf] txsf] ;d]t lhDd]jf/Lx? :ki6 ug]{ u/L gofF ;+u7g 9fFrfsf] ljsf; ul/of] . o; ;+u7g 9fFrfadf]lhd af]8{df @ j6f ljefu, ^ j6f dxfzfvf tyf !) j6f zfvfx?sf] Joj:yf /x]sf] 5 . xfn af]8{df @^ hgf sd{rf/Lx? sfo{/t /x]sf 5g\ .
;Lk tyf bIftf clej[l4 sd{rf/Lx?sf] ;Lk tyf bIftf ljsf; u/L af]8{sf] sfo{ut Ifdtf clej[l4 ub}{ hfg] sfo{nfO{ af]8{n] ljz]if hf]8 lbFb} cfPsf] 5 . o;} qmddf af]8{n] ;+:yfut ;'zf;g, k|ltj]bg n]vg, ;"rgf k|ljlw, k'FhL ahf/ ljsf;, Joj:yfkg ljsf;, lgodg, cg'udg, sfg'g k|jnLs/0f / ;+:yfut ;'zf;g h:tf ljifox?df cfof]lht tflnd tyf ;]ldgf/x?df sd{rf/Lx?nfO{ ;xefuL u/fpFb} cfPsf] 5 . lgodg Joj:yfdf ;'wf/ lwtf]kq sf/f]af/ P]g, @)$) df ePsf] klxnf] ;+zf]wgn] lwtf]kq af]8{nfO{ lwtf]kq ahf/sf] k|d'v lgodg lgsfosf] ?kdf :yfkgf u/] tfklg ;"rLs[t ;+ul7t ;+:yf / lwtf]kq Joj;foLx?;Fu af]8{sf] k|ToIf ;DaGw :yfkgf ePsf] lyPg . o;af6 af]8{nfO{ To:tf ;+:yfx?sf] lgodgsf ;DaGwdf ePsf sl7gfOx?nfO{ b[li6ut ub{} af]8{n] ;+zf]wgsf nflu k|:tfj u/]cg';f/ cfly{s jif{ @)%#.%$ df pQm P]gdf bf]>f] ;+zf]wg eof] . pQm ;+zf]wgn] lwtf]kq sf/f]af/df ;+nUg JolQmx?n] sDkgLdf kl/0ft u/L lwtf]kq af]8{df lwtf]kq Joj;foLsf]?kdf btf{ x'g'kg{] / af]8{sf] lgodg bfo/fdf cfpg'kg{] Joj:yf ug{'sf ;fy} ;"rLs[t ;+ul7t ;+:yfx?n] ljleGg cfjlws tyf jflif{s ljj/0fx? ;d]t af]8{;dIf k]z ug{'kg{] Joj:yf uof] . lwtf]kq ahf/sf] k|d'v lgodgstf{sf] ?kdf lwtf]kq ahf/sf] k|efjsf/L?kdf lgodg ug{sf] nflu ahf/sf] ;'kl/j]If0f, cg'udg, cg';Gwfg, tyf sf/jfxL h:tf kIfx?df kof{Kt / :ki6 sfg'gL clwsf/x? x'g cltg} cfjZos x'G5 . o;} k[i7e"lddf
113
af]8{n] lwtf]kq ahf/sf] ;~rfng / lgodgsf qmddf k|fKt cg'ej / lwtf]kq;DaGwL P]g lgoddf ePsf sdL sdhf]/Lx?nfO{ x6fO{ clwsf/;DkGg lgodg lgsfosf] ljsf; ug{'sf ;fy} ljBdfg lgodg k|0ffnLnfO{ cGt/f{li6o:t/sf] agfpg / :jlgodg lgsfox?sf] ;+:yfkgfnfO{ k|f]T;flxt ug{ tyf ahf/df cfjZos cGo k"jf{wf/x?sf] ljsf; ug{sf nflu cfjZos sfg'gL Joj:yfx? ug{] p2]Zon] gofF lwtf]kq;DaGwL P]gsf] d:of}bf tof/ u/L >L % sf] ;/sf/;dIf k]z u/]sf] 5 . xfn pQm d:of}bf ljwfog k|lqmofdf /x]sf] 5 .
;d:of tyf r'gf}ltx?

xfn lwtf]kq af]8{n] pknAw ;Lldt ;fwg;|f]tsf] pkof]u u/L cfkm\gf] lhDd]jf/Lx? axg ub}{ cfO/x]sf] 5 . af]8{sf] :yfkgfsfnsf] t'ngfdf xfn lwtf]kq lgisfzg ug]{ ;+ul7t ;+:yfx?sf] ;+Vofdf j[l4 x'gsf] ;fy} lwtf]kq ahf/sf] cfsf/df ;d]t j[l4 x'Fb} uPsf] k[i7e"lddf lwtf]kq ahf/sf] k|efjsf/L?kdf lgodg ug{sf] nflu af]8{sf] ;+:yfsf] ;+:yfut Ifdtfdf clej[l4 ug{ c? a9L hf]8 lbg' cTofjZos ePsf] 5 . af]8{sf] ;+:yfut Ifdtf clej[l4 ;DaGwdf b]xfocg';f/sf ;d:of tyf r'gf}ltx? b]lvPsf 5g\ . lwtf]kq af]8{df ljj/0fkq tyf ;"lrs[t ;+ul7t ;+:yfx?sf] cfly{s ljj/0fx?sf] k'g/fjnf]sg ug]{ n]vfljb\ tyf lwtf]kq;DaGwL P]glgodx?sf] k|efjsf/L?kdf kfngf u/fpgsf nflu cfjZos sfg'gljb\ nufot af]8{sf] lhDd]jf/LnfO{ k|efjsf/L 9+un] ;Dkfbg ug{sf nflu kof{Kt hgzlQmsf] cefj /x]sf] 5 . o;sf ;fy} k|:tfljt lwtf]kq;DaGwL P]g nfu" ePkl5 lwtf]kq af]8{sf] lgodg bfo/f c? a9L km/flsnf] x'g hfg] / ;f]xLcg';f/ a9\g hfg] af]8{sf] sfdsf/jfxLx?nfO{ k|efjsf/L ?kdf ;Dkfbg ug'{kg]{ k[i7e"ldnfO{ ;d]t ljrf/ u/L yk hgzlQmsf] Joj:yf ug'{kg]{ cfjZostf /x]sf] 5. af]8{sf] d'Vo cfly{s ;|f]tsf] ?kdf >L % sf] ;/sf/sf] ah]6 cg'bfg g} /x]sf] 5 . af]8{sf] cGo cfly{s ;|f]tx?df lgisfzgstf{ ;+ul7t ;+:yfsf] lwtf]kq btf{ z'Ns, lwtf]kq ahf/ ;~rfng cg'dlt / gjLs/0f tyf lwtf]kq Joj;foLsf] btf{ tyf gjLs/0faf6 k|fKt x'g] /sd /x]sf] 5 . af]8{sf] ;+:yfut Ifdtf clej[l4 / ahf/sf] lgodgsf] nflu xfnsf] cfly{s ;|f]t ckof{Kt /x]sf] 5 . ;fy} xfn tf]lsPsf] lwtf]kq btf{ z'Ns Go"g x'g'sf ;fy} lgoldt ?kdf k|fKt x'g g;Sg] tyf lwtf]kq Aoj;foL btf{ / gjLs/0f z'Ns ;d]t Go"g ePsf]n] af]8{sf] cfly{s ;|f]tdf k|efj kl//x]sf] x'gfn] o;df k'g/fjnf]sg x'g' cfjZos b]lvPsf] 5 .
114
af]8{sf sd{rf/Lx?nfO{ k|bfg ul/+b} cfPsf] ;'ljwf cGo ;dfg k|s[ltsf lgodg lgsfox?sf] t'ngfdf Hofb} Go"g /xL ljBdfg hgzlQmnfO{ nfdf] ;do;Dd af]8{df /fVg (Retain) tyf gofF bIf hgzlQmsf] lgo'lQm u/L af]8{sf] lgodg Ifdtf a9fpgdf sl7gfO{ x'g;Sg] b]lvG5 . pk/f]Qm k[i7e"lddf af]8{sf] jt{dfg ;'ljwf;DaGwL Aoj:yfx?sf] k'g/fjnf]sg ug{' h?/L b]lvPsf] 5 . lwtf]kq ahf/ ljsf;sf nflu cGt/f{li6o?kdf :yflkt d"NodfGotf tyf cEof;x?sf ;DaGwdf hfgsf/L k|fKt u/L nfeflGjt x'g lwtf]kqsf] lgodg lgsfox?sf] cGt/f{li6o ;+:yf (International Organization of Securities Commission, IOSCO) sf] ;b:otf lng cfjZos x'G5 . t/ af]8{n] cfly{s ;|f]tsf] cefjsf sf/0f pQm ;+:yfsf] ;b:otf k|fKt ug{ ;s]sf] 5}g . lwtf]kq af]8{sf] sfo{x?nfO{ ;'rf??kdf ;~rfng ug{sf nflu cfjZos ef}lts k"jf{wf/ h:t} cfkm\g} sfof{no ejg tyf cGo ef}lts k"jf{wf/x? kof{Kt Joj:yf x'g h?/L e};s]sf] 5 . lwtf]kq ahf/ cToGt} ultzLn tyf ;+j]bgzLn k|s[ltsf] x'g]x'F+bf o;df sfo{/t hgzlQmdf /x]sf] 1fg tyf of]UotfnfO{ kl/is[t ug'{kg]{ tyf gofFgofF ;Lk / bIftfsf] ljsf; ug'{kg]{ x'G5 . o;sf nflu sd{rf/Lx?nfO{ tflnd, cjnf]sg e|d0f tyf pRr lzIff k|flKtsf] kof{Kt cj;/x? pknAw u/fOg'kg]{ ePtfklg af]8{sf] cfly{s ;|f]tsf] cefjsf sf/0f af]8{n] sd{rf/Lx?nfO{ pNn]lvt cj;/x? kof{Kt ?kdf pknAw u/fpg ;s]sf] 5}g . ;Gbe{ ;fdu|Lx? != lwtf]kq af]8{sf ljleGg cfly{s jif{sf aflif{s k|ltj]bgx? . @= lwtf]kq af]8{sf] bz jif{ -@)%)@)^)_ . #= lwtf]kq sf/f]af/ P]g, @)$) tyf lwtf]kq sf/f]af/ lgodfjnL, @)%) .
***
z]o/ nufgLstf{x?sf] clwsf/M Ps ljj]rgf

