Sebo Journal 1

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

Thapathali, Kathmandu
2 SEBO Journal, Vol.I, June 2004
Towards Good Corporate Governance
- Deepak Raj Kafle
1.1 Transparency, accountability, information disclosures and stringent ethics

practiced by companies are fundamental in winning investors' confidence.
Capital market and so the corporate sector cannot develop with weak
minority shareholders, inadequate or non-disclosures, violation of laws,
non-compliance to the rules and regulations and lack of independent
oversight of the directors. Nepalese corporate sector has yet to establish
good governance practices and become more competitive sector of the
economy.
1.2 In today's liberalized environment, corporate sector demands reduced

interference by the government. It is in this context that operation of the
companies should be transparent and they should adopt good corporate
governance practices. The government has also very important role to
promote good governance. It has the responsibility to shape the legal,
institutional and regulatory climate so that it provides incentives for the
development of individual corporate governance systems.
2. As a regulator, Securities Board (SEBO) wants to see improved image of

Nepalese corporate sector. It is presently involved in implementing
government's capital market reform program that affects many aspects of

Chairman, Securities Board, Nepal
SEBO Journal, Vol.I, June 2004 3
corporate governance. This infrastructure and capacity building program

would help to establish appropriate framework for good corporate
governance. These initiatives together with the legislative reforms taking
place are briefly mentioned below:
Consistent legal framework
2.1 Improved corporate governance emanate from consistent legal framework.

Various aspects of companies including its governance are generally
provisioned in Companies Act and Securities Act. Harmonization and
qualitative improvement in these two laws are taking place. A new Bank
and Financial Institutions Act has already been issued as an ordinance
whereas a new Securities Act and New Companies Act are in the
legislative process. These acts are important to give a clear institutional
framework for Nepal Rastra Bank (The Central Bank), SEBO and the
Company Registrar’s Office (CRO) and they clearly define their regulatory
jurisdictions. However, the delay in adopting the company and securities
legislation is seriously hampering the reform in corporate governance
framework.
Institution Building
2.2 The government has signed a contract with the Asian Development Bank
to implement a Financial and Corporate Governance Project. It has capital
market, judiciary reform and payment system development components.
The capital market component addresses the capacity building needs of
Securities Board and Company Registrar’s Office, modernization and
professionalization of Nepal Stock Exchange Ltd. (NEPSE) and
establishment of Central Depository System.
2.3 SEBO's role as an effective regulator can be realized through enhanced

policy development and rule making capacity, supervisory effectiveness,
investigation and enforcement actions and proper research and educational
roles. Establishment of comprehensive MIS, rules benchmarked to
international standards, organization restructuring and strengthening
functional areas are the key reform measures envisaged under the project.
These initiatives also include developing and prescribing corporate

governance codes for companies.
2.4 Modernization of NEPSE would allow it to facilitate low cost and efficient
transactions. The project plans to improve professionalism of its staff,
setting up of MIS and preferably an electronic trading system, self-
regulatory compliance and low-cost dispute settlement mechanism.
Corporate governance enhancement is expected to be in the form of listing
rules, which the stock exchange monitors.
2.5 To supplement stock exchange efficiency, Central Depository System, a

mechanism to facilitate a risk-free and efficient transfer of securities is
being planned.
2.6 The capacity building of the CRO deals with the up-gradation of the
company registration system, its MIS and other organizational aspects.
Financial Disclosures
2.7 Improved financial transparency and disclosure is the basis of sound

corporate governance that also highlights risk profile on investment.
Accounting and Auditing Standards are converging towards international
best practices with the progress in the activities of Accounting Standards
Board and Auditing Standards Board under the umbrella of the Institute of
Chartered Accountant, Nepal, Act. However, there is a need for developing
practical and effective means to implement the standards. Capacity of these
agencies has to be enhanced to build accounting and auditing manpower
and to enforce the standards.
Judiciary Reform
2.8 Another set of reform is taking place in improving legal enforcement

mechanism and judicial capacity. This includes establishment of National
Judicial Academy to ensure effective skills development of judges and
lawyers in commercial and financial matters. Establishment of legal
information center as a center repository of all laws and regulation and for
judgments by judiciary, establishment of commercial bench and dispute
resolution are the initiatives that would be helpful, although indirectly, to

promote corporate governance.
2.9 The legal and institutional framework is evolving to become progressively

