The Securities Board of Nepal (Sebon) is mulling to enforce a separate regulation from the next fiscal year in a bid to check insider trading. Insider trading refers to the buying or selling of securities by someone who has information that is not available to the public. A number of corporate houses and even government officials are suspected of being involved in the illegal practice to obtain undue benefits from fluctuations in share prices.
Incidences of insider trading have frequently been revealed in Nepal’s stock market. In many cases, the illegal practice of gaining crucial undisclosed information about the company by prominent investors and manipulating the market has disillusioned small investors and prompted them to leave the stock market.
Last year, the Nepal Stock Exchange (Nepse) suspended trading in shares of Himalayan Distillery on suspicion of insider trading.
Unveiling Sebon’s policy and programmes on Monday, Sebon Chairman Rewat Bahadur Karki said they had started drafting the regulation to control such illegal practices. “Although it is a complicated task to fully check insider trading, the new regulation is expected to control such practices to a large extent,” Karki said.
According to Sebon, after the new regulation comes into effect, it will help identify cases of insider trading. It will also make the concerned officials responsible for controlling leakage of information about the issuance of dividends and policy changes of the listed companies that could influence share prices.
The regulator has also planned to make the Personal Account Number mandatory for investors in the secondary market. “In addition, the information disclosure system of players in the secondary market will be improved,” Sebon said.
According to Sebon, it has started a system audit of Nepse and CDS and Clearing to implement an advanced information system in these institutions. The regulator has also aimed to enforce risk-based supervision of brokerage firms.
Last November, Sebon signed an agreement with Nepal Rastra Bank for mutual co-operation and exchange of information that might be useful to investigate insider trading, banking fraud and possible risks arising from such financial crimes.
Issuing a circular last month, Nepse asked listed companies to inform it about any sensitive information that might affect share prices to ensure transparency in the stock market. “Any price sensitive information such as cash dividend, bonus shares, rights shares and the decision of a company’s board to procure assets worth more than Rs100 million needs to be sent to the Nepal Stock Exchange before trading begins,” Nepse said in the circular.
Likewise, Nepse ordered listed companies to inform it about book closure seven days prior to the annual general meeting. In addition, Nepse cautioned listed companies to keep information about issues such as prospective mergers confidential.