d'lQm gfy >]i7 kl/ro lwtf]kq sf/f]af/ P]g, @)$) / ;f] cGt{ut ag]sf lgod, ljlgod, lgb]{lzsfsf ;fy} sDkgL P]g, @)%# n] z]o/sf nufgLstf{x?sf] clwsf/;DaGwdf ljleGg Joj:yfx? u/]sf] 5 . o;sf ;fy} a}+s tyf ljQLo ;+:yf / aLdf ;DaGwL sfg"gx?df ;d]t nufgLstf{x?sf] clwsf/;DaGwdf ljleGg Joj:yfx? ul/Psf 5g\ . pQm P]g lgodx?df ePsf Joj:yfx? sfof{Gjog u/fO nufgLstf{x?sf] xsclwsf/sf] ;+/If0f ug{ lwtf]kq af]8{, sDkgL /lhi6f/sf] sfof{no, g]kfn lwtf]kq ljlgdo ahf/ ln=, g]kfn /fi6 a}+s, aLdf ;ldlt cflb h:tf lgsfox? sfo{/t /x]sf 5g\ . pk/f]Qmfg';f/sf P]glgodx?n] nufgLstf{x?sf] xsclwsf/ ;DaGwdf u/]sf k|d'v Joj:yfx? b]xfocg';f/ /x]sf 5g\ . -s_ ;';"lrt eO{ nufgL ug{ kfpg] clwsf/
nufgLstf{x?n] cfkm"n] nufgL ug{rfx]sf] z]o/ tyf ;DalGwt sDkgLsf ;DaGwdf ;Dk"0f{ hfgsf/Lx? k|fKt ug{ kfpg'kb{5 . o;}cg'?k lwtf]kq;DaGwL P]glgodx?n] nufgLstf{x?nfO{ ;';"lrt eO{ nufgL ug{ ;3fp k'ofpg] p2]Zon] ljleGg Joj:yfx? u/]sf] 5 . ;fj{hlgs lgisfzg ePsf z]o/x? v/Lb ug'{cl3 nufgLstf{x?n] z]o/ lgisfzg ug]{ ;+ul7t ;+:yf;DaGwL dxTjk"0f{ hfgsf/Lx? ;dfj]z ePsf] ljj/0fkq k|fKt ug{ tyf lgisfzg cg'dlt;DaGwL sfuhftx? x]g{ o:tf] ljj/0f tyf sfuhftx? ;DalGwt lgisfzgstf{ sDkgL tyf lgisfzg tyf laqmL k|aGws dfkm{t pknJw x'g] Joj:yf ul/Psf] 5. o;}u/L nufgLstf{n] lwtf]kq ljlgdo ahf/ (Stock Exchange) df ;"lrs[t z]o/x? v/Lb ug'{cl3 ;DalGwt ;"lrs[t sDkgLsf] sfo{;Dkfbg, ljQLo l:ylt, z]o/sf] ahf/ d"No h:tf dxTjk"0f{ kIfx?af/] ;DalGwt sDkgL, lwtf]kq ljlgdo ahf/ tyf lwtf]kq bnfnx?dfkm{t hfgsf/L k|fKt ug{ ;Sb5g\ .
116
-v_
z]o/ :jfldTj k|fKt ug]{ clwsf/
s'g} klg ;+ul7t ;+:yfsf] z]o/ v/Lb u/]kl5 nufgLstf{n] pQm ;+ul7t ;+:yfsf] :jfldTj k|fKt ub{5g\ . o;/L k|fKt x'g] :jfldTj :j?k nufgLstf{n] tf]lsPadf]lhdsf] 9fFrfdf s'g} ;~rfns jf sDkgLsf] k|zf;sLo k|d'v jf sDkgL ;lrjdWo] s'g} b'O{ hgfsf] b:tvt / sDkgLsf] 5fk ePsf] z]o/ k|df0fkq k|fKt ug{ ;Sb5g\ . -u_ sDkgLsf] d'gfkmfdf ;l/s x'g] clwsf/
nufgLstf{n] cfkm"n] nufgL u/]s]f ;+:yfn] d'gfkmf cfh{g u/]df ;f] d'gfkmf afF8kmfF6 ubf{ ;dfg'kflts?kdf nufgLcg';f/sf] d'gfkmf k|fKt ug{ ;Sb5g\ . o:tf] d'gfkmf gub nfef+z jf af]gz z]o/sf] ?kdf k|fKt x'g ;Sb5 . ljBdfg P]g lgoddf nfef+z k|bfg ug]{ lg0f{o ePsf]df k}+tfln; lbgleq z]o/jfnfx?nfO{ nfef+z ljt/0f ul/;Sg' kg]{ / olb pQm ;doleq nfef+z ljt/0f ug{ g;s]df tf]lsPcg';f/sf] Aofh yk u/L nfef+z ljt/0f ug'{kg]{ Joj:yf /x]sf] 5 . -3_ ;fwf/0f ;efdf ;xefuL x'g] / dt hfx]/ ug]{ clwsf/
z]o/wgLn] ;DalGwt sDkgLsf] jflif{s ;fwf/0f ;efdf ;xefuL x'g] clwsf/ k|fKt ub{5g\ . jflif{s ;fwf/0f ;ef ug{sf nflu slDtdf PSsfO{; lbgcufj} / ljz]if ;fwf/0f ;ef ug{sf nflu sDtLdf kGw| lbgcufj} ;ef x'g] 7fpF, ldlt / 5nkmn ug]{ ljifo vf]nL z]o/jfnfx?nfO{ ;"rgf lbg'kg]{ / ;f] s'/fsf] ;"rgf /fli6o:t/sf] kqklqsfdf sDtLdf b'O{ k6s k|sflzt ug'{kg]{ Joj:yf /x]sf] 5 . sDkgLsf] jflif{s ;fwf/0f ;efdf 5nkmn ul/g] lnvt, k|:tfj / ljj/0fx? ;ef x'g'eGbf sDtLdf PSsfO; lbgcufj} sDkgLsf] /lhi68{ sfof{nodf tof/ u/L /fVg'kg]{ / s'g} z]o/jfnfn] lgj]bg lbO{ k|ltlnlk dfu u/]df lghnfO{ To;sf] Ps k|lt k|ltlnlk lbg'kg]{ Joj:yf /x]sf] 5 . jflif{s ;fwf/0f ;efdf 5nkmn ug'{kg]{ laifodf sDkgLsf] lx;fa lstfa, jf;nft, gfkmf gf]S;fgLsf] lx;fa, ;~rfns / n]vfk/LIfssf] k|ltj]bg, z]o/jfnfx?df afFl8g] d'gfkmf, ;~rfns / n]vfk/LIfssf] lgo'lQm / n]vfk/LIfssf] kfl/>lds cflb kb{5g\ . z]o/wgLx?nfO{ pQm ljj/0fx? ;d]t k|fKt ug]{ clwsf/ /xG5 . z]o/wgLn] ;fwf/0f ;efdf pkl:yt eP/ k|:tfljt laifodf 5nkmn ug{, sDkgLsf] af/]df cfkm\gf] lh1f;f /fVg, ;'emfj lbg, dt hfx]/ ug{ / ;f]s]f k|lts[of k|fKt ug{;Sg] clwsf/ k|fKt ub{5g\ . o;sf ;fy} hDdf dt ;+Vofsf] sDtLdf kFfr k|ltzt dtsf] k|ltlglwTj ug]{
117
z]o/jfnfn] rfx]df ;fwf/0f ;ef ;DaGwL ;"rgf hf/L x'g'eGbf cufj} ;~rfnsx?;dIf lgj]bg lbO{ s'g} ljifo jflif{s ;fwf/0f ;efdf 5nkmn / lg0f{osf nflu k]z ug{ nufpg ;Sb5g\ . -3_ sDkgL ;DaGwL ;"rgf tyf jflif{s k|ltj]bg k|fKt ug]{ clwsf/
lwtf]kq ;"rLs/0f u/fPsf ;+ul7t ;+:yfx?n] k|To]s jif{ jflif{s lx;fa aGb ePsf] ldltn] rf/ dlxgfleq ;f] jif{sf] jf;nft gfkmfgf]S;fgLsf] lx;fa tyf cGo cfly{s ljj/0f / jflif{s k|ltj]bg lwtf]kq af]8{ / lwtf]kq ljlgdo ahf/;dIf k]z ug'{ kg]{ Joj:yf /x]sf] 5 . o;}u/L lwtf]kqsf] ahf/ d"Nodf c;/ kg{;Sg] s'g}klg ;"rgf (Price sensitive information) ;d]t t'?Gt lwtf]kq ljlgdo ahf/df pknAw u/fpg'kg]{ Joj:yf /x]sf] 5 . o;/L k|fKt x'g] ljj/0fx? nufgLstf{x?sf] hfgsf/Lsf nflu pknAw x'g] Joj:yf /x]sf] 5 . -_ ;~rfnsx?sf] 5gf}6sf nflu dtbfg ug]{ clwsf/
