1 Introduction

1.1. Nepal
The Kingdom of Nepal, a small Hindu-majority nation wedged between India and China in the
Himalayas, became a multiparty federal republic in 2008. Nepal is a land-locked country in
South Asia. It is bordered by People’s Republic of China to the north and by India to the east,
south and west. Also in 2018, China and Nepal agreed to establish a rail link and signed a deal to
increase Chinese investments in Nepal’s power grid. China’s growing footprint has become a
source of contention with India, which traditionally has enjoyed an outsized influence on Nepal’s
foreign and economic policies. The country has great variety of topography which is reflected
in the diversity of weather and climate simultaneously. Specially, the country experiences
tropical, meso-thermal, micro-thermal, taiga and tundra types of climates. Nepal is a
multiethnic, multilingual, multi-religious and multicultural country. The Himalayan Mountain
range runs across Nepal’s northern and western parts enriching the natural beauty of the country;
eight of the world’s highest mountains including the tallest Mt. Everest lie within its borders.
Nepal is one of the world’s prosperous countries in terms of abundant bio diversity and
incredible terrain and latitudinal variation. The geographical condition varies from 8488 m, Mt.
Everest to the low land just 70 m from the sea level in the Terai plains within the territory of 150
kilometers. Geographically, Nepal is divided into Himalayan, Hilly and Terai regions.

The Constitution of Nepal (2015) has declared the country a Federal Democratic Republic with 7
states. It is further divided into 753 local levels including 460 Rural Municipalities, 276
Municipalities, 11 Sub-metropolises and 6 Metropolises. There are 77 districts in Nepal.
According to the preliminary results of the National Census 2078, the population of Nepal has
reached 2,91,92,480, which is 26,97,976 more than the population of 2,64,94,504 ten years ago
(2068). In ten years, Nepal's population has grown by 10.18%. The annual growth rate for the
last ten years is 0.93 % as against 1.35% in the previous census. The number of families living in
Nepal is 67,61,059 and these families are living in a total of 56,43,945 households, i.e., an
average of 12 households in 10 households. The current number of families has increased by
about 24.57% compared to ten years ago. A total of 13,33,757 families were added during this
period.
In reference to Human Development Report 2022 of the UNDP, Nepal’s HDI is 0.602. Tourism
is the largest industry and one of the key sources of foreign exchange in Nepal. Nepal is a unique
destination for mountaineering, trekking, rafting and jungle safari. It possesses eight out of 10
highest mountains in the world. There are 10 world heritages and unbeatable combination of
natural beauty and cultural riches. The tourism industry contributed about 3.6 percent to Nepal’s
GDP, while its total impact was US$ 2.2 billion. In addition, in 2019, tourism supported over one
million direct and indirect jobs, or 6.7 percent of total employment. Approximately 80 percent of
these jobs are in the most remote and resource-constrained regions.

While tourism already contributes significantly to Nepal’s economy, there are opportunities for
further investments in the sector to reap additional benefits, especially for local livelihoods. This
is important since Nepal is one of the many countries working to control unprecedented
biodiversity losses while trying to address the development setbacks from the COVID-19
pandemic.. The capital of Nepal is an amalgam of historic civilization, rich tradition and modern
life style.

The relations between Nepal and the People’s Republic of China are age old and deep rooted.
Nepal-China relations have always remained friendly and cordial. The two countries share a
range of 1,414 kilometers border in the Himalayan range of the northern side of Nepal. Nepal is
linked with China majorly from Tatopani and Rashuwagadhi.
Nepal and India enjoy excellent bilateral ties. Founded on the age-old connection of history,
culture, tradition and religion, these relations are close, comprehensive and multidimensional and
are pronounced more in political, social, cultural, religious and economic engagements with each
other. The open border between the two countries remains a unique feature of our relations.
Frontier without restriction has greatly facilitated the free movements of our people to each
other’s territory and enhanced interactions.

1.2. Nepalese Economy

Nepal’s economy is anticipated to grow by 3.9% (at market prices) in fiscal year (FY) 2022 from
an estimated 2.3% growth in FY2021, says the latest Asian Development Outlook (ADO) 2022,
the flagship economic publication of the Asian Development Bank (ADB), and its
Macroeconomic Update.
Inflation in FY2022 is forecast to average 6.5%, up from 3.6% in FY2021, reflecting the
transmission of higher global oil prices and subsequent higher transportation costs. The recent
uptick in petroleum and commodity prices, owing to the Russian invasion of Ukraine, has added
further inflationary pressure. The current account deficit is expected to further widen to 9.7% in
FY2022 from 8.0% of gross domestic product (GDP) in FY2021 due to increased import growth,
a low export base, and subdued workers’ remittances.

GDP growth at 5.0% is envisaged for FY2023 on the expectation that vaccination against
COVID-19 will continue to progress, enabling further revival of economic activities that have
gradually picked up since FY2021. Inflation is forecast to marginally decline to 6.2% in FY2023,
reflecting a better harvest, smoother supply chain distribution, relatively subdued oil prices, and
a modest decline in India’s inflation. The current account deficit is expected to moderate to 6.1%
of GDP in FY2023 as monetary policy is likely to be less expansionary, COVID-19-related
imports will have substantially decreased, and increased hydroelectricity generation eases fossil
fuel consumption.

Downside risks to the outlook center on exogenous shocks such as emergence of strong, new
coronavirus variants, intensification of the current global turmoil, and recurrence of calamities
like floods, landslides, and earthquakes, which have devastated lives and livelihoods in the past.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the
Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned
by 68 members—49 from the region.
Strengths
 Expatriate remittance flows (23% of GDP) support household consumption, the
main driver of growth
 Strong agricultural sector (26% of GDP in 2021 and 80% of employment)
 Financial and technical support from India and China
 Recipient of vast sums of regional aid (in particular from the Asian Development
Bank) and international aid
Weaknesses
 Landlocked, poor accessibility, dependence on Indian ports
  Lack of infrastructure, electricity and fuel shortages, undiversified export basket
(clothing and agriculture)
 Heavy dependence on the Indian economy through imports (65% of total
imports), exports (57% of total exports) and a currency peg

1.3. Capital Market

The financial market are the centres that made provisions for buying and selling of financial claims and
services. Financial markets are classified as money markets and capital markets money market deal in
short term finance with a period of maturity of one year or less. Capital market in a market for long term
securities. It contains financial instruments of maturity period exceeding one year. It involves in long term
nature of transaction. It is a growing element of the financial system in the Indian economy. It differs
from the money market in terms of maturity period and liquidity. It is the financial pillar of industrialized
economy. The development of nation depends upon the functions and capabilities of the capital market
Capital market mobilises and allocate these resources in productive way. The success of country depends
upon the financial architecture of the strong capital market. A strong capital market is required for the
process of economic growth in the country. A developed and competitive market tends to establish
equalization between saving and investment. The borrowers of the capital market raise founds through
various instruments like equity. Prefrance. Bond and mortgages.

In most developed countries, a substantial part of financial wealth is not managed directly by savers, but
through a financial intermediary, which implies the existence of an. agency contract between the investor
(the principal) and a broker or portfolio manager (the agent). Therefore, delegated brokerage management
is arguably one of the most important agency relationships intervening in the economy, with a possible
impact on financial market and economic developments at a macro level. In most of the metros, people
like to put their money in stock options instead of dumping in savings account. On the other hand, a
number of brokerage houses make sure the hassle free investment in stocks. Asset management firms
allow investors to estimate both the expected risks and returns, as measured statistically.

1.4. Functions of Capital market

The capital market involves various functions and significance. They are presented below: -

(a) Coordination: - It plays a vital role in transferring the surplus resources to deficit sectors. It mobilizes
the savings from those who have surplus fund and divert them to needy persons or organizations.

(b) Motivation of savings: - Capital market provides a wide range of financial instruments for all times.
India has vast members of individual savers and crores of rupees are available to them the resources can
be attracted by the capital market with nature.
(c) Transformation of Investment:- The capital Market is a place where the savings are mobilized from
various sources and is at the disposal of businessmen and the government. It facilitates lending to the
corporate sector and the government. It diverts the savings amount towards the capital formation of the
corporate sector.

(d) Enhances Economic Growth:- The development of the capital market is influenced by many factors
like the level of savings with the public per capita income, purchasing capacity, and the general condition
of the economy.

(e) Stability:- The capital market provides stable security prices in the stock market. It tends to stabilize
the value of stocks and securities, it reduces the fluctuations in the prices to the minimum level.