supportive of the corporate governance practices. The new Bank and
Financial Institutions Ordinance has come out with the provision of
independent director (a professional expert but without voting rights), has
stipulated qualification/experience for directors and CEOs and clear
sanctions available for cases of non-compliance. The proposed Companies
Act is believed to come out with more on corporate governance such as
responsibility and accountability of directors, provision of independent
directors with voting rights and audit committee.
2.10 Some basic tenets of corporate governance could come in the mandatory
form but the main responsibility for maintaining good governance lies
within the companies themselves. It is where further efforts of SEBO
should be focused. It has to be well understood that the growth in number
of listed companies and participation of small investors depends on the
governance practices.
3 Survey on Corporate Governance
3.1 SEBO conducted a survey on corporate governance practices by collecting

views of directors and senior executives covering wide range of issues
regarding governance. Though the response rate was merely 12% (27 out
of 224) covering 16 listed companies, it has provided meaningful insight
into the corporate governance situation.
3.2 Promoter domination, separation of chairman and CEO in most of the

companies, use of delegated committees (including Audit, Accounting,
Recruitment and Promotion Committee) were observed to be in practice in
some companies. The respondent directors favored the induction of
independent directors, expressed the need of availing more information for
the effective boardroom discussion and decision-making. They also
endorsed professionalization to be useful to achieve corporate goals.
3.3 The respondents said the types of strategic alternatives and plans that they
were presented with were operational and policy guidelines, budgetary
outlay and targets and business expansion.. They used to review on matters
especially concerned with investments. Even though the respondents found
adequacy in their present internal control system, they have suggested
enhanced compliance culture by upgrading the role of company secretary
and having a system of compliance audit.
3.4 The respondents are in favour of upgrading accounting standards. They

have suggested that board should take a role to review preliminary annual
report and views of analysts and upgrade the financial reports accordingly.
They also agreed that the board should understand the information
requirement of the corporate stakeholders and endorsed the necessity of
financial as well as non-financial information to justify the share price.
3.5 The responsibilities of the board regarding social, ethical and

environmental aspects were well understood by the respondents. They also
agreed to have mechanism to address the cases of non-compliance by the
management.
3.6 This survey showed that corporate directors and executives have
recognized many elements of corporate governance and some of which are
already in practice too. They agreed to the necessity of adopting good
governance and the code of ethics. It is important to note that they have
suggested for co-operation with the regulators to work for the improvement
of corporate governance.
4 Framework of Discussion
While appreciating the above-mentioned views of corporate directors and

executives one can be enthused and work to move towards good corporate
governance practices. These principles should be discussed, refined and adopted
by the listed companies in a gradual manner, initially may be in a voluntary basis
and ultimately as mandatory codes. The following elements, which are also in
practice in many other countries, have been briefly mentioned as a suggestion to
start discussion with the companies, business community, regulators and
professionals:
The Board of Directors
4.1 The fiduciary responsibility and trusteeship role of directors, collective and
individual, should be well understood and established. The focus of
corporate board reform should be directed to bring in the independent,
more professional, meritorious and competent person rather than merely
relatives and close associates of the promoters. There should be specified
number of independent directors and ensure their participation in the
oversight role (e.g. by involving them in audit committee, remuneration
committee etc). Board with executive chairman should have at least 50
percent non-executive directors to give fair ground for independent views
on discussion and decision-making.
Audit Committee
4.2 It is important to ensure that financial disclosures and statements are

correct and credible. The Audit Committees could also help in reducing, if
not eliminating frauds, irregularities or failure of internal control system
within the organization. A three-member committee with majority of
independent directors and at least one with finance and accounting
background would be appropriate.
Remuneration of Directors
4.3 Remuneration (setting fees, profit sharing etc.) should be as decided by the
Board of Directors and there be adequate disclosure to the same in the
annual report. This will deter the board from giving disproportionate
remuneration to the directors by the promoter.
Board Procedures
4.4 The statutory and non-statutory information desired by the board should be
brought to the knowledge of the directors. Requiring minimum information
made available to the director enabling studied decision regarding
operational plans, capital expenditures plans, joint venture or collaboration
arrangements would help. The board be informed of the show-cause
notices, demands, non-compliance cases, accidents, environmental
pollution and labour problems. The board is expected to be effective when

its information needs are properly addressed.
Management
4.5 Directors' report should have Management Discussion and Analysis