;~rfnssf] lgjf{rg ug{sf] nflu dtbfg ubf{ ;DalGwt sDkgLsf] lgodfjnLdf cGoyf Joj:Yff ul/Psf]df afx]s k|To]s z]o/jfnfnfO{ lghn] lnPsf] z]o/ ;+Vofn] lgo'Qm ug'{kg]{ ;~rfnssf] ;+VofnfO{ u'0fg ubf{ x'g] ;+Vof a/fa/sf] dtsf] lx;fan] dtbfg ug]{ clwsf/ k|fKt x'G5 . To;/L dtbfg ug]{ z]o/jfnfn] cfk\mgf] ;a} dt Pp6} pDd]bjf/nfO{ jf PseGbf a9L pDd]bjf/nfO{ lghn] tf]s]adf]lhd ljefhg x'g] u/L dtbfg ug{;Sg] Joj:yf /x]sf] 5 . o;cg';f/ z]o/wgLx?n] ;~rfnssf] r'gfj ug{sf nflu z]o/ :jfldTjsf] cg'kft cg';f/sf] clwsf/ k|fKt u/]sf x'G5g\ . ;~rfnssf] r'gfj x'Fbf z]o/ ;d"x / k|s[ltcg';f/ 5'f5'} dtflwsf/sf] Joj:yf ul/Psf] klg x'g ;Sb5 . -r_ laz]if ;fwf/0f ;ef af]nfpg lgj]bg lbg ;Sg] clwsf/
sDkgLsf] r'Qmf k"FhLsf] sDtLdf bz k|ltzt z]o/ lng] z]o/jfnfx? jf z]o/jfnfx?sf] hDdf ;+Vofsf] sDtLdf kRrL; k|ltzt z]o/jfnfx?n] sf/0f vf]nL ljz]if ;fwf/0f ;ef af]nfpg ;DalGwt sDkgLsf] /lhi68{ sfof{nodf lgj]bg lbPdf ;~rfns ;ldltn] To:tf] ljz]if ;fwf/0f ;ef af]nfpg'kg]{ Joj:yf /x]sf] 5 . olb To:tf] lgj]bg k/]sf] ldltn] tL; lbgleq ;~rfns ;ldltn] ljz]if ;fwf/0f ;ef gaf]nfPdf ;DalGwt z]o/jfnfx?n] >L % sf] ;/sf/, sDkgL /lhi6f/sf] sfof{nodf ph'/L ug{;Sg] / pQm sfof{non] To:tf] ;ef af]nfO{ lbg ;Sg] Joj:yf /x]sf] 5 .
118
-5_
;~rfns ;ldltsf] ;b:odf pDd]bjf/L lbg;Sg] clwsf/
sDkgLsf] lgodfjnLdf tf]lsPadf]lhdsf] z]o/ u|x0f u/]sf] tyf P]g lgodcg';f/ cof]Uo gePsf] cj:yfdf z]o/wgLx?n] cfkm"n] z]o/ v/Lb u/]sf] sDkgLsf] ;~rfns x'gsf nflu pDd]bjf/L lbg ;Sb5g\ . -h_ z]o/ vl/bdf klxnf] xs k|fKt ug]{ clwsf/
sDkgLn] z]o/ kF"hL a9fpg k'gM ;fwf/0f z]o/ -xsk|b z]o/_ hf/L u/]sf] cj:yfdf ljBdfg z]o/wgLx?nfO{ cfkm"n] u|x0f u/]sf] z]o/sf] cg'kftdf z]o/ lsGg] klxnf] xs k|fKt x'G5 . -em_ z]o/wgLn] d'2f rnfpg ;Sg] clwsf/
sDkgLsf] s'g} xslxt k|rng u/fpgsf nflu sDkgLsf] ;f9] b'O{ k|ltzt jf ;f]eGbf a9L z]o/ lnPsf] s'g} z]o/jfnf PSn}n] jf kfFr k|ltzt z]o/ k'Ug] PseGbf a9L z]o/jfnfx? ldnL ;~rfns jf sd{rf/L jf sDkgL lgoGq0f ug]{ JolQm jf cGo s'g} JolQmlj?4 lhNnf cbfntdf d'2f rnfpg;Sg] Joj:yf /x]sf] 5 . -`_ alxu{dg ;DaGwL clwsf/
sDkgL P]g, sDkgLsf] k|aGwkq / lgodfjnLsf clwgdf /xL sDkgLsf] z]o/ rn ;DklQ;/x laqmL ug{;lsg] Joj:yf /x]sf] 5 . o;af6 z]o/wgLn] cfkm"n] nufgL u/]s]f nufgLaf6 alxu{dg ug]{ clwsf/ k|fKt ub{5 . nufgLaf6 alxu{dgsf nflu z]o/wgLn] cfkm\gf] z]o/ lwtf]kq ljlgdo ahf/dfkm{t a]rlavg jf xs x:tfGt/0f ug{ ;Sb5g\ . t/ ;+:yfks z]o/sf] ?kdf /x]sf nufgLstf{x?n] eg] o:tf] clwsf/ k|of]u ug{ lglZrt cjlw k"/f u/]s]f x'g'kg]{ k|fjwfg ;DalGwt P]glgodx?n] u/]sf] 5 . -em_ u'gf;f ;dfwfg;DaGwL Joj:yf
nufgLstf{n] cfkm"n] z]o/df u/]sf] nufgL;DaGwdf s'g} u'gf;f eP ;DalGwt sDkgL, lwtf]kq Joj;foL, lwtf]kq ljlgdo ahf/ jf lwtf]kq af]8{df lgj]bg lbO{ ;dfwfg ug{ ;Sb5g\ . -`_ cGo clwsf/x? pk/f]Qm clwsf/x?sf cnfjf z]o/wgLx?n] cGo clwsf/x? klg k|fKt u/]sf x'G5g\ . oL clwsf/x?df sDkgLsf] z]o/jfnf btf{ lstfasf] lg/LIf0f ug{ kfpg] clwsf/, btf{ lstfasf]
119
k|ltlnkL lngkfpg] clwsf/, sDkgL vf/]hL ePdf bfdf;fxL cg';f/sf] lx:;f kfpg] clwsf/ cflb /x]sf x'G5g\ . pk;+xf/ z]o/df nufgL ug{rfxg] nufgLstf{x?n] z]o/df nufgL ubf{ ;f]rljrf/ u/]/ dfq nufgL ug'{kg]{ cfjZostf Psftkm{ 5 eg] csf]{tkm{ nufgL ;DaGwL cfk\mgf] clwsf/ k|lt ;r]t x'g' klg plQs} h?/L 5 . z]o/df nufgL ug]{ sltko nufgLstf{x?n] lwtf]kq ahf/df nufgL ug'{nfO{ h'jf;Fu t'ngf ug]{ u/]sf] obfsbf ;'lgg] ul/Psf] 5 . To;} u/L sltko nufgLstf{x? ahf/ kf/bzL{ gePsf] tyf lwtf]kq Joj;foLaf6 7lug' k/]s]f, ;DalGwt sDkgLx?n] z]o/wgLx?nfO{ e|ddf kfg]{ u/]sf], sDkgLsf ;~rfnsx? unt s[ofsnfkdf ;+nUg x'g] u/]sf] u'gf;f] ub{5g\ . nufgL;DaGwdf o:tf u'gf;f]x? kfNg'eGbf cfk\mgf] clwsf/sf] k|of]u u/]df o;n] ;d:ofsf] lgsf; lbgsf nflu w]/} xb;Dddf ;xof]u k'Ug] s'/fdf s'g} ;Gb]x 5}g . nufgLstf{x?n] cfk\mgf clwsf/x?sf] af/]df hfgsf/L /fVg] / To;sf] k|of]u ug]{ xf] eg] nufgL;DaGwL w]/} ;d:ofx? ;lhn} ;dfwfg x'g ;Sb5 . To;}n] olb tkfO{ klg z]o/wgL x'g'x'G5 jf nufgL ug]{ ;f]rdf x'g'x'G5 eg] cfkm\gf] clwsf/ af/]df ;hu x'g'xf];\ . tkfO{+sf] ;hstfn] tkfO{+nfO{ dfq geO{ ;Dk"0f{ lwtf]kq ahf/nfO{ g} nfe k'ofO/x]sf] x'G5 .
***
;fj{hlgs ;+:yfg lghLs/0f / lwtf]kq ahf/