(f) Advantages to the investors:- The investors who have surplus funds can invest in long-term financial
investments. In the capital market, a member of long terms financial instruments is available to the
investors at any time. Hence investor can lend their money in the capital market at a seasonable rate of
interest.

(g) Barometer:- The development of the capital market is the indicator of the development of the nation.
The prosperity and wealth of a nation depend upon the dynamic capital market. It not only reflects him
general condition of the economy but also smoothens and accelerates the process of economic growth.
The capital market is the market where transactions are made in long-term securities such as shares and
debentures, so the capital market is the market for relatively long terms financial instruments.

Factors play important role in growth of capital market

(a) A Strong and powerful central Government,
(b). Financial dynamics
(c) Speedy Industrialization
(d) At attracting foreign investment
(e) Investments from NRIs
(f) Regulatory changes
(g) Globalization
(h) The level of savings investment pattern of the household Sector,
(i) Development of financial theories,
(j) Sophisticated technological advances
1.5. Nepalese Capital Market
Development of Securities Market in Nepal
 In Nepal, for the very first time Nepal Bank Ltd and Biratnagar Jute Mills issued shares
to public in 1937,
 SEBON was established by Government of Nepal on June 7, 1993 as an apex regulatory
body of Securities Markets)
 Secondary market got momentum formally only in 1976 after establishment of Securities
Marketing Center and then separation of regulation and market operation with the
establishment of Securities Board as regulator and exchange as secondary market
operator. The separate exchange was made with the conversion of Securities Marketing
Center into Nepal Stock Exchange Ltd. in 1993.
 Primary issues made by foreign joint venture banks in the early 1983 such as Nabil Bank
Ltd. (erstwhile Nepal Arab Bank Ltd.), Standard Chartered Bank Ltd. (erstwhile Nepal
Grindlays Bank Ltd.) and Nepal Investment Bank Ltd. (formally Nepal Indosuez Bank
Ltd.) were remarkably taken by the market back then.
 Primary issues made by foreign joint venture banks in the early 1983 such as Nabil Bank
Ltd. (erstwhile Nepal Arab Bank Ltd.), Standard Chartered Bank Ltd. (erstwhile Nepal
Grindlays Bank Ltd.) and Nepal Investment Bank Ltd. (formally Nepal Indosuez Bank
Ltd.) were remarkably taken by the market back then.
 Issue and Sales Managers and few Mutual Funds that enabled primary issues of around
Rs.5.42 billion by multiple Companies in the decades of 1990s and NEPSE operated on
open outcry system of trade through stockbrokers that saw trading volume of around Rs.
9.46 billion during the period, Market index remained to be 204.86 points and listing of
108 Companies at the Mid-July 2000.
 In the decade of 2000s, many reforms were made to improve secondary market including
replacement of open outcry system by automated computerised trading system (ATS) in
2007, start of real time surveillance system, circuit breaker practice, OTC market and
trading of promoter shares, increasing number of stockbrokers, etc.
 CDS and Clearing Ltd. was established on 22 December 2010 as central depository
system of securities.
  Credit rating Company ICRA Nepal Ltd. was established in 11 November 2011 as joint
venture with ICRA Ltd., India which has collaboration with Moody’s rating agency.
SEBON granted license to ICRA on 3 October 2012.
 NEPSE conducted electronic trading of securities on April 15, 2014 for the first time,
following the phase-wise implementation of online trading at NEPSE. On October 8,
2014, NEPSE started the first phase of trading dematerialized shares of the banking
sector. The settlement of traded shares was done online for the first time at NEPSE
through CDS & Clearing Limited (Nepal Stock Exchange Limited, 2020).
 Dematerialisation of securities has been made compulsory through DP along with demat
account which has aided in full automation of secondary market on 15 January 2016.
 Centralised application supported by blocked amount (C-ASBA) has begun from 14
January 2017 optionally and it was made compulsory from 16 July 2017.
 Online trading of securities has begun on 6 November 2018.
 The new system is named NEPSE Online Trading System (NOTS), which was launched
on November 6, 2018. After the breakout of the COVID-19, the NOTS users using
NEPSE online Trade Management System (TMS) and Uniform Resource Locator (URL)
increased due to the nation-wide lockdown as well as the compulsion from the governing
body. Hence, the paper attempts to get opinions from the NOTS users about its features
and performance.

 Sebon issued a public notice on 18 Sep 2022, inviting applications from the interested

firms. The regulatory body has recently got the related bylaws endorsed from the

government that allow it to issue new licenses to these entities. As of now, only Nepal

Stock Exchange (Nepse) has been working as the frontline regulator of securities trading

in the country. Citing an expanding volume of stock trading recently, stakeholders have

been demanding the government authorities issue the license to a new market player.
The detail of capital market participants is presented in following table.
Participants of Nepali capital markets as Ashwin, 2079.

Name Number
Apex Regulator  1

Stock Exchange 1

Depository Company 1

Depository Participants 84

RTA 45

Mutual Fund and Schemes 34

Listed Companies 230

Listed Bonds and Debenture 66

Clearing Member 51

Dealers Companies 1

Brokers 50

Listed Preference Shares 1

Registered Bank In C-ASBA 56

Demat Account 5,408,350

Meroshare User 4,502,094

 June 7,1993
Establishment of SEBON as the regulator of the securities market

January 13, 1994

NEPSE opened its trading floor

Till 2007
NEPSE was based on open-out-cry

August 24, 2007

NEPSE adopted a semi-automated screen-based trading system

March 31, 2011

CDS & Clearing Limited reestablished

August 15, 2014

NEPSE conducted electronic trading of securities for the first time

October 8, 2014
NEPSE Started the first phase of trading dematerialized (DEMAT) shares of the banking
sector
January 15, 2016
SEBON and CDS & Clearing Limited decleared to carry out the securities transaction only
for demateralized securities
October 7, 2018
The electronic settlement of the dematerialized securities was started by
implementation of the Electronic Delevery Instruction Slip
November 6, 2018
NEPSE started an internet based fully automated online trading system - NEPSE Online
Trading System (NOTS)

January 17, 2021

NEPSE stepped the physical trading of Securities

September 18, 2022

Sebon decides to distribute licenses to open stock exchange, commodities exchange and
brokerage firms

1.6. Securities Board of Nepal (SEBON)

SEBON has been established as an apex market regulator and facilitator under the securities Act,
2006. The Governing Board of SEBON consists of seven members including full time Chairman
appointed by the Government for tenure of 4 years, Joint Secretary Ministry of Finance, joint
secretary of Ministry of Law, justice and Parliamentary affairs, representative from NRB,
representative from Institute of Chartered Accountants of Nepal, representative from federation
of Nepalese Chambers of Commerce and Industries and one member appointed by the
Government from amongst the experts pertaining to management of securities market,
development of capital market, and financial or economic sector. The major financial sources of
SEBON are the government grant, transaction fee from the stock exchange and registration fee
of corporate securities. Since the establishment of SEBON has been working under the legal and
statutory frameworks of securities market such as providing advice to Government on matters
related with the development of Nepalese capital markets, register the securities of public
companies, issue necessary securities regulations and directives, issue license to operate stock
exchange. NEPSE works under the jurisdiction of the SEBON.

Major Function, Duties and Power of SEBON

The function, duties and power of SEBON have been defined by the Securities Related Act,
2006 which have been listed as under.