Report, which should discuss industry structure and developments,
opportunities and threats, segment-wise and product-wise performance,
outlook and such other matters. Management analysis is bound to give
much needed information and insight into the working of the company,
apart from making the management think, plan and act appropriately as per
the needs of the business.
Shareholders
4.6 The shareholder should be provided with brief resume of the directors
when a new appointment/reappointment takes place. The board should
constitute a committee to address the investors' complaints.
Financial Disclosures
4.7 Publication of mandatory financial disclosures such as annual and half-

yearly reports may not be sufficient; publication of half-yearly reports after
having reviewed and adopted by the board, inclusion of earning data would
enhance the quality of reports. After the half yearly reporting is in order,
shifting to quarterly reporting system would help the investors to be
informed of companies performance more accurately in a timely manner.
Besides, the standard of accounting and auditing should converge to the
international norms and practices.
Reporting and compliance Arrangements
4.8 Once the governance norms are agreed and implemented, corporate
governance reports should be a part of the annual reports. The company
should be required to obtain certificate from auditors of the company
regarding compliance to the governance codes.
***
Fundamentals of Stock Returns in Nepal

DR. RADHE S. PRADHAN AND MR. SURYA B. BALAMPAKI
ABSTRACT
This study deals with fundamentals of stock returns in Nepal. It examines if dividend
yield, capital gain yield and total yield are related to earnings yield, size, book to market
ratio and cash flow yield. The study is based on pooled cross sectional data of 40
enterprises whose stocks are listed in Nepal Stock Exchange Limited and traded in the
stock market. The study reveals that earnings yield and cash flow yield have significant
positive impact on dividend yield, and an insignificant impact on book to market value.
However, the size has a negative impact on dividend yield. In the case of earnings yield
and cash flow yield, cash flow yield has been found to be more informative than earnings
yield. Likewise, it is observed that capital gain yield is positively influenced by earnings
yield and size, whereas, the same is negatively influenced by book to market value and
cash flow yield. Book to market value has been found to be statistically strong in
predicting capital gain yield. Similarly, it is noticed that total yield is positively
determined by earnings yield and size, whereas, the same is negatively determined by
book to market value and cash flow yield. Book to market value has been found to be
more informative than other variables. The study also revealed the positive relationship
among earnings yield, book to market value and cash flow yield. However, the size is
negatively related to these three variables.
1. Introduction
Among the various empirical contradictions, the cross-sectional relationship
between stock returns and fundamental variables has been studied extensively in
the US and Japan. In general, positive relationship has been observed between
equity returns and earnings yield, cash flow yield and book to market ratio, and a
negative relationship between equity returns and size, e.g., Basu (1977, 1983),
Banz (1981), Reinganum (1981), Cook and Rozeff (1984), Lakonishok and
Shapiro (1986), Banz and Breen (1986), Jaffe, Keim, and Westerfield (1989), and
Ritter and Chopra (1989). The traditional mean-variance analysis developed by
Markowitz (1956) and SLB Model (Sharpe (1964), Lintner (1965) and Black
(1972)) have indicated that the returns are determined by risk (beta) factors.
However, Ross (1976) and other empirical studies by Fama (1991), Chan, Hamao
and Lakonishok (1991), and Fama and French (1992) have suggested that the
fundamental variables such as earnings yield, size, book to market value, cash
flow yield and leverage etc. are the important determinants of the stock returns.

Dr. Pradhan is Professor, Central Department of Management, Tribhuvan University, Kirtipur,
and Mr. Balampaki is associated with Nepal Credit and Commerce Bank Ltd.
The shortcomings of accounting earnings have motivated a number of recent

papers to explore the relationship between cash flow yields and stock returns
(Bernard and Stober (1989) and Wilson (1986). They observed more significant
positive relationship of stock returns with cash flow yield than that of earnings
yield. Rosenberg, Reid and Lanstein (1984) studied the relationship between
stock returns and book to market ratio. They found most significant positive
relationship between stock returns and book to market ratio. The selection of
such fundamental variables has been guided more by any explicit theoretical
model. Ball (1978), Fama (1991) and Fama and French (1988) have suggested
the reasons why such variables might help to predict returns. In particular, yield
surrogates such as the earnings yield and the dividend yield are correlated with
returns because they proxy for underlying risk not otherwise accounted for by
traditional measures such as beta.
Stattman (1980), and Rosenberg, Reid and Lanstein (1985) have found that
average returns on the US stocks are positively related to the firm’s book to
market ratio. The study by Chan, Hamao and Lakonishok (1991) related the
cross-sectional differences in stock returns on Japanese stocks to the underlying
behaviour of four fundamental variables: earnings yield, size, book to market
ratio and cash flow yield. Of the four variables considered, book to market value
ratio and cash flow yield have been found to be most significant positive impact
on expected returns. Basu (1983) found that the earning-price ratio (E/P) helps to
explain the cross-section average returns on the US stocks.
According to SLB Model returns are positively related to risk, but the study by
Fama and French (1992) did not find the same. The study attempted to indicate
the extent to which the size and book to market equity has captured the cross-
sectional variation in average returns for the period of 1983-1990. Davis (1994)
observed that book to market ratio, earnings yield and cash flow yield have
significant explanatory power with respect to the cross section of realized stock
returns during the period of July 1940 to June 1963. The study by Banz (1981)
documented that the stocks with larger market equity have lower returns. The
size effect became weaker when beta and expected returns were allowed to vary
over time (Jagannathan and Wang: 1996, 53). Ball (1978) revealed that earning
price (E/P) was likely to be higher for stocks with higher risks and expected
returns. Wiggins (1991) also revealed that the market adjusted stock returns are
directly related to E/P and they have positive relationship. Similarly, Verma
(1994) observed positive relationship between profitability and dividends.