-k'ik a?jfn != k[i7e"ldM ljZjdf bf];|f] ljZj o'4sf] ;dflKt;Fu} o'4df ;+nUg /fi6x?df cfjZos b]lvPsf j:t'x?sf] pTkfbg, /f]huf/Lsf] cj;/ l;h{gf tyf /fh:j j[l4 u/L /fi6sf] b|'Qf]t/ ljsf; ug{] p2]Zon] ;fj{hlgs ;+:yfgx?sf] :yfkgf ePsf] kfOG5 . To;a]nf pBf]u Joj;fosf] :yfkgf tyf ;~rfng /fHo :jo+af6 x'g] / pTkfbg tyf ljt/0f h:tf sfo{df cfkm\gf gful/sx?nfO{ ;xefuL u/fOg] wf/0ffaf6 k|]l/t eO ;+:yfgx? :yfkgf ePsf] kfOG5 . o;} cg'?k g]kfndf klg ;fj{hlgs ;+:yfgx?sf] :yfkgf x'g yfNof] . t/ ;fj{hlgs ;+:yfgx?df k|lt:kwf{Tds Ifdtfsf] cefj, nufgLaf6 36\bf] k|ltkmn, a9\bf] /fhg}lts x:tIf]k cflb h:tf sf/0fx?n] ubf{ clwsf+z ;fj{hlgs ;+:yfgx? :yfkgfsfnsf s]xL jif{kl5b]lvg} qmdzM c;kmn aGb} uP . Psflt/ o;/L c;kmn aGb} uPsf ;+:yfgx?df /f]huf/ s6f}tLaf6 pTkGg x'g] ;d:ofnfO{ lgd{"n kfg{ ;+:yfg ;~rfng ug{'kg{] jfWotf / ;+:yfgx? ;~rfngsf nflu /fi6nfO{ jif{]gL ylkb} uPsf] cfly{s ef/ h:tf sf/0f ;+:yfg ;~rfngsf nflu j}slNks pkfox?sf] vf]hL ug{'kg{] cfjZostf b]vfkg{ yfNof] eg] csf{]lt/ ;/sf/L :jfldTjdf /x]sf ;+:yfgx?sf] :jfldTj lghL If]qnfO{ x:tfGt/0f ug{] / lwtf]kq ahf/ ;+oGqsf] k|of]u ug{] cEof; ;d]t a9\b} uof] . kmn:j?k ljZjdf clwsf+z ;fj{hlgs ;+:yfg lghLs/0f k|s[ofsf] yfngL / ;+:yfgsf] :jfldTjdf ;j{;fwf/0f nufgLstf{ ;xefuL x'g] cj;/ l;h{gf ePsf] kfOG5 . @= g]kfndf lghLs/0fsf] Oltxf;M g]kfndf ;fj{hlgs ;+:yfgx?nfO{ lghLs/0f ug{] ;f]rsf] ljsf; tTsfnLg k~rfotL Joj:yfd} eP tfklg k|efjsf/L?kdf o;sf] sfof{Gjog eg] d'n'sdf k|hftGqsf] k'gk|f{lKtkl5 ljz]if u/L lghLs/0f ;ldltsf] u7g / lghLs/0f ;]n (privatization cell) sf ?kdf lghLs/0f OsfOsf] u7g u/L lqmofzLn u/fOg'sf ;fy} lghLs/0f P]g, @)%) sfof{Gjogdf cfPkl5 ePsf] xf] .
sf=d'= clws[t, lwtf]kq af]8{, g]kfn
121
d'n'sdf 5}7f}+ k~rjifL{o of]hgf -)#&-)$@_ cjlwdf ;+:yfg lghLs/0f;DaGwL k|of;x? ePsf] kfOG5 . pQm cjlwdf d'gfkmfljxLg ;+:yfgx?nfO{ laqmL ug{] nIo /flvPsf] ePklg Tolt pknAwLd"ns x'g;s]sf] b]lvb}g . To;a]nf r08]Zj/L 6]S:6fon pBf]u / g]kfn lrp/L l3p KnfG6 laqmL ul/Psf] lyof] eg] g]zgn /fO; sDkgL nufotsf s]xL sDkgLx?nfO{ lj36g ul/Psf] lyof] . lj=;++= @)$@ df tTsfnLg ;/sf/f/f Ps jif{leq !@ j6f ;fj{hlgs ;+:yfnfO{ lghLs/0f ug{] dxTjsf+IfL of]hgf cl3 ;fl/of] . t/ pQm of]hgf k"0f{?kdf sfof{Gjog x'g eg] ;s]g . To;a]nf /fli6o jfl0fHo a}+s, /fli6o aLdf ;+:yfg / g]kfn cf}Bf]lus ljsf; lgud u/L # j6f ;++:yfsf] z]o/ laqmL cfx\jfg ul/Psf] ePtf klg To;k|lt ;j{;fwf/0fsf] pT;fx Hofb} g} sd b]lvPsf] lyof] . lj=;+= @)$^ df lghLs/0f sfo{qmdsf] k|efjsf/L sfof{Gjogsf nflu lghLs/0f OsfO u7g ul/of] . ;fy} lj=;+= @)$& df ;fj{hlgs ;+:yfg lghLs/0f;DaGwL gLlt, 9fFrfx? (Modalities) / ;+:yfgsf] k|zf;sLo ;+oGq (administrative mechanism) ;DaGwdf Ps gLltkq (policy paper) hf/L eof] .
lghLs/0f 9frf ! z]o/ laqmL u/]/ @ ;xsf/Ls/0f u/]/ # ;DklQ a]rlavg u/]/ $ ;DklQ ef8fdf lbP/ % Joj:yfkgdf lghLIf]qnfO{ ;xeflu u/fP/ ^ lghLs/0f ;ldltsf] l;kmfl/zdf >L % sf] ;/sf/n] pko'Qm b]v]sf] cGo s'g} dfWod ckgfP/ .
h;cGtu{t klxnf] r/0fdf cfly{s jif{ @)$(.)%) df e[s'6L sfuh sf/vfgf, afF;af/L 5fnf h'Qf sf/vfgf / xl/l;l4 OF6f tyf 6fon sf/vfgfnfO{ lghLs/0f ul/Psf] xf] . To:t} bf];|f] r/0fcGtu{t cfly{s jif{ @)%).%! df g]kfn rnlrq ljsf; sDkgL, afnfh' sk8f pBf]u, g]kfn la6'ldg P08 Aof/]n pBf]u, g]kfn No'a cfon ln= / sfFrf] 5fnf ;+sng tyf lasf; s+= u/L % j6f ;+:yfgx? lghLs/0f ul/of] . xfn;Dd s'n @# j6f ;fj{hlgs ;+:yfgx?sf] lghLs/0f e};s]sf] 5 . h;dWo] # j6f sDkgL ;DklQ laqmL u/]/, !) j6f z]o/ laqmL u/]/, ! j6fsf] Joj:yfkg s/f/, $ j6fsf] sDkgL P]gcg';f/ vf/]hL, @ j6f sDkgLx? lghLs/0f P]gcg';f/ vf/]hL / # j6fsf] lj36g u/L lghLs/0f ul/Psf] 5 . lghLs[t ;fj{hlgs ;+:yfg;DaGwL ljj/0f tflnsf g+= ! df k|:t't ul/Psf] 5 .
122
tflnsf g+=! xfn;Dd lghLs[t ;fj{hlgs ;+:yf ;DaGwL ljj/0f