 To offer an advice, as per necessity, to the Government of Nepal on matters incidental to

the development of capital market;
 To register the securities of any corporate body established with the authority to make a
public issue of its securities;
 To regulate and systematise the issue, transfer, sale and exchange of registered securities;
 To grant permission to any corporate body, which is desirous of operating a stock
exchange, to operate the stock exchange subject to this Act or the rules and bye-laws
framed under this Act;
 To regulate and monitor the activities of the stock exchange;
 To inspect as to whether or not any stock exchange is executing its activities in
accordance with this Act or the rules and bye-laws framed under this Act, and to suspend
or revoke the license of such a stock exchange, if it is found that the same has not been
done;
 To issue a license to companies or institutions, which are desirous of carrying on the
securities business subject to this Act or the rules and bye-laws framed under this Act;
 To regulate and monitor the activities of securities business person;
 To classify securities businesspersons and fix their standards according to their functions
and capability by fulfilling such procedures as prescribed;
 To grant a permission to operate collective investment schemes and investment fund
programmes, and to regulate and monitor the same;
 To approve bye-laws of stock exchanges and those bodies which are related with
securities business and engaged in securities transactions, and to issue orders to stock
exchanges and those bodies which are related with securities business and engaged in
securities transactions to make necessary amendment in their bye-laws with a view to
making necessary provisions concerning the development of capital market and
protecting the interests of investors in securities;
 To systematise the clearance of accounts related to securities transactions;
 To supervise whether or not security business persons have maintained such conduct as
prescribed in this Act or the rules, bye-laws and directives framed under this Act, while
carrying on securities business, and suspend or revoke the license to carry on securities
business where any securities business person is not found to have maintained such a
conduct;
 To make or cause to be made, such arrangements as may be necessary to regulate the
volume of securities and the mode of securities transactions for the promotion,
development and healthy operation of stock exchanges;
 To make such arrangements as may be necessary to prevent insider trading or any other
offense relating to securities transactions as referred to in Chapter 9 for the protection of
the interests of investors in securities;
 To review, or cause to be reviewed, financial statements submitted by corporate bodies
issuing securities and securities business persons, and give such directives to the
concerned corporate bodies as it deems necessary in this connection;
 To regulate and make transparent the act of acquiring the ownership of a company
thereby gaining control over its management by purchasing its shares in a single lot or in
several lots;
 To maintain coordination and exchange cooperation with the concerned agencies in order
to supervise and regulate matters concerning securities or company affairs; and
 To perform or cause to be performed such other functions as may be necessary in relation
to securities and the development of capital market.
1.7 Legal Framework

The Securities Related Act, 2006 along with various regulations and guidelines, made by the
power conferred by the Section of 116 of the Act provides a legal basis for the regulation of
securities markets in Nepal.

Objectives of Securities Laws of Nepal

 Regulate the issue and trading of securities.

 Protect the legal rights of investors.
 Develop the capital market to mobilise necessary capital for the economic development
of the country.
 Promote the development of a broad-based economy. Implicit throughout provisions
under Securities related Act, 2006 is the belief that regulation should facilitate capital
formation and economic growth.

1.8 CDSC
CDS and Clearing Limited, a company established under the company act is a company
promoted by Nepal Stock Exchange Limited (NEPSE) in 2010 to provide centralized depository,
clearing and settlement services in Nepal. The company is inaugurated on 31st March 2011. The
main objective of the company is to act as a central depository for various instruments (Equity,
Bonds, and Warrants etc) especially to handle securities in dematerialized form. This
organization is entrusted with the safekeeping, deposit, and withdrawal of securities certificates
and transfer of ownership/rights of the said instruments. The depository functions will be
performed by the company under the securities regulations of Securities Board of Nepal
(SEBON). CDSC is a wholly owned subsidiary company of Nepal Stock Exchange Ltd.
(NEPSE) which was established on 7th Poush 2067.

1.9 Nepal Stock Exchange Limited (NEPSE)

Nepal Stock Exchange Ltd. (NEPSE) is the only stock exchange of Nepal for the secondary
market sectors in Nepal. It was established under the Companies Act-2006 and operates under
Securities Act-2007. The stock market has since gone through a paradigmatic shift.that provides
a platform for investors to buy and sell shares of publicly traded companies in various
1.10 Performance of Nepali Stock Market
Nepalese Capital Market during the fiscal year 2021/22 is in decreasing trend. Both primary
market issues and secondary market indicators ahve been decreased in FY 2021/22 as companred
to FY 2020/21. Almost all indicators like index, market capitalization, total turnover, share
traded volume and number of transaction decreased as compared to previous fiscal year. The
activities of both primary and secondary market have been explained below:

Primary Market
Securities Board of Nepal (SEBON) has approved the total amount Rs 31370.83 million from 56
numbers of approvals of primary issuance to public including ordinary shares, right shares,
mutual fund and debentures to public on the FY 2021/22. The amount of approvals has decreased
by 49.13 percent as compared to the previous fiscal year. The number of issues for public too has
decreased as compared to previous fiscal year numbering 56 in total. This is a decrease of 8.197
percent on the total number of issues compared with the previous year. Out of the total 56
approvals for public issues, 28 companies get approvals for initial public offering (IPO), 10 for
corporate debenture, 11 for right share, and 7 for mutual fund. Out of 28 companies getting
approval for IPO amounting Rs. 7203.643 million 19 companies are from hydropower, 8 from
microfinance group and 1 form investment group.

During FY 2021/22, number of approval has been decreased in debenture sector and mutual fund
issuance whereas IPO and right share aproval has been increased as compared to previous fiscal
year. The number of approvals for debenture were 23 amounting Rs. 23040 million previous year
which decreased to 10 amounting Rs. 12480 million this fiscal year. Similarly, total 9 approvals
were provided to issue closed-ended mutual fund amounting Rs. 9400 million in fiscal year
2020/21 which decreased to 7 amounting Rs. 6900 million this fiscal year. During fiscal year
2021/22, 11 companies get approval for right issuance amounting Rs. 4787.188 million which is
a decrease of 65.92 percent in amount when compared to the previous year

Secondary Market
Secondary market which provides an organized place and the mechanism for trading securities
addresses liquidity requirements of both long-term and short-term investors. During fiscal year
2021/22 trend of overall market, which is shown by index, is in decreasing trend. There was
massive increase in market in fiscal year 2020/21 as compared to fiscal year 2019/20. The
indicators of secondary market like NEPSE Index, annual turnover, number of transactions,
turnover to market capitalization, market days, and average price per share traded have been
decreased in the review period.

Turnover
Turnover in secondary market refers to total amount of securities traded. It is one of the
important indicators of capital market., which indicates liquidity of market. As compared to FY
2020/21, trading volume has decreased by 17.35 percent in Fy 2021/22 .

During the FY 2021/22, turnover of Rs. 1.202 trillion has been realized which was Rs. 1. 454
trillion last year. Similarly, during the review period, 2.49 billion numbers of shares have been
traded which is decrease of 26.80 percent compared to a year earlier. Accordingly, numbers of
transactions have decreased by 4.57 percent to 14712483. It was 15417668 last year. As
compared to previous fiscal year there is decrease in trading volume, number of shares traded,
and number of transaction. There is increase in number of scripts traded during the year to 362
which was 332 in previous fiscal year. The total trading days was for 246 days in previous fiscal
year whereas in this fiscal year market days have decreased to 239. The daily average turnover
counts for Rs. 5.029 billion in the review year.

Group-wise distribution of turnover

The listed companies in NEPSE has been divided into twelve sectors namely commercial bank,
development bank, finance, microfinance, hydropower, hotel, trading, manufacturing and
processing, life insurance, non-life insurance, investment, and other. Furthermore, transaction
details of promoter shares, mutual funds, preferred stocks, and debenture are included in the
table below.

Group-wise distribution of turnover during the FY 2021/22

No. of shares (000) Amount (Rs.In million)

S.N. Group % of the Traded % of the
Traded shares
total amount total

1 Commercial Banks 469426.35 18.84 207420.97 17.25

2 Development Banks 230966.30 9.27 127035.96 10.57

 3 Finance 156276.43 6.27 101336 8.43

4 Hotels And Tourism 17406.13 0.70 7502.02 0.62

5 Hydro Power 713061.00 28.61 358672.16 29.84

6 Investment 112436.36 4.51 56314.04 4.68

7 Life Insurance 69251.25 2.78 65420.3 5.44

Manufacturing And
17196.53 0.69 43419.44 3.61
8 Processing

9 Microfinance 71799.73 2.88 113645.91 9.45

10 Non Life Insurance 67096.72 2.69 64184.12 5.34

11 Others 26108.99 1.05 34444.12 2.87

12 Tradings 612.12 0.02 3764.68 0.31

13 Debentures 423.34 0.02 421.04 0.04

14 Mutual Fund 506416.34 20.32 7257.86 0.60

15 Preference Shares 7.30 0.00 4.49 0.00

16 Promotor Shares 33525.88 1.35 11258.29 0.94

  Total 2492010.77   1202101.4  

From the above table we can see that, the volume of trading amount and the number of shares
traded from the hydropower sector has the highest stake on the total trading volume.
Hydropower group's trading volume was Rs 358.67 billion which is 29.84 percent of total traded
amount. Similarly, the group of commercial bank and development bank remained at second and
third position with 17.25 percent and 10.57 percent respectively. The trading volume of
microfinance and finance companies remained at fourth and fifth position with 9.45 percent and
8.43 percent respectively. It shows that hydropower group is highly liquid in comparison to other
groups.

