How many handwritten applications do SEBON and NEPSE want from Kaakaa, Hajurbaa, or Don to solve the problems of Nepal's Stock Market?

-Just a small investor of NEPSE

Sharesansar's disclaimer and editor's note: The author takes full credit and responsibility for the views presented. Nonetheless, as a veteran media portal of Nepal's capital market that has always stood up for investor-benefit, free-market governed only by laws of supply-demand, and transparent journalism without biases, Sharesansar openly applauds the views presented in the following article. 

In the history of NEPSE, two interesting things happened last week. One, the only stock index of Nepal reached an all-time high and closed at 2856.67 on 3rd June 2021. Second, an investor who is popularly known as “Kaka (Uncle) of share market” on social media- registered complaints to SEBON, NEPSE, and Bidhyut Niyaman Aayog against 3 companies (JOSHI, HDHPC, and KKHC) for not publishing their financials on time and demanded that trading of these companies needs to be halted.

The application by Mr. Kaka brought about heated discussion among the investor circle and regulatory authorities which compelled them to investigate. The stock trading of Khani Khola Hydropower Company was then halted on 3rd June 2021 for not publishing financial reports on time. Against the backdrop of such events that drove sharemarket and social media of investors into a new topic of gossip, this article shall try to raise some serious questions regarding the effect of jamming share transactions of a company.

Up to when shall SEBON and NEPSE remain asleep until some figure like Kaka, Mama, or Don of share market come with applications against companies that lack corporate governance? Is the job of officials at SEBON and NEPSE limited to reacting to concerns and problems only when raised by general investors? Shouldn't the authorities be proactive to find irregularities in the capital market themselves?

Is restricting trade of a company listed in the stock exchange (for not publishing its financial report on time) punishment to the management of such company or general stockholders? Kasto achamma type ko provison we have. Management of a company does not publish its necessary corporate disclosures as required by law and it seems: the punishment of the activity of inefficient management is slapped on public shareholders by restricting share trading of the companies.

The mere reason for halting transactions turns out to be the “safety of saanaa-sojhaa investors without adequate knowledge” investing in companies lacking corporate governance. The reason is itself questionable. If SEBON and NEPSE are concerned about the protection of investors willfully investing in a company without analyzing financials, doesn’t it mean the regulatory authority is turning a blind eye on all other existing public shareholders without any concern of their wealth?

What about the wealth of existing shareholders who just bought shares of the company a few days back. What about those who are holding shares for the last few months or years? Did it not freeze the assets of the public? Does it not violate the principle of free liquidity?

Will the chairman of SEBON, CEO of NEPSE or the Board of Directors of the company be responsible for the manipulation in investor sentiment caused by the trading halt of the company? What if a shareholder goes to court asking for compensation for loss caused by share trading stoppage?

The provision of freezing share trading of a public company listed in the stock exchange goes against the universally agreed principle of a free market. Shareholders of any public company listed in the stock exchange trade shares frequently with every transaction. People having positive expectations about any company may buy stocks while those who sense bad prospects regarding the company might sell the stocks. However, restricting the stock trade of the company directly prohibits free entry and exit from the company. This is against the free market mechanism upon which the foundation of every capital market rests on.

Separation of ownership and management is the driving force of a public company listed in a stock exchange. Once a year, all shareholders meet for an annual general meeting and provide their consent and trust for the selection of the Board of directors which thereafter appoints Management for the day-to-day functioning of the company.

On any company listed on a stock exchange, the general shareholders do not have the power to interfere with any affairs of the company. As stocks can be bought and sold daily, the shareholders- in normal situations, unless upon certain circumstances as specified in law- have to wait till the annual general meeting to raise their concern. This is to mean those general investors who hold stocks do not have the right or responsibility of operating a company.

Therefore, the responsibility of managing operating affairs and making decisions of the company lies on heads of the management and Board of Directors who guide the management. In this case, the management has the obligations to fully comply with regulations, maintain books of account and act by full honesty and integrity for the sake of the company and shareholders including publishing financial data within a prescribed time frame.

Therefore, non-compliance of corporate disclosure issues like non-submission of financials to regulatory authority resulting in halting of trade in the stock exchange is caused by the irresponsibility of management of the company/BOD. General shareholders not in any way should be responsible for this. Thus, it is not justifiable that general stockholders be punished by way of restriction of stock trading resulted due to carelessness of management of the company.

In my opinion, the cost of irregularity needs to be borne by BOD/Management. Penalties and fines are to be levied personally on people of BOD and the management instead of passing the cost of non-compliance to general shareholders.

Surprises and uncertain behavior of regulatory authorities make our stock exchange quite frightening to investors. Such authoritarian moves have degraded the environment for the development of the capital market. Trading of any company can be halted all of sudden without any significant reason. It seems like neither NEPSE nor SEBON has a strong heart to punish the personnel involved in irregularities.

To date, the only best way NEPSE has felt good to punish the management of any company for its inefficiency is by halting the share trading of the company, which impacts shareholders more than the company. On a similar note, stocks of companies for merger/acquisition are halted for more than 18 months but no effort has been shown by the authorities for the sake of investors.

Also, when any broker is unable to settle funds within time (closeout), NEPSE restricts the broker company from trading which in turn results in general people having trading accounts maintained on the broker to lose market opportunities. It has been felt every time that only general people suffer due to the irregularity of others. Isn't the thing to be sorted out? Or Are NEPSE/SEBON awaiting some handwritten application by Kaka, Hajurbaa, or Don-like figure to resolve the issue?

Are there only 3 companies in NEPSE which have not published data on time? Is it not questionable for know-it-all-like-figure: Mr. Kaka to not raise questions that there are other companies too that have not published financials on time? Though the courage of Mr. Kaka is commendable for raising concern to regulatory authority at the same time, should not common general investors analyze the intention of the person for mentioning only 3 companies of a particular sector in application registered at SEBON/NEPSE while there are many others not publishing a quarterly report on time? Is only publishing quarterly reports sufficient? What about companies that have not concluded AGMs for years?

Hence, it is due time that requires general investors to raise their voice against malpractices in companies and the stock market to make the foundation of the capital market stronger. When shall our regulatory authorities understand that halting stock trading is not a punishment to the company but punishment to innocent investors? The time is approaching: investors need to stay united for the betterment and fair practices of the capital market and be alert against inefficiency shown by regulatory authorities.

-Just a small investor of NEPSE