qm=;+= ! @ # $ % ^ & * ( !) !! !@ !# !$ !% !^ !& !* !( @) @! ;+:yfgsf] gfd laqmL d"No
-?=xhf/df_
lghLs/0f ldlt cS6f]a/ !((@ cS6f]a/ !((@ dfr{ !((@ gf]e]Da/ !((# l8;]Da/ !((# l8;]Da/ !((# hgj/L !(($ hgj/L !(($ !((# dfr{ !(($ dfr{ !((^ cui6 !((^ l8;]Da/ !((^ dfr{ !((& h"g @))) @))! @))@ @))@ @))@ @))@ hgj/L @))# @))# @))#
lghLs/0f tl/sf ;Dklt tyf Joj;fo laqmL ;Dklt tyf Joj;fo laqmL ;Dklt tyf Joj;fo laqmL z]o/ laqmL z]o/ laqmL z]o/ laqmL z]o/ laqmL z]o/ laqmL lj36g lj36g z]o/ laqmL z]o/ laqmL Joj:yfkg s/f/ z]o/ laqmL lnh tyf z]o/ laqmL vf/]hL vf/]hL vf/]hL vf/]hL lj36g z]o/ laqmL vf/]hL vf/]hL
e[s'6L sfuh sf/vfgf ln= @@(*)) xl/l;l4 OF6f tyf 6fon sf/vfgf ln= @!$*#) afF;jf/L 5fnf tyf h'Qf sf/vfgf ln= @(*%$ g]kfn rnlrq ljsf; sDkgL ln= ^$^^@ afnfh' sk8f pBf]u ln= !&&!^ sfFrf] 5fnf ;+sng tyf k|zf]wg s+= ln= #(() la6'ldg P08 Jof/]n pBf]u ln= !#!&@ g]kfn No'a cfon ln= #!)%& g]kfn h'6 ljsf; sDkgL ;'tL{ ljsf; sDkgL ln= g]kfn 9nf}6 sf/vfgf ln= !$$&# /3'klt h'6 ldN; ln= *@@)$ la/f6gu/ h'6 ldN; s+= ln= g]kfn a}+s ln=* !@%!$) g]kfn lrof ljsf; lgud @^&!)% s[lif cfof]hgf ;]jf s]Gb| ln= 3/]n' x:tsnf laqmL e08f/ ln= g]kfn sf]n ln= x]6f}8f sk8f pBf]u ln= g]kfn oftfoft ;+:yfg *&$@)) + o' P; a'6jn kfj/ sDkgL ln= 8n/ !) nfv @@ lj/uGh lrgL sf/vfgf ln= @# s[lif cf}hf/ sf/vfgf ln=
* >L % sf] ;/sf/sf] ax'dt z]o/sf] lx:;fnfO{ 36fP/ $! k|ltztdf NofOPsf] .
;|f]tM cfly{s ;e{]If0f, cfly{s jif{ @)%(.^), >L % sf] ;/sf/ cy{ dGqfno .
#=
lghLs[t ;+:yfgsf] k'hLahf/df k|j]z
cfjZos P]glgodsf] sdL tyf k'FhLahf/df k|j]zsf nflu ;do;fk]If ahf/ ;+oGqsf] cefj cflb h:tf sf/0fx?n] ubf{ ;fj{hlgs ;+:yfg lghLs/0f sfo{ yfngLsf] nfdf] ;do;Dd lghLs[t ;+:yfgx? k'FhL ahf/df k|j]z u/]gg\ .
123
lj=;+= @)$) df lwtf]kq sf/f]af/ P]g, @)$) nfu" eof] . h;cGtu{t lj=;+= @)$@ df g]kfn No'a cfon ln= n] tTsfnLg ;]So'l/6L vl/b laqmL s]Gb|dfkm{t cfkm\gf] ;]o/ ;j{;fwf/0fdf laqmL u/]sf] lyof] . tyflk lghLs[t sDkgLx?sf] Jojl:yt?kdf lwtf]kq ahf/df k|j]z / k'FhL kl/rfngdf lg/Gt/tf eg] lwtf]kq sf/f]af/ P]g, @)$) df k|yd ;+zf]wg eO lwtf]kq ahf/sf] ;+:yfut ljsf;sf] z'?jft;Fu} ePsf] xf] . cfly{s jif{ @)%).%! df xl/l;l4 OF6f tyf 6fon sf/vfgf ln= n] ?= % s/f]8 #@ nfv / g]kfn rnlrq ljsf; sDkgL ln= n] ?= @ s/f]8 !( nfv d"No a/fa/sf] ;fwf/0f z]o/ ;j{;fwf/0fdf laqmLsf nflu lwtf]kq af]8{df btf{ u/fO lgisfzg cg'dlt lnPsf lyP . To:t} cfly{s jif{ @)%!.%@ df afnfh' sk8f pBf]u / n]b/]h afF;af/L 6\ofg/L P08 z" km\ofS6Ln] ;j{;fwf/0fdf lgisfzgsf nflu lwtf]kq btf{ u/fO cg'dlt lnPsf lyP . xfn;Dd lghLs/0f ePsf s'n ;fj{hlgs ;+:yfx?dWo] ( j6f ;+:yfx?n] lwtf]kq ahf/dfkm{t s'n lgisflzt d"Nosf] (=&) k|ltzt cyf{t sl/a ?= %% s/f]8 @^ nfv #) xhf/ d"No a/fa/sf] k'FhL kl/rfngsf nflu lwtf]kq af]8{af6 cg'dlt k|fKt ul/;s]sf 5g\ . xfn;Dd ;fj{hlgs?kdf lwtf]kq lgisfzg ug{] lghLs[t sDkgLx?dWo] * j6f sDkgLx?n] lwtf]kq sf/f]af/sf nflu cfkm\gf lwtf]kqx? lwtf]kq ljlgdo ahf/df ;"rLs/0f u/fPsf 5g\ . ahf/df tL sDkgLx?sf] lwtf]kqsf] s'n r'Stf k'FhL sl/a ?= ! ca{ @$ s/f]8 ^$ nfv @! xhf/ /x]sf] 5 eg] ahf/ k'FhLs/0f sl/a ?= ! ca{ $$ s/f]8 !# nfv ^* xhf/ /x]sf] 5 . To:t} tL sDkgLx?sf] lwtf]kqsf] jflif{s sf/f]af/ (turnover) -cfly{s jif{ @)%@.%# b]lv cfly{s jif{ @)%(.^) cGt;Dd_ l:yltnfO{ x]bf{ s'n jflif{s sf/f]af/sf] ^=&( k|ltzt cyf{t ?= %$ s/f]8 # nfv &) xhf/ d"No a/fa/ /x]sf] 5 . lwtf]kq ahf/df ;"rLs[t /x]sf lghLs[t sDkgLx?sf] lwtf]kqsf] ahf/ k'FhLs/0f / r'Stf d"No;DaGwL ljj/0f tflnsf g+= @ df k|:t't ul/Psf] 5 .
lghLs/0f ePsf ;"rLs[t sDkgLx?sf] r'Stf d"No tyf ahf/ k'hLs/0f l:ylt
ljj/0f lghLs/0f ePsf ;"rLs[t s'n ;"rLs[t sDkgL sDkgL -?=bznfvdf_ s'n ;"rLs[t sDkgLdf lghLs[t sDkgLsf] lx:;f -%_
r'Stf d"No !@$^=$) ahf/ k'FhLs/0f !$$!=#$
(^*%=)$ #$&)#=*&
!@=*& $=!%
124
tflnsf g+= @ lwtf]kq ahf/df k|j]z u/]sf lglhs[t ;+:yf;DaGwL ljj/0f
;fj{hlgs lgisfzg ug{] lghLs[t ;fj{hlgs ;+:yfx?
lgisfzg lgisflzt cg'dlt k|fKt /sd -?= bznfv_ ldlt