On the basis of number of shares traded among twelve sectors of listed companies shares of
hydropower is more frequently traded than other sectors' companies in fiscal year 2021/22 with
28.61 percent of total shares traded. Likewise, trading volume, of total shares traded, commercial
bank, development bank, and finance companies' stood at second, third and fourth position
respectively.

Group-wise distribution of companies on the basis of number of trades.

FY 2020/21 FY 2021/22
Change
S.N. Group No. of % of No. of % of %
Traders total Traders total

1 Commercial Banks 3576301 23.20 2664969 18.11 -25.48

2 Development Banks 1052155 6.82 1424820 9.68 35.42

3 Finance 685070 4.44 1097294 7.46 60.17

4 Hotels And Tourism 185602 1.20 112201 0.76 -39.55

5 Hydro Power 3394323 22.02 4626320 31.44 36.30

6 Investment 797107 5.17 1024435 6.96 28.52

7 Life Insurance 1257566 8.16 1058763 7.20 -15.81

Manufacturing And
8
Processing 250469 1.62 287983 1.96 14.98

9 Microfinance 1588175 10.30 1278460 8.69 -19.50

10 Non Life Insurance 1449155 9.40 660858 4.49 -54.40

11 Others 1009253 6.55 269291 1.83 -73.32

12 Tradings 32233 0.21 30859 0.21 -4.26

13 Debentures 4273 0.03 4830 0.03 13.04

14 Mutual Fund 113090 0.73 160825 1.09 42.21

15 Preference Shares 271 0.00 90 0.00 -66.79

16 Promotor Shares 22529 0.15 10485 0.07 -53.46

1471248
Total 15417572 3

The above table shows that on the basis of number of transaction the stake of hydropower group
is at top with 31.44 percent of total transactions during FY 2021/22. Commercial bank,
Development bank, Microfinance companies, and finance remains in second, third, fourth, and
fifth position.

Trading of Mutual Fund Units

Total of twenty-seven mutual fund has been traded during FY 2021/22 in this group. In
comparison with previous fiscal year, both turnover and number of units traded have decreased
but number of transaction of this group increased. Total turnover and units traded were Rs. 7.257
billion and 506.416 million units this fiscal year 2021/22 respectively. The figure was Rs. 8.458
billion and 666.021 million units during the fiscal year 2020/21. This is decrease of 14.19
percent by amount and 23.96 percent by number of units traded. Number of transactions of this
group has increased by 42.21 percent in comparison to previous fiscal year.

Trading of Preference Share

The trading amount of preference shares has been 0.0004 percent of the total turnover of
securities traded in the fiscal year 2021/22. The amount is Rs. 4.49 million which was Rs. Rs.
22.74 million in the fiscal year 2020/21. The number of preference shares traded during the
period was 7.30 thousand and number of the transaction was 90

Trading of Promoter Share

During the FY 2020/21 total of 55.34 million shares amounting to Rs. 16.35 billion were traded.
A total of 33.53 million shares amounting to Rs. 11.26 billion have been traded during the fiscal
year 2021/22. In the fiscal year 2021/22 total of 10485 transactions have been traded with a
decrease of 53.46 percent compared to the previous fiscal year.

Top Ten Companies

From the total 234 listed companies and out of top 10 companies based on turnover, 5 are from
hydropower group. Arun Valley Hydropower Development Company Limited ranked on the top
position showing a trading amount of Rs. 39.24 billion which is followed by Api Power
Company Limited and National Hydro Power Company Limited with Rs. 33.53 billion and Rs.
27.78 billion respectively. Similarly Himalayan Distillery Limited has ranked fourth position
with Rs. 26.92 billion and Nabil Bank Limited ranked fifth position with Rs.25.91 billion.

On the basis of number of shares traded out of 10 companies, 7 are from the hydropower group.
National Hydro Power Company Limited held on the first position with 70529 thousand of
shares traded. Arun Valley Hydropower Development Company Limited and Api Power
Company Limited remained at second and third position respectively with 70445 thousand and
67975 thousand shares.

Based on number of transactions investment group company, Nepal Infrastructure Bank Limited
remained at first position with 418296 number of transaction. Api Power Company Limited
remained at second position with 354860 number of transaction. Similarly, Hydroelectricity
Investment and Development Company Limited, Arun Valley Hydropower Development
Company Limited, and National Hydro Power Company Limited stood in third, fourth, and fifth
place with 322760, 305377, and 291049 number of transaction respectively.

The trading amount of top ten companies is 21.71 percent of total trading amount on FY 2021/22
which was 22.83 percent of the total trading amount previous fiscal year. Number of shares
traded of top ten companies is 19.87 percent on the total count of number of shares traded this
fiscal year whereas it was 18.48 percent on last fiscal year. It shows that securities of few
companies are frequently traded in NEPSE.

Trading of Government Bond

During the fiscal year, 2021/22 total of Rs. 1.55 billion amount of government bonds have been
transacted. Number of bonds transacted was 1.55 million with only five transactions during the
review period.

Market Capitalization
Market capitalization is an important secondary market indicator as it is compared with the
indicators of the economy. It is calculated by multiplying closing price by outstanding shares of
the company. Market capitalization has decreased by 28.46 percent and reached to Rs.
2869344.17 million as compared to the previous year. It was Rs. 4010957.81 million in the fiscal
year 2020/21.

Group-wise change in market capitalization (Rs. In million)

Opening Closing
S.N. Group
Market cap % of total Market cap % of total
 1 Commercial Banks 1584342.31 38.21 1053955.53 36.73

2 Development Banks 176882.64 4.27 128420.28 4.48

3 Finance 85596.13 2.06 50824.7 1.77

4 Hotels And Tourism 62427.68 1.51 45885.82 1.60

5 Hydro Power 342325.35 8.26 314232.39 10.95

6 Investment 328979.31 7.93 197846.39 6.90

7 Life Insurance 359586.21 8.67 213613.06 7.44

Manufacturing And
8
Processing 151505.57 3.65 123503.2 4.30

9 Microfinance 396022.67 9.55 332474.4 11.59

10 Non Life Insurance 276827.92 6.68 152951.97 5.33

11 Others 359816.7 8.68 243846.2 8.50

12 Tradings 21868.43 0.53 11790.22 0.41

Total 4146180.92 2869344.16

By reviewing the group-wise market capitalization composition, as usual, commercial bank

group recorded the highest of total market capitalization with 36.73 percent of the total market
capitalization with a decrease of 1.48 percent of the opening market capitalization. The
concentration of the commercial bank group was 38.21 percent in opening market capitalization.
It shows that the concentration of commercial bank has slightly decreased from the previous
fiscal year. The microfinance group and Hydropower group hold second and third positions in
the total market capitalization with about 11.59 percent and 10.95 percent respectively of the
total closing market capitalization. From the above table, we can see that out of the twelve
groups five groups has increased and seven group decreased from the opening market
capitalization. The above group-wise market capitalization also shows that Nepalese capital
market is still highly concentrated in the banking sector during the period. It can be clearly
shown in the following figure.
 G ro u p -w i se d istri b u tu in o f M a rk et C a p i -
ta l iza tio n
Commercial Banks Development Banks Finance
Hotels And Tourism Hydro Power Investment
Life Insurance Manufacturing And Processing Microfinance
Non Life Insurance Others Tradings

0%
8%
5% 12%
37%

4%

7%
7% 2% 4%
11% 2%

Indices

The market index represents an entire stock market and tracks the market’s changes over time.
The value of the index is known as points. It moves in points and reflects the price of all
underlying assets. It is a tool to compare the return on a specific investment. NEPSE index group
consists of various indices and they are calculated based on market capitalization. These indexes
show trends and provide a yardstick for comparison. With the formation of an investment group,
there are a total of twelve groups categorized in NEPSE. Including the index of these groups four
more indexes (NEPSE Index, Sensitive Index, Float Index, and Float Sensitive Index) are
calculated. Out of them, overall NEPSE index is the oldest one which is being calculated since
1994.

