Parliament Registers "Securities Related (First Amendment) Bill, 2081" Proposing Key Reforms and New Provisions

The "Securities Related (First Amendment) Bill, 2081" has been introduced in Parliament, proposing significant changes and new provisions to the existing Securities Act, 2063. The bill aims to modernize and expand the legal framework governing securities in Nepal to address emerging needs and enhance regulatory clarity.

One of the key amendments is the introduction of "central depository services" through the addition of clause (ga1) to Section 2 of the Securities Act, 2063. This amendment defines the central depository service as the entity responsible for the electronic dematerialization of securities and the maintenance of a central record for organized institutions. This new provision aims to streamline the management of securities in digital form, ensuring greater efficiency and security in the market.

Another significant amendment is the formal recognition of derivative products, which had previously lacked a clear legal definition. By adding clause (gha1) after clause (gha) in Section 2, the bill defines derivatives as financial instruments traded in the securities market, including forwards, futures, options, or swaps, based on the value or index of listed securities. These instruments are required to have a minimum settlement period of 30 days. This change is expected to facilitate the introduction and regulation of derivative products in Nepal's financial markets.

The bill also proposes the inclusion of "specialized investment funds" within the legal framework, introducing clause (ta1) after clause (ta) in Section 2. This amendment will officially recognize private equity funds, venture capital funds, hedge funds, and other similar investment vehicles that are registered with the Securities Board of Nepal (SEBON). This provision is likely to encourage the development of diverse investment options and enhance the sophistication of the market.

Additionally, the bill proposes removing the representative of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and a member from the Institute of Chartered Accountants of Nepal (ICAN) from SEBON's Board of Directors. This change reflects a shift in the composition of the board, likely aimed at enhancing its independence and effectiveness.

To further clarify the regulatory environment, the bill introduces a new Section 63 (a) after Section 63, which explicitly defines margin trading. Under this provision, securities firms will be allowed to offer margin loans to investors for trading up to a specified limit. The regulations will determine the interest rates, fees, and other related conditions, providing clear guidelines for margin trading activities.

Additionally, the bill introduces a new Section 86 (a) after Section 86, granting SEBON the authority to request banking transaction records from Nepal Rastra Bank. This provision will support investigations related to securities transactions conducted by individuals, companies, or organized institutions, enhancing transparency and accountability in the market.

Lastly, the amendment introduces a post-tenure employment restriction for individuals who have served as the chairman or senior officials (first-class rank or above) of SEBON. A new Section 111 (a) will be added after Section 111, prohibiting these individuals from working in any capacity within a listed company or an institution licensed by SEBON for two years after leaving office. However, this restriction does not apply to positions appointed by the Government of Nepal.