&=$) %#=@) !%=)) &=%) @!=() !)%=)) !))=^* @$!=(% %%@=^#
;"rLs/0f ldlt
)%^.!.@& )%!.!.@@ )%$.!@.!( gu/fPsf] )%#.#.#! )%$.%.!* )$%.#.# )$@.^.& )$#.*.@(
;"lrs[t lwtf]kq ;+Vof

@!)^*) !*^%)))) %))))) $$^^@# #%))))) @)#(#^ !!$)&)$) #*,)@,*$^ ^*&%) #*&*(*&%
-?= bznfvdf_ -?= bznfvdf_
s'n r'Stf d"No

@!=)^ !*^=%) %)=)) $$=^^ #%)=)) @)=#( !*@=%! #*)=@* !!=)) !@$^=$)
ahf/ k'hLs/0f
@!=)^ @&=(& #!=%) @)=)( @!)=)) *!=%& !*@=%! *%%=^$ !!=)) !$$!=#$
g]kfn la6'ldg P08 Aof/]n )%$.%.! pBf]u ln=* xl/l;l4 OF6f tyf 6fon )%).^.!@ sf/vfgf ln=* n]b/]h afF;af/L 6\ofg/L P08 )%!.!!.#) z" sf/vfgf ln=* )%!.(.( afnfh' sk8f pBf]u ln=* )%!.@.@@ g]kfn rnlrq ljsf; s+=* e[s'6L kNk P08 k]k/ g]kfn )%@.*.!( ln=* )^).!).@& a'6an kfj/ sDkgL ln=* g]kfn No'a cfon ln= /3'klt h'6 ldN; )%$.*.!@ g]kfn a}+s ln= la/f6gu/ h'6 ldN; ln= hDdfM
xsk|b z]o/ lgisfzg .
* lwtf]kq af]8{df lwtf]kq btf{ u/fO lgisfzg cg'dlt k|fKt u/]sf sDkgLx? .
$= k'hL ahf/df k|j]z u/]sf lghLs[t ;+:yfgsf] sfo{;Dkfbg l:ylt ;fj{hlgs ;+:yfg lghLs/0f ug{'sf] p2]Zo ;f] ;+:yfgsf] sfo{ ;Dkfbg l:yltdf ;'wf/ NofO k|ult tyf pGgltdf clej[l4 Nofpg' klg xf] . s'g} klg lghLs[t sDkgLsf] sfo{;Dkfbg :t/n] pQm sDkgLdf nufgLsf nflu lghL If]qdf pT;fx k}bf u/fpg] / ;j{;fwf/0f nufgLstf{nfO{ ;d]t tL sDkgLsf lwtf]kqx?df nufgL ug{ cfslif{t u/fpg] x'Fbf lghLs[t sDkgLx?sf] sfo{;Dkfbg :t/ /fd|f] x'g' Hofb} g} dxTjk"0f{ x'G5 . t/ xfn;Dd lghLs/0f ul/Psf ;fj{hlgs ;+:yfgx?sf] sfo{;Dkfbg l:yltnfO cWoog ug{] xf] eg] clwsf+z lghLs[t ;+:yfgsf] sfo{;Dkfbg ;Gtf]ifhgs / ;sf/fTds b]lvb}g . cfly{s jif{ @)%*.%( sf] cjlwnfO{ dfq cwf/ dfg]/ x]g{] xf] eg] klg o; cjlwdf lwtf]kq ahf/df k|j]z u/]sf s'n lghLs[t sDkgLx?dWo] g]kfn No'j cfon ln=, g]kfn la6'ldg P08 Aof/]n pBf]u ln= / /3'klt h'6 ldN; ln= sf] ;~rfng glthf ;sf/fTds b]lvPsf] 5 eg] afFsL sDkgLx?sf] glthf gsf/fTds /x]sf] kfOG5 . lwtf]kq ahf/df k|j]z u/]sf lghLs[t sDkgLx?sf] k|ult ljj/0f b]xfosf] tflnsf g+= # df k|:t't ul/Psf] 5 .
125
tflnsf g+= # lwtf]kq ahf/df k|j]z u/]sf lghLs[t sDkgLsf] gfkmf gf]S;fg l:ylt ;+:yf >L g]kfn a}+s ln= >L e[s'6L kNk P08 k]k/ ln= lghLs/0fcl3 lghLs/0fkl5
-?=bznfvdf_ cf=j=@)%*.%( df -#)&!=#)_ -!!)=@$_
$=#) %=** !=^% -@)=@*_ xl/l;l4 OF6f 6fon sf/vfgf ln= n]b/]h afF;jf/L 6\ofg/L z' km\ofS6L ln= )=$* )=!# g]kfn rnlrq ljsf; sDkgL -*=^&_ )=@% afnfh" sk8f pBf]u -%=%^_ -)=@_ g]kfn la6'ldg P08 Aof/]n pBf]u ln= -$=^#_ %=#* g]kfn No'j cfon ln= )=^) !&=!$ >L /3'klt h'6 ldN; !!# -#=!*_ lghLs/0fkl5 zJbn] lghLs/0f ePsf] kl5Nnf] jif{nfO{ ;+s]t ub{5 . ;|f]tM Business age vol. 2 No 3 February, 2000 -lghLs/0f OsfO, cy{ dGqfno_
)=($ ^=@@ %=#$
cfly{s jif{ @)%*.%( df g]kfn la6'ldg P08 Aof/]n pBf]u ln=n] cfkm\gf] pTkfbg tyf ljt/0f b'j}df cf}ift j[l4 u/]sf] sf/0f cl3Nnf jif{x?df gf]S;fgdf ;~rfng x'Fb} cfPsf] o; pBf]un] pQm cfly{s jif{df sl/a ?= ( nfv $) xhf/ d'gfkmf cfh{g ug{ ;kmn b]lvPsf] 5 . pQm cfly{s jif{df >L /3'klt h'6 ldN; ln= n] sl/a ?= %# nfv $) xhf/ v'b d'gfkmf u/]sf] 5 eg] g]kfn No'j cfon ln= n] sl/a ?= ^@ nfv d'gfkmf u/L cfkm\gf nufgLstf{x?nfO{ r'Stf k'FhLsf] !% k|ltzt gub nfef+; ljt/0f ug{ ;d]t ;kmn ePsf] b]lvG5 . t/ lghLs/0f x'g'cl3 @^^% d]l6s 6g sfuh pTkfbg u/L sl/a ?= $# nfv d'gfkmf cfh{g u/]sf] / lghLs/0fkZrft klg pTkfbg tyf ljt/0f nufot sfo{;Dkfbg l:yltdf ;'wf/ NofO{ d'gfkmf cfh{g ug{ ;kmn /x]sf] >L e[s'6L kNk P08 k]k/ ln= eg] ljut s]xL jif{b]lv eg] lg/Gt/ 3f6fdf ;~rfng x'Fb} cfPsf] 5 . cf= j= @)%*.%( sf] jf;nft x]g{] xf] eg] pQm cfly{s jif{df dfq ;f] sDkgL sl/a ?= !! s/f]8 3f6fdf /x]sf] b]lvG5 . To:t} g]kfn a}+s lnld6]8 klg lg/Gt/ 3f6fdf ;~rflnt 5 . pQm cfly{s jif{ df o; a}+s ?=# ca{ &! s/f]8 3f6fdf /x]sf] k|jflxt ljj/0fx?n] b]vfpF5g\ . xfn o; a}+ssf] sfo{;Dkfbg tyf Joj;flos bIftfdf j[l4 Nofpg a}+ssf] Joj:yfkg ljb]zL lj1nfO{ s/f/df lbOPsf] 5 . lghLs/0fk"j{ ;~rfngdf /x]sf] n]b/]h afF;af/L 6\ofg/L P08 z" km\ofS6L lnld6]8 / lghLs/0fkl5sf s]xL jif{;Dd ;~rfngdf /x]sf] afnfh' sk8f pBf]u lnld6]8sf] pTkfbg xfn nueu aGb cj:yfdf /x]sf] 5 .