Overall NEPSE Index:

NEPSE Index is calculated by considering all listed shares including the promoter shares of all
listed companies in Nepal Stock Exchange Limited. NEPSE Index decreased by 30.31 percent in
comparison with the previous fiscal year-end index and reach to 2009.47 at the end of the FY
2021/22. The highest NEPSE index point during the year was 3199.026 on August 18, 2021, and
the lowest was 1848.282 recorded on June 23, 2022. The mean index throughout the year is
2581.51 points and the standard deviation is 341.21. The trend of overall NEPSE index for the
fiscal year 2021/22 can be viewed from the following figure:

Nepse Index
3300.00
3100.00
2900.00
2700.00
2500.00
2300.00
2100.00
1900.00
1700.00
1500.00
21 21 21 21 21 21 21 21 21 21 21 21 22 22 22 22 22 22 22 22 22 22 22 22 22 22 22
, 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20
8 1 2 9 2 6 0 6 1 4 7 1 4 7 0 3 4 4 8 1 5 0 5 7 9 9 1
l1 g 1 2 1 2 t1 t2 1 2 c 2 n 1 3 1 2 r1 r2 r1 r2 1 2 n 1 2 l1
Ju Au Aug Aug Sep Sep Oc Oc Nov Nov De Dec Ja Jan Jan Feb Feb Ma Ma Ap Ap May May Ju Jun Jun Ju

The above figure shows that NEPSE Index is in decreasing trend in the fiscal year 2021/22. In
the review period, we can see that market starts to fall from August, with small ups and downs
till December, a huge plunge in December, then a rise of about 600 points and then continous fall
with small ups and down till the end of the fiscal year.

1.12 Measurement of Key Ratios on Stock Market Development

Macro-economic Analysis
Due to the effect of global pandemic COVID-19, the global economic activities have been
slowed down in 2020 but availability of vaccine has increased the economic activities in 2021.
Despite the projection of decrease of effect by COVID-19 in coming days, expectation of
lengthening of Russia Ukrain war, restrictions to Russia and increasing price of petrolium
products, IMF has predicted just 3.6 percent expansion in global economic activity in 2022.

Gradual decrease in the effect of COVID-19 and expansion of energy sector, the expansion of
Nepal's economy is estimated to be 5.84 percent in fiscal year 2021/22. Such expansion was 4.25
percent in previous fiscal year.

In current fiscal year 2021/22 total growth in agriculture, industry, and service sectors is
estimated to be 2.3 percent, 8.1 percent and 6.6 percent respectively. The share of agriculture,
industry, and service sector remain at 23.9 percent, 14.3 percent, and 61.8 percent in fiscal year
2021/22.

In F/Y 2021/22 Gross Domestic Product (GDP) at consumers price is estimated to be Rs. 48.51
billion where the highest contribution is estimated to be 36.9 from Bagmati province and the
lowest contribution is estimated to be 4.1 percent from Karnali Province.

The share of consumption in GDP in FY 2021/22 is estimated to be 90.7 percent, a slight

decrease from the previous fiscal year. It was 92.3 percent in FY 2020/21. There is an increase in
total investment in current fiscal year and previous fiscal year as compared to FY 2019/20 where
contraction of 25.9 percent in total investment was realized. In current fiscal year, 18.1 percent
increment of total investment is estimated at Rs. 18.07 billion as compared to FY 2020/21. There
was increase of 29.3 percent in total investment in FY 2020/21 with previous fiscal year. The
ratio of total investment to GDP is estimated to reach 37.3 percent which was 35.8 percent in FY
2020/21.

Per Capita GDP at current prices is estimated to increase 12.3 percent and stand at Rs. 1,64,598
in FY 2021/22. It was Rs. 1,46,521 in FY 2020/21. In FY 2021/22 increase in per capita,
national income is double-digit. Per capita, national income in FY 2020/21 was USD 1246,
which is estimated to increase by 10.8 percent and reach USD 1381 in FY 2021/22.

An increase in the price of petroleum products, an increase in transportation cost, and an

increment in consumer goods, raw materials, and services pressurized to lift the Consumer Price
Index. The average inflation rate increased by 5.4 percent in the first eight months of FY
2021/22. Such inflation rate in the same period of the previous fiscal year was 3.5 percent.

Cumulative expenses of central, provincial, and local government in FY 2020/21 increased by

14.4 percent and reached Rs. 13.62 billion. Portion of current expenses, capital expenses, and
financial management expenses in total cumulative expenses stood at 54.4 percent, 36.5 percent,
and 9.1 percent respectively in FY 2020/21. The such ratio in FY 2019/20 stood at 56 percent,
34.1 percent and 9.9 percent.

The revenue income of central government till the first eight months of current FY 2021/22
increased by 19.6 percent and reached Rs. 6.57 billion. Total expenses of central government
increased by 18 percent and reached 6.74 billion. Current expenses, capital expenses, and
expenses for financial management in total expenses stood at 79.9 percent, 11.4 percent, and 8.7
percent in the first eight months of the fiscal year 2021/22. Such expenses in the fiscal year
2020/21 for the same period were 79.7 percent, 14 percent and 6.3 percent respectively.

Budget deficit of central government for the period is Rs. 21.31 billion which was Rs. 29.26
billion in FY 2020/21. Percentage of budget deficit in Gross Domestic Product for the first eight
month of fiscal year 2020/21 was 8.2 percent whereas it is 7.1 percent this fiscal year for the
same period.

1.13 Legal Environment

Securities brokers can do the following after obtaining permission from the board.

(a) limited acting securities brokerage services,

(b) fully functioning securities brokerage services,

(c) The securities broker shall purchase or sell securities only in the name of the respective
customer as per the order of the customer

(d) The securities broker perform work related to margin transactions in addition to the work

A securities broker takes permission following the Securities Dealer (Merchant Banker)
Regulations, 2064 to carry out work related to investment consulting services and work related to
investment management.

Service Charges Chargeable by Securities Brokerage

1. Service fee to be charged for securities brokerage in every purchase and sale transaction of the
shares of the organized organization:

(a) Rs. 50,000.00 – 0.40 percent on transactions

(b) Rs. 50,000.- Above Rs. 5,00,000.00 – 0.37 percent on transactions

(c) Rs. 5,00,000.- Above Rs. 20,00,000.00 – 0.34 percent on transactions

(d) Rs. 20,00,000.- Above Rs. 1,00,00,000.00 – 0.30 percent on transactions

(e) Rs. 1,00,00,000.- on any transaction above – 0.27 percent

2. Service fee for securities brokerage in the purchase and sale of bonds issued by the
Government of Nepal or the Government of Nepal as a guarantee or fully secured by the
Government Institution or the Nepal Rastra Bank:

(a) Rs. 5,00,000.00 – 0.10 percent on transactions

(b) Rs. 5,00,000.- for transactions up to 50,00,000.- - 0.05 percent

(c) Rs. 50,00,000.00 - 0.02 percent on any transaction above

In the case of other securities, the service fee to be charged for securities brokerage:

(a) Rs. 5,00,000.00 – 0.15 percent on transactions

(b) Rs. 5,00,000.- Above 50,00,000.- in transactions - 0.12 percent

(c) Rs. 50,00,000.00 - 0.10 percent on any transaction above

2.1 Meaning of Security Broker

Stock brokers are the licensed agents who buy and sell stocks and other securities for both retail
and institutional clients, through a stock exchange or over the counter, in return for a fee or
commission. Stock brokers are the licensed agents who provide counsel on what and when to
purchase and whether to hold or sell the securities. They execute the buy/Sell orders on the
investor‟s behalf. The percentage of the transaction as compensation received from either buyer
and/or seller is called as Brokerage Commission. As an agent the stock broker is merely
performing a service for the investor. This means that the broker will buy for the buyer and sell
for the seller, each time making sure that the best price is obtained for the client. An investor
should regard the stockbroker as one who provides valuable service and information to assist in
making the correct investment decision. They are adequately qualified to provide answers to a
number of questions that the investor might need answers to and to assist in participating stock
market. Security brokerage firm comes into existence mainly with the objective of facilitating the
buyer and seller of financial assets. According to Security Business Person Regulation, 2064
“Stock Broker means a corporate body or a company licensed as Stock Broker from the Board
for providing brokering services of purchasing and/or selling the securities in the name of client
only as per the client‟s order.”