Though there are these studies conducted in developed capital markets, their
relevance is yet to be seen in a smaller and under-developed capital market like
Nepal.
In Nepalese context, stocks with larger price earning ratio seemed to have lower
liquidity, profitability, assets turnover and interest coverage, and higher leverage
(Pradhan, 1993). It was reported that there is a negative relationship between
dividend yield and size (market equity). Timilsina (1997) revealed that the
relationship between dividend per share and stock price is positive, and dividend
per share affects the share price variedly in different sectors. Manandhar (1998)
observed that dividend per share, return on equity and dividend yields have the
significant impact on market capitalization, whereas, price-earning multiple has
no significant impact. The study also observed the negative relationship between
dividend yield and market value, and positive relationship between dividend per
share and market value of equity. Similarly, Adhikari (1999) indicated that the
stocks with larger dividend yield have higher earnings, liquidity, assets turnover
and interest coverage. However, the study indicated negative relationship
between dividend yield and leverage. Clearly, these studies have attempted to
deal with only a few relationships described earlier.
The general conclusion of the above-mentioned empirical studies is that stock

returns are determined not only by a single factor but by a number of different
fundamental variables. This study therefore aims at analyzing the relationship of
stock returns with the underlying behaviour of fundamental variables by
estimating summary statistics and various regression models in the context of
Nepal. To sum up, this study deals with the following issues:
 What are the relationships of stock returns with fundamental variables?

 Are there equal contributions of earnings yield and cash flow yield in
predicting stock returns? If not, what could be the reasons for the
discriminations?
 What are the roles of size and book to market equity ratio in explaining the
stock returns?
 Do the large sized companies have higher stock returns?
 What kind of relationship exists among earnings yield, size, book to market
equity ratio and cash flow yield?
The remainder of this paper is organized as follows. Section 2 describes research

methodology employed in this study. It includes selection of enterprises for the
study, nature and sources of data, and model to be estimated. Section 3 provides
presentation and analysis of the data. Finally, the results are summarized in
Section 4.
2. Research Methodology
Nature and sources of data

This study is based on secondary data only. The necessary data and information
have been collected from various sources covering a period of 5 years, i.e.,
1995/96 to 1999/00. There were 115 Nepalese enterprises listed in the NEPSE
Ltd. by the end of FY 2000/01, which is regarded as size of the population for the
study (SEBO/N: 2001, 15-19). This study does not cover all the Nepalese
enterprises because of data problem. Moreover, the study period begins only
from 1995/96. In the absence of valid and reliable data, the study periods for each
selected enterprises are not homogeneous in nature. To analyze the relationships
among different variables, study uses pooled cross-section data of 40 enterprises
as shown in Table 1.
Table 1
Selection of companies, period of study, and number of observations
S.N. Name of the Companies Study period Observations
A. Banks
1. Bank of Kathmandu Ltd. (BOK) 1998/99 to 1999/00 2
2. Nepal Bangladesh Bank Ltd. (NBB) 1996/97 to 1999/00 4
3. Himalayan Bank Ltd. (HBL) 1996/97 to 1999/00 4
4. Nepal SBI Bank Ltd. (NSB) 1996/97 to1999/00 4
5. Standard Chartered Bank Nepal Ltd. (SCB) 1996/97 to 1999/00 4
6. Everest Bank Ltd. (EBL) 1996/96 to 1999/00 4
Total Observations 22
B. Finance Companies
7. National Finance Co. Ltd. (NFC) 1996/97 to 1999/00 4
8. Lalitpur Finance Co. Ltd. (LFC) 1998/99 to 1999/00 2
9. Narayani Finance Ltd. (NFL) 1997/98 to 1998/99 2
10. Mahalaxmi Finance Co. Ltd. (MFC) 1996/97 to 1999/00 4
11. Ace Finance Co. Ltd. (ACE) 1996/97 to 1999/00 4
12. Nepal Housing & Merchant Finance Ltd. (NHMF) 1997/98 to 1998/99 2
13. Annapurna Finance Co. Ltd. (AFC) 1996/97 to 1999/00 4
14. Nepal Housing Development Finance Co. Ltd. (NHD) 1996/97 to 1999/00 4
15. Goodwill Finance & Investment Co. (Nepal) Ltd. (GFC) 1998/99 1
16. Nepal Share Markets Co. Ltd. (NSM) 1995/96 to 1998/99 4
17. Nepal Finance & Saving Co. Ltd. (NFS) 1996/97 to 1999/00 4
18. NIDC Capital Markets Ltd. (NCM) 1996/97 to 1999/00 4
19. Citizen Investment Trust (CIT) 1996/97 to 1998/99 3
S.N. Name of the Companies Study period Observations