126
%= P]glgod kfngf l:ylt lwtf]kq ahf/df k|j]z u/]sf lghLs[t sDkgLx?dWo] w]/}h;f]df lwtf]kqsf] ;"rLs/0f u/fpg], jflif{s ;fwf/0f ;ef ug{] tyf cfly{s tyf ljQLo ljj/0fx? k|jfx ug{] h:tf k|rlnt P]glgoddf pNn]lvt Joj:yfx?sf] kfngf;DaGwdf pbfl;gtf /x]sf] kfOPsf] 5 . lwtf]kq ;fj{hlgs lgisfzg u/]kl5 lgisflzt lwtf]kq afF8kmfF6 ePsf] $% lbgleq pQm lwtf]kq sf/f]af/sf nflu lwtf]kq ahf/ (Stock Exchange) df ;"rLs/0f ug'{kg{] Joj:yf lwtf]kq btf{ tyf lgisfzg cg'dlt lgb{]lzsf, @)%& n] u/]sf] 5 . t/ n]b/]h afF;af/L 6\ofg/L P08 z" km\ofS6L lnld6]8 nufotsf s]xL sDkgLx?n] tf]lsPsf] cjlweGbf w]/} kl5dfq lgisflzt lwtf]kqx? ;"rLs/0f u/fPsf 5g\ eg] cfly{s jif{ @)%!.%@ =df ;fj{hlgs lgisfzg u/]sf] afnfh' sk8f pBf]u ln=n] xfn;Dd klg lwtf]kqx? ;"rLs/0f u/fPsf] 5}g . To:t} sDkgLsf] ;fwf/0f ;ef ;DkGg ug{] / cfkm\gf cfly{s tyf ljQLo ljj/0fx? k|jfx ug{] h:tf k|rlnt P]glgoddf tf]lsPsf Joj:yfx?sf] ;d]t pT;fxhgs?kdf kfngf ePsf] kfOb}g . cfly{s jif{ @)%(.^) sf] cjlwnfO{ dfq x]g{] xf] eg] klg lwtf]kq ;"rLs/0f u/fPsf * j6f lghLs[t sDkgLx?dWo] g]kfn a}+s ln=, >L e[s'6L kNk P08 k]k/ ln=, n]b/]h afF;jf/L 6\ofg/L P08 z" km\ofS6L ln=, xl/l;l4 O{6f tyf 6fon sf/vfgf ln= / g]kfn rnlrq ljsf; sDkgLn] lgodfg';f/ ;DkGg ug{'kg{] jflif{s ;fwf/0f ;ef u/]sf 5}gg\ . g]kfn la6'ldg P08 Aof/]n pBf]u ln=, >L /3'klt h'6 ldN; ln= / g]kfn No'a cfon ln= nufotsf sDkgLx?n] tf]lsPsf] ;dofjlweGbf kl5 dfq s]xL cl3Nnf cfly{s jif{x?sf] ;fwf/0f ;ef u/]sf 5g\ . o; k|sf/ lghLs[t sDkgLx?df b]lvPsf] lau|bf] sfo{;Dkfbg l:ylt tyf tL sDkgLx?n] P]glgod kfngf;DaGwdf b]vfPsf] pbfl;gtf h:tf s'/fx?n] Psflt/ ;fj{hlgs ;+:yfg lghLs/0f ug{] ;/sf/L gLlt g} unt xf] sL eGg] ;f]r ljsl;t x'g d2t k'ofpFb5 eg] csf{]tkm{ lghLs[t sDkgLsf] lwtf]kqdf nufgL]sf nflu OR5's nufgLstf{x?nfO{ To:tf sDkgLx?df nufgL;DaGwdf ljsif{0f k}bf u/fO ;du| k'FhL ahf/df g} gsf/fTds c;/ kfg{;Sb5 .
127
^= ;d:of tyf r'gf}ltx? ;fj{hlgs ;+:yfgsf] lghLs/0f ;DaGwdf b]lvPsf k|d'v ;d:of tyf r'gf}ltx? b]xfo adf]lhd /x]sf 5g\ . w]/}h;f] ;fj{hlgs ;+:yfgx? lghLs/0f ul/Fbfsf] p2]Zo k|flKtdf c;kmn b]lvPsf 5g\ / clwsf+z ;+:yfgsf] ;~rfng glthf ;Gtf]ifhgs b]lvPsf] 5}g . lghLs/0f ubf{ ePsf ;Demf}tf tyf zt{x?sf] kfngf;DaGwdf lghLs[t sDkgLx? pbfl;g /x]sf] kfO{G5 . o:tf ;Demf}tf tyf zt{x?sf] kfngfsf ;fy} lghLs[t sDkgLx?sf] ;~rfng l:ylt, ;~rfng glthf, ltgsf] pTkfbg tyf ljt/0fsf] l:ylt cflb ;DaGwdf ;d]t lgoldt cg'udg x'g ;s]sf] b]lv+b}g . clwsf+z lghLs[t sDkgLx?df k|rlnt P]glgodsf] kfngfsf] l:ylt sdhf]/ /x]sf] b]lvG5 . lghLs[t sDkgLsf] lwtf]kq laqmL ubf{ lwtf]kq ahf/sf] k|of]u ug]{ ;DaGwdf :ki6 Joj:yfx? eO{;s]sf] 5}g . &= pk;+xf/ ;fj{hlgs ;+:yfgsf] lghLs/0f d'n'ssf] ;jn cy{tGq lgdf{0fsf] nflu pkof]uLl;4 b]lvb} cfPsf] Pp6f cEof; ePtf klg of] Ps r'gf}ltk"0f{ sfo{ xf] . lghLs/0fsf] ;lx cEof; / sfof{Gjogaf6 lghL If]qnfO{ pBf]u Joj;fodf nufgL ug{ dxTjk"0f{ cj;/ k|fKt x'g'sf] ;fy} ;du|df b]zsf] /fh:j tyf /f]huf/L clej[l4 ug{ dxTjk"0f{ of]ubfg k'Ub5 . lghLs/0f ul/g] ;fj{hlgs ;+:yfgx?df a9LeGbf a9L hg;xeflutf a9fO{ art kl/rfng ug{ lwtf]kq ahf/ Ps pko'Qm dfWod ePsf] k[i7e"ldnfO{ dgg\ u/L lghLs/0f;DaGwL sfdsf/jfxLnfO{ lwtf]kq ahf/dfkm{t cufl8 a9fpg ;lsPdf b]zsf] cfly{s ljsf;df yk ultzLntf k|bfg ug{ d2t k'Ub5 .
=================================
;Gbe{ ;fdfu|Lx?M != lghLs/0f k|s[ofM s]xL ;jfn hjfkmx? ->L % sf] ;/sf/, cy{ dGqfno, . @= lghLs/0f P]g, @)%) #= Privatization of Public Enterprises in Nepal - ;]jf lgj[Q sd{rf/L kl/ifb, /fi6 ;]js jif{ !, c+s . $= g]kfndf ;fj{hlgs ;+:yfgsf] lghLs/0fM ;Defjgf / r'gf}ltx? -lx/0o lg/f}nf, g]kfn /fi6 a}+s, ljz]iff\s . %= jflif{s k|ltj]bgx? -lwtf]kq af]8{ . ^= Trading Reports- Nepal Stock Exchange Ltd. &= New Business age Vol 2 No 3 February 2000
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SEBO Journal explores corporate governance practices in Nepal