2.2 History of Security Brokerage Industry

The first stock brokers were the Real Merchants of Venice in the 1300s who were money
lenders, debt traders, and purchasers of government debt. These Venetians were the first group to
buy and sell government securities for profit. Much like modern brokers, they met clients with
slates containing various governmental issues available for purchase. The French, English, and
Dutch governments all signed charters for East India trading companies during the 1600s. These
companies changed the business model in that they offered investors the opportunity to purchase
stocks paying dividends on all trading voyages made by the company rather than by individual
voyages. As there were no formal stock exchanges, investors had to track down brokers to buy
in. In 1790, the first financial securities were created in the United States when the federal
government issued $80 million in bonds to pay for its Revolutionary War debt. Two years later,
24 of the most prominent stock brokers met to sign the Buttonwood Agreement, agreeing to trade
securities for commission. The earliest brokerage firms were established in London coffee
houses, enabling individuals to purchase stocks from a variety of organizations. They formally
founded the London Stock Exchange in 1801 and created regulations and memberships. The
system was copied by brokerage firms across the world, most notably on Chestnut Street in
Philadelphia. Soon, the US exchange was moved to New York City and various firms like
Morgan Stanley and Merrill Lynch were created to assist in the brokering of stocks and
securities. The firms limited themselves to researching and trading stocks for investment groups
and individuals. During the 1900s, stock brokerage firms began to move in a direction of market
makers. They adopted the policy of quoting both the buying and selling price of a security. This
allows a firm to make a profit from establishing the immediate sale and purchase price to an
investor. The conflict with brokerage firms setting prices creates the concern that insider trading
can result from the sharing of information. Regulators have enforced a system called Chinese
Walls to prevent communication between different departments within the brokerage company.
This has resulted in increased profits and greater interconnection within the financial industry.
The creation of high valued brokerage firms like Goldman Sachs and Bear Sterns created a
system of consolidation. Working with hundreds of billions of dollars, the larger firms began to
merge and take over smaller firms in the last half of the 20th century. Firms like Smith Barney
were acquired by Citigroup and other investment banks, creating massive financial institutions
that valued, held, sold, insured and invested in securities. This conglomeration of the financial
sector created an environment of volatility that caused a chain reaction when other firms like
Bear Sterns and Lehman Brothers filed for bankruptcy. Trillions of dollars of assets were tied
together in different companies and resulted in a large economic collapse in late 2008. 2.3
History of Security Brokerage Industry in Nepal The history of security market in Nepal begun
in the mid-1930s with the floatation of shares by Biratnagar Jute Mills Ltd. and Nepal Bank ltd.
However, the formal institutionalization began only after the establishment of Securities
Exchange Centre in 1976. The then Securities Exchange Centre was responsible for undertaking
the job of brokering, underwriting, managing public issue, market making for government bonds
and other securities markets services. Introduction of the Companies Act in 1964, issuance of
Government Bond in 1964 and introduction of Securities Act in 1983 were the important past
initiatives for developing securities markets in Nepal. The development process accelerated with
the liberalization policy of the Government during 1990s.During this period major initiatives
were taken for the development of the securities market, the most important one being
establishment of Securities Board of Nepal (SEBON) in 1993 as an apex regulatory body of
securities markets. With the establishment of SEBON the then, Securities Exchange Centre was
converted into Nepal Stock Exchange Ltd. (NEPSE), which started secondary trading of
securities with the introduction of stockbrokers. As of the March 2007 there are 23 stockbrokers,
3 securities dealers and 9 issue managers providing securities market intermediation services and
131 listed companies.

2.3 Functions of Stock Broker

The stock brokers are profit oriented business organizations. They provide services to the
investors to maximize their return. Stock broker earns the certain percentage on the buy and sell
amount as a commission. As per the Securities Business Persons Regulations 2064, the stock
broker performs following functions:

 The Stock Broker may provide brokering services of purchasing or selling the securities in the
name of client only as per the client‟s order. The general functions of stock broker in Nepal are
as follows:
 Providing counseling services about when to buy the stock and whether to sell or hold the
stock.

 Helping investor for BT and OT of certificates.

 Maintaining the clients account.

 Certificate verification.

 CDSC clearing and settlement

 Share split.

2.6 Importance of Stock Brokers

Followings are the importance of stock brokers:

 Provide brokerage services in order to execute the buy and sell transactions on the behalf of
clients.

 Help built efficient security market of the country.

 Helps in BT, and OT of share certificates.

 Assisting the clients about the best investment timing in the market.

 Assist for the economic growth of the nation.

2.7 Types of Stockbrokers

The choice of a stockbroker should be related to the trading needs of the traders. Traders should
focus on their trading strategy and choose a stockbroker who will help meet their trading needs.
For example, for short-selling stocks, traders would need to find stockbrokers with a deep list of
stocks available to short.

The following are the various types of stockbrokers:

1. Full-Service Stockbroker
A full-service stockbroker offers a variety of financial services to clients. Usually, clients are
assigned individual licensed stockbrokers. The brokerage firms employ research departments
providing analyst recommendations and access to initial public offerings (IPOs).

Full-service stockbrokers also provide services like financial planning, business and personal
home loans, banking services, and asset management. Clients can either contact their personal
stockbroker for trading options or use mobile and online platforms. However, stockbrokers
offering trading functions and online access charge higher commissions. Moreover, as the online
platforms of full-service stockbrokers usually cater to long-term investors, the platforms provide
fewer indicators and tools for day trading investors.

2. Discount Stockbroker

Discount stockbrokers provide financial products, access to mutual funds, banking products, and
other services. A discount stockbroker offers many products and services that are similar to a
full-service stockbroker, but with smaller commissions.

Hence, swing traders and day traders who are more active may find discount stockbrokers
appealing. Moreover, the platforms serve active day traders and investors; hence, they provide
more research tools and trading options than full-service platforms.

3. Online Stockbroker

Also called a direct access stockbroker, an online stockbroker offers services to active day
traders with the smallest commission – usually priced on a per-stock basis. Online stockbrokers
offer direct access platforms with capabilities of routing and charting, and access to multiple
exchanges, market makers, and electronic communication networks (ECN).

Also, online stockbrokers offer the advantages of access and speed, allowing executions of
orders on point-and-click. The platforms also enable the placing of complex options and stock
orders. The access to heavy-duty platforms usually comes with a monthly fee consisting of
software and exchange fees; however, the software fees can be discounted or waived depending
on the actual number of shares traded monthly by the client.

2.4 Brokage Business practices in India

A stock broker in India can be anything a stockbroking firm or an independent firm; known for
providing stockbroking services for the customers. The stock markets in India are governed by
the provisions of Securities and Exchange Board of India Act, 1992. The Securities Exchange
Board of India constituted under SEBI Act, 1992 exercises overall superintendence over the
stock exchanges under the Securities Contracts (Regulation) Act, 1956. SEBI was constituted on
21st February, 1992, with the twin objectives of regulation and development. The present broker
regulations are by and large sufficient to protect the needs of the investors.

The aggregate Indian broking industry size stood at INR 210 billion in FY2020, registering a
growth of 8% over INR 195 billion in FY2019. The industry is expected to hit INR 230 billion in
FY2021 at a YoY growth rate of 9.5% (Source: ICRA), inspite of India’s GDP estimated to
decline by 9.6% in FY2021 as per the World Bank. The BSE Sensex declined 28.7% in the first
3 months of CY2020 due to rising concerns related to the COVID-19 pandemic. However, it has
rebounded by almost 51.4% from then, despite declining economic conditions. The COVID-19
pandemic turned out to be a boon in disguise as the industry saw the total number of Demat
accounts rose to 46.1 million as of September 2020 from 40.8 million in March 2020, an increase
of annualized 26%.

2.5 Functions Of A Brokerage Firm In India

Order execution: Brokers execute their clients’ trading orders online. For this, the brokerage
charges a commission. This may be either a flat fee per transaction or a percentage of the
transaction value.

Trading platforms: Having multiple secure platforms through which clients can place orders is
essential nowadays. Most of the bigger brokers provide trading apps and software for
smartphones, laptops, and tablets. You could also trade and invest via phone or chat.

Financial advisory: Both new and seasoned investors depend on stock recommendations from
their broker. But stockbrokers are required to disclose all information when recommending a
stock—that includes being transparent about the risks.

Margin financing: Traders who have accounts with large brokerage funds can use margin
funding facilities. This essentially means borrowing funds from the broker to take bigger
positions in the market.
To perform these stockbroking functions, the firm must get the necessary licenses. For this
purpose, they must register with SEBI and become a member of a stock exchange. Know the
advantages of using brokerage firms.

Types Of Brokers in India

A stock investor or trader can look into three main types of brokers: full-service brokers,
discount brokers, and robo-advisers.

1. Full-service broker: A full-service broker provides a large variety of services to its clients.
Most full-service brokers have offices in major cities where customer service staff can meet
clients in person. These brokers offer customised support through tailored brokerage plans and
services for investors with different interests and varying levels of expertise. Clients with large
holdings could even engage dedicated service managers to handle their portfolios.