20. Universal Finance & Capital Markets Ltd. (UFCM) 1997/98 to 1999/00 3
21. HISEF Finance Ltd. (HSF) 1996/97 to 1999/00 4
C. Insurance Companies
22. National Life & General Insurance Co. Ltd. (NLG) 1996/97 to 1998/99 3
23. United Insurance Co. Ltd. (UIC) 1995/96 to 1998/99 4
24. Neco Insurance Co. Ltd. (NIC) 1998/99 1
25. Himalayan General Insurance Co. Ltd. (HGL) 1995/96 to 1998/99 4
26. Premier Insurance Co. (Nepal) Ltd. (PIC) 1995/96 to 1998/99 4
27. Nepal Insurance Co. Ltd. (NICL) 1995/96 to 1998/99 4
28. Everest Insurance Co. Ltd. (EIC) 1995/96 to 1998/99 4
D. Hotels
29. Yak & Yeti Hotel Ltd. (YHL) 1995/96 to 1998/99 4
30. Soaltee Hotel Ltd. (SHL) 1995/96 to 1998/99 4
E. Manufacturing and Processing Companies
31. Nepal Lever Ltd. (NLL) 1996/97 to 1999/00 4
32. Bottlers Nepal (Tarai) Ltd. ( BNT) 1995/96 to 1998/99 4
33. Bottlers Nepal (Balaju) Ltd. (BNB) 1996/97 to 1998/99 3
34. Jyoti Spinning Mills Ltd. (JSM) 1995/96 to 1998/99 4
35. Nepal Lube Oil Ltd. (NLO) 1995/96 to 1998/99 4
36. Khadya Udyog Ltd. (KUL) 1997/98 to 1998/99 2
F. Trading Companies
37. Salt Trading Corporation Ltd. (STC) 1995/96 to 1998/99 3
38. Nepal United Co. Ltd. (NUC) 1995/96 to 1998/99 4
39. Bishal Bazar Co. Ltd. (BBC) 1996/97 to 1999/00 4
G. Others
40. Necon Air Ltd. (NAL) 1995/96 to 1998/99 4
Grand Total Observations 139
Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com.
Thus the study is based on 139 observations. The enterprises selected for the
study can be considered representative of banks, finance companies, insurance
companies, hotels, manufacturing and processing companies, trading companies
and airlines.
Models
The study, among others, attempts to estimate various econometric models to

confirm the relationship between stock returns and fundamental variables and to
test the robustness of the results. The alternative statistical specifications are also
attempted in each case where necessary in order to obtain the best possible
results. The study examines the relationship of stock returns (R) such as,
dividend yield, capital gain yield and total yield with fundamental variables such
as, earnings yield (E/P), size (LS), book to market equity ratio (B/M) and cash
flow yield (C/P) of Nepalese enterprises by estimating various models. The
theoretical statement of the models is that the stock returns (R) may be regarded
as subject to the constraints of earnings yield (E/P), size (LS), book to market
equity ratio (B/M) and cash flow yield (C/P). The theoretical statement may be
framed as under:
R = f(E/P, LS, B/M, C/P) …(I)
The equation to be estimated has, therefore, been specified as under:
R = a + b1(E/P) + b2(LS) + b3(B/M) + b4(C/P) + Ui …(II)
Where, dependent variable, R chosen for the study has been specified as under:
 DY = Dividend yield or dividend per share to market price per share, i.e.,
D1/P0.
 CY = Capital gain yield or capital gain per share to market price per share,
i.e., (P1-P0)/P0.
 TY = Total yield or dividend per share plus capital gain per share to market
price per share, i.e., (D1+P1-P0)/P0.
The independent variables are specified as under:

 E/P = Earnings yield or earning per share to market price per share.
 LS = Size or market capitalization.
 B/M = Book value of equity per share to market value of equity per share.
 C/P = Cash flow yield or earning per share plus depreciation expenses per
share to market price per share.
 Ui = Disturbance or error term.
The summary statistics are studied to examine the relationship between stock
returns and fundamental variables. The study is conducted at a portfolio level and
sorts out all the sampled securities into four portfolios. The summary statistics
for portfolios have been sorted by earnings yield, size, book to market equity
ratio and cash flow yield, viz., Panel A, Panel B, Panel C and Panel D
respectively. The low to high ratios of fundamental variables are provided in
portfolios 1 to 4 for each panel. Forming more than four portfolios based on
various ratios of fundamental variables would yield too few stocks per portfolio.
In other words, splitting stocks into more than four portfolios reduces the sample
sizes. For each portfolio, average ratios are computed.
3. The Results
Table 2 sorts out all the sampled securities into four portfolios. The summary
statistics for portfolios have been sorted out by earnings yield, size, book to
market value ratio, and cash flow yield, and are shown in Panels A, B, C and D
respectively. The low to high ratios of fundamental variables are provided in
portfolios 1 to 4 for each panel. For each portfolio, various ratios of dividend
yield, capital gain yield, total yield, earnings yield, size, book to market value
ratio and cash flow yield are computed. They are then classified according to
above, and average ratios are computed.
In panel A of Table 2, the portfolios sorted by earnings yield have been

presented. The stocks with high earnings yield have higher dividend yield, higher
capital gain yield and higher total yield. The average dividend yield increased
from 1.00 percent for the low to 11.14 percent for the high portfolio. Similarly,
the average capital gain yield increased from –2.70 percent for the low to 28.54
percent for the high portfolio. The average total yield also increased from –1.70
percent for the low to 39.68 percent for the high. The stocks with high earnings
yield are less variable than that of low earnings yield. However, the dividend
yield, capital gain yield and total yield for the high portfolio are more variable as
compared to low earnings yield portfolio.
Furthermore, size variable is negatively related with earnings yield, whereas,

book to market value ratio and cash flow yield are positively related with
earnings yield. The average of size decreased from 24.40 million for the low to
12.12 million for the high earnings yield portfolio. Moreover, the size for the low
portfolio is more variable than that of high earnings yield portfolio. The average
book to market value ratio increased from 0.39 times for the low to 1.19 times for
the high earnings yield portfolio. Similarly, the average of cash flow yield
increased from –2.25 percent for the low to 33.59 percent for the high portfolio.
However, both book to market value ratio and cash flow yield for the low are
more variable as compared to high earnings yield portfolio.
Table 2
Summary Statistics for Portfolios Sorted by Fundamental
Variables
Average yearly dividend yield (DY), capital gain yield (CY), total yield (TY), earnings to price
(E/P) ratio, size (LS i.e., market capitalization), book to market (B/M) ratio, and cash flow to price
(C/P, i.e., earnings plus depreciation divided by price) ratios, for portfolios sorted by the four
fundamental variables over the period of 1995/96 to 1999/00 of 40 enterprises with 139
observations. Figures in parentheses are standard deviations and N denotes the number of
observations in each portfolio.
Panel A: Sorted by Earnings to Price (E/P) Ratio