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SEBO Journal explores corporate governance practices in Nepal

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SEBO Journal

Vol. I Special Publication June 2004

Securities Board, Nepal

SEBO Journal, Vol.I, June 2004

Towards Good Corporate Governance

Chairman, Securities Board, Nepal

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

Fundamentals of Stock Returns in Nepal

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

S.N. 20. 21.

Study period 1997/98 to 1999/00 1996/97 to 1999/00

22. 23. 24. 25. 26. 27. 28.

1995/96 to 1998/99 1995/96 to 1998/99

31. 32. 33. 34. 35. 36.

37. 38. 39.

1995/96 to 1998/99 1995/96 to 1998/99 1996/97 to 1999/00

Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com.

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

Table 2 Summary Statistics for Portfolios Sorted by Fundamental Variables

(percent) (percent) (percent) (percent) (in million) (times) (percent)

2 3 32.61 to 80.20 80.20 to 485.17

(percent) (percent) (percent) (percent) (in million) (times)

SEBO Journal, Vol.I, June 2004

(percent) (percent) (percent) (percent) (in million) (times) (percent)

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

Development of Stock Market and Economic Growth in Nepal

Professor of Finance, Kathmandu University, School of Management

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

Table 1 Market Capitalization and Number of Companies listed with NEPSE

Gross Domestic Product

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

SEBO Journal, Vol.I, June 2004

0.08 0.06 0.04 0.02 0.00

SEBO Journal, Vol.I, June 2004

Eligibility for Trading of Securities and Challenges

Acting Manager, Nepal Stock Exchange Ltd.

SEBO Journal, Vol.I, June 2004