Full-service brokers also provide educational materials and financial advisory. For instance, they
may offer stock recommendations tailored to your brokerage plan. But they are also required to
disclose if there are any risks associated with their stock tips. It helps that these brokers usually
have in-house market research teams to compile regular market research reports. Customers can
access these reports and gain research-based insights. They can also view market data and news
live, and opt to receive real-time market alerts via SMS. The average commission charged by
full-service brokers is 0.3% to 0.5% per trade. This is on the higher side. But the extra cost can
be worthwhile given the wide range of services and products on offer. Find out how to get the
lowest brokerage charges in India.

2. Discount brokers: While full-service brokers provide a whole catalogue of services, discount
brokers focus on the basics. Discount brokers carry out buy and sell orders for their clients but do
not offer any additional services. For this reason, they also charge a much lower commission. In
some cases, the charge may be as low as Rs 10 per transaction.

How are discount brokers able to keep their charges ‘discounted’? Since they provide only
transactional services, they may not have too many physical set-ups. This keeps their operational
costs low. Such brokers operate mainly through online platforms.
They can be suitable for seasoned investors who are looking to save on costs. But the absence of
advisory, research, and customised services can be a disadvantage. Such brokers may not be the
right choice for those who are new to stock market investments.

3. Robo-advisers: Robo-advisers are automated digital platforms that provide financial planning
services online. They use algorithms to come up with the financial advice and require with very
little human supervision. How do they work? The client completes an online survey to provide
information about their financial situation and goals. The robo-adviser uses this data to offer
investment advice.

Robo-advisers tend to be cheaper than even discount brokers. Many charge an annual flat fee of
0.2% to 0.5% of a client’s total account balance. The opening balances are very low as well.
Besides, you can reach the robo-adviser at any time through an internet-connected device.
There’s no need to go to their office. You can start transacting in just a few clicks.

2.6 Development of Capital Markets in Member Countries of the South Asian Association
for Regional Cooperation

The capital markets of SAARC countries are varied. The most obvious dissimilarity is in size,
with India being by far the largest economy in the region. This has had a significant effect on
relative capital market development. India’s sheer size has always meant that there would be
international investor interest once the market overcame some basic weaknesses. Since the early
1990s, the Indian capital market has been transformed through a combination of sophisticated
information technology, strengthened regulatory structures, rapid evolution of market structures,
and willingness to accept foreign involvement. This encouraged foreign investors and
intermediaries to enter the market which, in turn, led to higher standards. For example, Indian
issuers wishing to attract global investors understood that they needed to conform to high
standards of disclosure. There is a general view that intra-ASEAN trade is too low at $615
billion in 2021 (24.9%); however, it dwarfs SAARC’s intraregional trade figure of $41 billion
(4.2%) in the same year
Market & Competitor Analysis

2.6. Brokage Business 

B.N. Broker Name

1 Kumari Securities Pvt. Limited
3 Arun Securities Pvt. Limited
4 Opal Securities Investment Pvt. Limited
5 Market Securities Exchange Company Pvt. Limited
6 Agrawal Securities Pvt. Limited
7 J.F. Securities Company Pvt. Limited
8 Ashutosh Brokerage & Securities Pvt. Limited
10 Pragyan Securities Pvt. Limited
11 Malla & Malla Stock Broking Company Pvt. Limited
13 Thrive Brokerage House Pvt. Limited
14 Nepal Stock House Pvt. Limited
16 Primo Securities Pvt. Limited
17 ABC Securities Pvt. Limited
18 Sagarmatha Securities Pvt. Limited
19 Nepal Investment & Securities Trading Pvt. Limited
20 Sipla Securities Pvt. Limited
21 Midas Stock Broking Company Pvt. Limited
22 Siprabi Securities Pvt. Limited
25 Sweta Securities Pvt. Limited
26 Asian Securities Pvt. Limited
28 Shree Krishna Securities Limited
29 Trishul Securities And Investment Limited
32 Premier Securities Company Limited
33 Dakshinkali Investment Securities Pvt.Limited
34 Vision Securities Pvt.Limited
35 Kohinoor Investment and Securities Pvt. Ltd
36 Secured Securities Limited
37 Swarnalaxmi Securities Pvt.Limited
38 Dipshika Dhitopatra Karobar Co. Pvt.Limited
39 Sumeru Securities Pvt.Limited
40 Creative Securities Pvt.Limited
41 Linch Stock Market Limited
42 Sani Securities Company Limited
43 South Asian Bulls Pvt.Limited
44 Dynamic Money Managers Securities Pvt. Ltd
45 Imperial Securities Co. Pvt. Ltd.
46 Kalika Securities Pvt.Limited
47 Neev Securities Pvt. Ltd
 48 Trishakti Securities Public Limited
49 Online Securities Pvt. Ltd
50 Crystal Kanchenjunga Securities Pvt. Ltd
51 Oxford Securities Pvt. Ltd
52 Sundhara Securities Limited
53 Investment Management Nepal Pvt. Ltd.
54 Sewa Securities Pvt. Ltd.
55 Bhrikuti Stock Broking Co. Pvt. Ltd.
56 Shree Hari Securities Pvt. Ltd
57 Araya Tara Investment And Securities Pvt. Ltd.
58 Naasa Securities Co. Ltd.
59 Deevyaa Securities & Stock House Pvt. Ltd

The research highlights that there are several challenges faced by the investors in brokerage
service online trading systems and the most frequent problems faced by the investors were the
system software update or trade management system server lag, outdated technologies used,
political appointments, low governance, awareness, less transparency, low formulation of
policies and source of information, etc.

2.7 Need Analysis

According to NEPSE, there are 50 licensed brokers who facilitate share trading in Nepal. Their
transactions are largely domiciled in the Kathmandu Valley, barring a few who provide services
from outside. In fact, the Nepali capital market is Kathmandu-centric. Traders have faced major
congestion due to poor online systems of the broker agencies. There are 700,000 online traders
but only 50 stockbrokers

This is where new brokage license will give NEPSE the much-needed impetus with their wide
network, becoming a conduit between rural Nepal and the capital market. Granting new license
access to trading in the stock exchange will not only help expand its wings in the rural areas, but
also make it more efficient with their huge capital base. From the technological aspect, new
brokage could make large investments in trading technologies, such as appbased trading, online
selfmade trading, and iterative applications for investors’ analysis.

.
2.9 SWOT Analysis

SWOT is an acronym used to describe particular Strengths, Weaknesses, Opportunities and

Threats that are strategic factors for a specific company. It is an effective way to conduct
environmental scanning.

strength, Weaknesses, Opportunity and Threats due to internal and external environment has
been analyzed as follows:

Strength

The organizational leadership model comprises leadership team capable of formulating and
shaping a clear vision combined with a management team skilled in implementing and
revitalizing the vision over time. Infinity Brokerage stands for High quality professional service
by keeping the interest of the client as priority. Infinity Brokerage evaluate the options for
building a comprehensive IT system, automation and select, purchase and implement this system
to support planned services.

Weakness

As the number of peers in the industry have built their client base and established a platform for
their service, the customer or client base of the company to whom company provides service
may be considered as weakness for operation of the company. However, the company will strive
to establish sound customer service and relation practice to mitigate the impact of existing
weaknesses.

Opportunity

The expanding capitalization, increasing number of Initial Public offering of large values, need
of better service to increasing number of investors, widening scope of brokage industry and the
urge for professional brokage service has brought a lot of opportunities in capital market.
Financial sector development strategy has been implemented since the FY 2016/17 for financial
stability, access and inclusion. The indicators of financial sector stability in the FY 2020/21 are
satisfactory, this should create favorable environment and provides opportunity for merchant
bankers in investment and services.

Threats
The limited number of firms in the industry, scale of business of firms and knowledge and
information constraint on capital market may be a threat to further development and scope of
capital market. Unfavorable macro-economic indicators for the current fiscal year poses the treat
for the economy of the country in coming days. As a nature of business, the brokage business
could suffer adversely in such scenario. Existence of number of brokers in this small market has
also created threat to competition.

2.10 Strategic Objectives

The strategic objectives of Infinity Brokerage include:

To make the brokage business stable, the following basic strategies are being
undertaken
 Designing innovative products in the Brokage business by introducing best
international practices.
 Research-based decision-making for the execution of plan
 High-quality professional service by prioritizing the client’s interest
 High-quality team building
 Creating a friendly environment for all the stakeholders
 Taping the potential market outside Kathmandu Valley and the country
 Digitalization of service and technology adoption to provide quality services
conveniently to the widely dispersed client base
 Reliable and Timely service at competitive fee for the service
 Standardization of Operation
 Leaving a significant positive impact on the national economy

2.11 Product Plan and Justification

The product planning of Infinity Brokerage can be highlighted as below:
Trading

Online and Offline Trading

We will provide clients with a choice of both online as well as offline trading facilities. But we
will encourage our clients to trade online to enjoy more trading flexibility.