Portfolios 1 (Low or smallest) 2 3 4 (High or
Bases of Portfolio <4.00 4.00 to 10.00 10.00 to 18.00 largest)
>18.00
Dividend Yield (percent) 1.00 3.65 5.93 11.14
(3.18) (3.00) (3.80) (8.15)
Capital Gain (percent) -2.70 53.75 17.38 28.54
Yield (44.25) (90.16) (37.16) (47.51)
Total Yield (percent) -1.70 57.40 23.31 39.68
(44.30) (90.34) (36.78) (47.63)
E/P (percent) -8.12 6.96 14.15 29.88
(26.71) (1.76) (2.33) (11.21)
Size (in million) 24.40 233.81 132.22 12.12
(5.16) (1.70) (1.30) (1.04)
B/M (times) 0.39 0.53 0.85 1.19
(0.66) (0.35) (0.33) (0.51)
C/P (percent) -2.25 9.15 16.91 33.59
(17.52) (3.28) (4.01) (14.61)
N 33 37 35 34
Panel B: Sorted by Size (LS)
Portfolios 1 2 3 4(High or
Bases of (Low or smallest) 32.61 to 80.20 80.20 to 485.17 largest)
Portfolio ≤32.61 ≥485.17
(8.43) (4.34) (5.52) (3.07)
Capital Gain (percent) 8.76 21.02 38.13 41.02
Yield (31.48) (56.78) (79.80) (71.68)
Total Yield (percent) 17.35 26.72 42.20 44.93
(28.10) (56.84) (80.27) (71.24)
E/P (percent) 20.46 8.48 9.61 7.67
(16.74) (29.34) (16.33) (4.40)
Size (in million) 15.25 49.13 187.63 1047.84
(0.48) (0.25) (0.57) (0.69)
B/M (times) 1.39 3.64 0.59 0.32
(0.41) (17.05) (0.29) (0.18)
C/P (percent) 22.86 14.33 14.02 10.22

(16.98) (20.44) (15.90) (5.76)
N 35 35 36 33
Panel C: Sorted by Book to Market (B/M) Ratio
Bases of ≤0.40 0.40 to 0.70 0.70 to 1.10 largest)
Portfolio ≥1.10
(2.02) (5.93) (5.71) (8.26)
Yield (98.17) (46.11) (43.34) (21.99)
(96.58) (47.64) (42.33) (26.13)
E/P (percent) -3.37 13.16 14.32 22.80
(27.33) (8.80) (11.31) (15.79)
Size (in million) 159.89 180.28 41.04 26.43
(4.81) (1.11) (0.91) (1.13)
B/M (times) 0.14 0.57 0.94 1.47
(0.39) (0.10) (0.12) (0.37)
C/P (percent) 3.23 15.73 17.75 25.37
(16.29) (11.18) (14.77) (16.14)
N 35 36 35 33
Panel D: Sorted by Cash Flow to Price (C/P) Ratio
Bases of portfolio ≤6.50 6.50 to 13.00 13.00 to 22.00 largest)
≥22.00
(1.92) (3.20) (4.07) (8.64)
Yield (86.51) (70.79) (44.11) (40.55)
(86.92) (71.13) (44.06) (41.88)
E/P (percent) -6.69 7.86 14.26 29.89
(27.90) (2.39) (6.60) (12.09)
Size (in million) 128.32 191.42 79.40 39.82
(1.80) (1.60) (1.27) (1.29)
B/M (times) 0.40 0.59 0.85 1.23
(0.61) (0.35) (0.34) (0.50)
C/P (percent) 1.25 9.95 17.37 34.88
(15.68) (1.89) (2.16) (14.28)
N 35 35 35 34
In Panel B of Table 2, the portfolios sorted by firm’s size are presented. It shows
that larger stocks have lower dividend yield. The average dividend yield
decreased from 8.59 percent for the smallest to 3.91 percent for the largest
portfolio. However, the dividend yield for the smallest portfolio is more variable
as compared to largest portfolio. In contrast to the dividend yield, larger
portfolios have higher capital gain yield and total yield. The average of capital
gain yield increased from 8.76 percent for the smallest portfolio to 41.02 percent
for the largest portfolio. Similarly, the average total yield increased from 17.35
percent for the smallest portfolio to 44.93 percent for the largest portfolio.
Moreover, both capital gain yield and total yield for the smallest portfolio are less
variable than that of largest portfolio.
Besides, the negative relationship of size has been observed with earnings yield,
book to market value ratio and cash flow yield. The average earnings yield
decreased from 20.46 percent for the lowest portfolio to 7.67 percent for the
largest portfolio. Similarly, the average of book to market value ratio decreased
from 1.39 times for the smallest to 0.32 times for the largest portfolio. The
average cash flow yield also decreased from 22.86 percent for the smallest
portfolio to 10.22 percent for the largest portfolio. However, the earnings yield,
book to market value ratio and cash flow yield for the smallest portfolio are more
variable than that of largest portfolio.
In Panel C of Table 2, the portfolios sorted by book to market value ratio are
presented. The stocks having high book to market value ratio have higher
dividend yield. The average dividend yield increased from 2.41 percent for the
smallest portfolio to 7.57 percent for the largest portfolio. However, the dividend
yield for the largest portfolio is more variable than that of smallest portfolio. The
stocks having high book to market value ratio have lower capital gain yield and
total yield. The average capital gain yield decreased from 65.59 percent for the
smallest portfolio to 3.27 percent for the largest portfolio. Similarly, the average
total yield decreased from 68.00 percent for the smallest portfolio to 10.84
percent for the largest portfolio. Moreover, both of capital gain yield and total
yield for the smallest portfolio are more variable than that of largest portfolio.
In Panel D of Table 2, the portfolios sorted by cash flow yield are presented. The
stocks having high cash flow yield have higher dividend yield. The average
dividend yield increased from 1.27 percent for the smallest portfolio to 10.61
percent for the largest portfolio, and higher dividend yield for the largest
portfolio is more variable as compared to smallest portfolio. However, the stocks
having high cash flow yield have lower capital gain yield and total yield. The
average capital gain yield decreased from 37.74 percent for the smallest portfolio
to 19.27 percent for the largest portfolio. Similarly, the average of total yield
decreased from 39.01 percent for the smallest portfolio to 29.88 percent for the
largest portfolio. Moreover, both of capital gain yield and total yield for the
smallest portfolio are more variable than that of the largest portfolio.
The regression results of dividend yield on earnings yield, size, book to market
value and cash flow yield are presented in Table 3. The first four models include
one of the four independent variables at a time. Models 5 to 7 include various
combinations of the fundamental variables and model 8 includes all the four
fundamental variables simultaneously. The results of these alternative
specifications deeply support the summary statistics for the portfolios presented
in Table 2. The results are as expected and encouraging and more or less similar
to the results indicated by Chan, Hamao and Lakonishok (1991) conducted in the
context of Japanese stock market. The dividend yield is positively influenced by
earnings yield, book to market value and cash flow yield, and negatively
influenced by size. The coefficients of earnings yield are significant for the
models 1, 5 and 6. Similarly, the coefficients of size are also significant for the
models 2, 5 and 6.
Table 3
Estimated Relationship Between Dividend Yield and Fundamental
Variables
The results are based on pooled cross-sectional data of 40 enterprises with 139 observations for the
period of 1995/96 to 1999/00 by using linear regression model. The model is, DY = a + b1(E/P) +
b2(LS) + b3(B/M) + b4(C/P) + Ui. Where, DY, E/P, LS, B/M and C/P are dividend yield, earnings
yield, market capitalization, book to market ratio and cash flow yield respectively. Results for
various subsets of independent variables are presented as well.
Models Intercept Regression Coefficients of R2 SEE F