Cash Account
We will handle client orders for trading on equity shares, close-end schemes (mutual funds),
preferred stocks, government, and corporate bonds, and corporate debentures. In this segment,
investors can buy securities by using only their own equity.

Margin Trading

We will offer margin accounts to clients where they can borrow from us to partially finance
their purchase of securities.

Clearing & Settlement

We will be also the clearing member of CDS and Clearing Limited. We clear and settle all
trades done on behalf of clients through us.

Depository Participant (DP)

We will be a Depository Participant of CDS and Clearing Limited. We wll offer the following
services through our DP:

Opening of Benificiary Owner (BO) Account or Demat Account

Transction of securities through physical and electronic DIS

BO to BO transfer of securities

Dematerialization of physical certificates

Rematerialization of demat securities

Pledging and unpledging of securities

Online access to BO account through Meroshare

Online application in public issues through CAsba

CSR and Investor Awareness

Corporate Social Responsibility (CSR) is the responsibility of any corporate body towards the
society. It is carried out through benevolent activities for society by targeting environment,
employees, community, deprived sector and so on. The brokage industry is well connected to the
society having many stakeholders. Many countries have set up reporting standards and CSR laws
to make this industry socially responsible. Securities Board of Nepal (SEBON) has made a
provision for the parties involved in stock market to set aside at least one percent of their total
profit for the parties involved in stock market to set aside at least one percent of their total profit
for CSR. The Board has directed that the amount allocated for corporate social responsibility
should be spent especially on investor education and raising awareness. Likewise, while
spending in CSR, the expenditure should be distributed as per the need in all the states.

2.12 Analysis of Prospects

The prime role and essential reason for being a stock broker is to act as an agent on behalf of his
client. Stock brokerage helps to liquidate fund so that money easily circulates in economy which
helps to grow the economy of a nation. There are 700,000 online traders but only 50
stockbrokers. There is huge number of prospective customers around Katmandu. The financial
literacy of Nepalese people has been increasing and participants in the stock market have been
increasing day by day.

The poverty level of Nepal has decreased after liberalization. GDP per capita in Nepal is
expected to reach 920.00 USD by the end of 2022, according to Trading Economics global
macro models and analysts' expectations. In the long term, the Nepal GDP per capita is projected
to trend around 920.00 USD in 2023, according to our econometric models. Multidimentional
poverty reduced to 4.9 million people are multi-dimensionally poor, which is 17.4% of Nepal's
population. These improving indicators show good News for the Nepalese Capital Market in the
future.

During the FY 2021/22, turnover of Rs. 1.202 trillion has been realized. Accordingly, numbers
of transactions have reached to 14712483. There is increase in number of scripts traded during
the year to 362 which was 332 in previous fiscal year. The daily average turnover counts for Rs.
5.029 billion in the review year. NEPSE has total 234 companies listed with 6.77 billion number
of shares having paid up value of Rs. 667.75 billion till the end of fiscal year 2021/22. Additional
22 companies listed their 257.82 million ordinary shares having paid up value of Rs. 25.78
billion.

2.12 Macroeconomic Analysis

Central Bureau of Statistics has estimated economic growth of 5.84 percent for 2021/22.
Agriculture, industry and service sectors are estimated to grow 2.30 percent, 10.19 percent and
5.93 percent respectively. The y-o-y consumer price inflation stood at 8.08 percent in mid-July
2022 compared to 4.19 percent a year ago.

Number of companies listed at NEPSE reached 234 in mid-July 2022, out of which 146 are Bank
and Financial Institutions (BFIs) and insurance companies, 51 hydropower companies, 19
manufacturing and processing industries, 6 investment companies, 5 hotels, 4 trading companies
and 3 others. The number of companies listed at NEPSE was 219 in mid-July 2021. Similarly,
Share of BFIs and insurance companies in stock market capitalization remained 67.3 percent.
Such a share for hydropower companies is 11 percent, investment companies 6.9 percent,
manufacturing and processing industries 4.3 percent, hotels 1.6 percent, trading companies 0.4
percent and the share of other companies is 8.5 percent.

Securities worth Rs.237.61 billion were listed at NEPSE during 2021/22. Such securities
comprise government bond worth Rs.89.50 billion, bonus shares worth Rs.55.89 billion,
debenture worth Rs.53.22 billion, ordinary share worth Rs.23.28 billion, right share worth
Rs.11.97 billion and mutual fund worth Rs.3.75 billion. Securities Board of Nepal approved the
total public issuance of securities worth Rs.31.37 billion which includes debenture worth
Rs.12.48 billion, ordinary share worth Rs.7.20 billion, mutual fund worth Rs.6.9 billion and right
share worth Rs.4.79 billion in the review period.

2.13 Factors impacting Financial Brokers in Nepal Today

Last few years financial sectors have growing because of increasing participants in financial
markets. The Nepalese capital market did good in performance for a few years. The reason could
be the growing financial literacy as well as the development of financial technologies.
To look briefly at some of the broader factors impacting Financial Brokers, these are best
considered using PEST analysis – looking at the changes under the dimensions of Political,
Economic, Social, and Technological changes. It is a useful exercise for Financial Brokers in
determining proposition to consider all those factors that are affecting or likely to affect business.
The following is just a snapshot of some of the factors: by no means an exhaustive list.
Political
The political factors affecting business are often given a lot of importance. Several aspects of
government policy can affect brokerage performance. A new election has coming soon that may
bring a stable government. After an election new government may promise to bring in reforms
that will help the economy grow. This has led to an increase in investor confidence and a rise in
the stock market General elections will be held in Nepal on 20 November 2022 to elect the 275
members of the House of Representatives. There will be two ballots in the election; one to elect
165 members from single-member constituencies via FPTP, and the other to elect the remaining
110 members from a single nation-wide constituency via party-list proportional representation.
For the sustainable development of the Capital Market, a stable government and policy are
required.

Economic
 Central Bureau of Statistics has estimated economic growth of 5.84 percent for 2021/22.
Agriculture, industry and service sectors are estimated to grow 2.30 percent, 10.19
percent and 5.93 percent respectively.
 Financial Customer Protection, Digital Financial Literacy, and Financial Literacy
Training Guide will be issued under the Financial Literacy Framework 2022. Necessary
coordination will be done among GoN, the Ministry of Education, Centre for Syllabus
Development for the inclusion of Financial Literacy in the school syllabus.
 The poverty level of Nepal has decreased after liberalization. GDP per capita in Nepal is
expected to reach 920 USD by the end of 2022, according to Trading Economics global
macro models and analysts' expectations. In the long term, the Nepal GDP per capita is
projected to trend around 920.00 USD in 2023, according to our econometric models.
Multidimentional poverty reduced to 4.9 million people are multi-dimensionally poor,
which is 17.4% of Nepal's population.

Social
 Ageing population: The latest Census 2021 results showed that the number of older
people (aged over 65) has increased. Population ages 65 years and above as a share of
total population. In 2021, population aged 65 years and above for Nepal was 5.9 %.
Population aged 65 years and above of Nepal increased from 3.1 % in 1972 to 5.9 % in
 2021 growing at an average annual rate of 1.36%. In Nepal, young people account for
approximately 20.8 percent of total population of the country (age group 16-25 years)
while 40.68 percent of the population lies in the age group 16-40. Similarly 61% of the
population is between 15 and 64 years old, and 34.6% is younger than 14 years. This
creates challenges and opportunities for Financial Brokers in understanding the
requirements of these older and young clients.

 Need for advice: Consumers find the world of personal financial services extremely
complex and many recognise the need for advice. Financial Brokers need to ensure that
consumers understand and recognize the value of the independent advice that broker
offer.
Technological
 Opportunities to enhance customer service: New technologies offer great opportunities to
improve a Broker’s service proposition to customers and to reduce cost in the business.
 Social media explosion: Social media is now fully established and here to stay. Financial
Brokers need to fully understand the opportunities (and indeed the pitfalls) of building a
strong and engaging social media presence.
 Communication opportunities: With a myriad of tools available from email to social
media now available, there are great opportunities for broker to deliver engaging
communications to the customers at lower cost than before. Financial Brokers can engage
prospective customers and build loyalty with existing customers through structured use of
these technologies.