E/P LS B/M C/P
(1) 3.73 0.15 0.23 5.42 40.20
(7.23)* (6.34)*
(2) 23.91 -0.99 0.07 6.00 9.14
(3.95)* (3.02)*
(3) 2.49 4.08 0.13 5.77 20.29
(2.95)* (4.50)*
(4) 2.59 0.20 0.29 5.23 52.27
(4.17)* (7.23)*

E/P LS B/M C/P
(5) 16.88 0.13 -0.69 0.24 5.42 20.41
(3.00)* (5.44)* (2.29)**
(6) 21.06 0.15 -0.88 1.07 0.25 5.43 13.71
(2.56)** (4.40)* (2.15)** (0.70)
(7) 14.33 -0.61 0.46 0.19 0.30 5.22 18.33
(1.93) (1.64) (0.30) (5.61)*
(8) 13.47 0.01 -0.57 0.28 0.20 0.30 5.24 13.66
(1.63) (0.23) (1.41) (0.19) (3.23)*
Source: Webpage of NEPSE Ltd.: http://www.nepalstock.com
Notes: (1) Figures in parentheses are t-values.
(2) The signs * and ** denote that the results are significant at 1 percent and 5 percent level
of significance respectively.
Specifically, earnings yield, book to market value and cash flow yield have
individually and reliably positive influence on dividend yield while a reliably
negative association exists between dividend yield and size. Model 5 attempts to
unravel the separate influence of earnings yield and size on dividend yield. The t-
statistics suggest that the coefficients are estimated with a high degree of
precision. The variables do not dominate each other. Adding the book to market
value ratio as the third independent variable in model 6 does not rob the
predicting power of earning yield and size. In model 7, earnings yield is replaced
by the cash flow yield measure. The cash flow yield may be more informative
than other two variables. In model 8, when all the fundamental variables are
simultaneously included, only the t-statistics of cash flow yield has been found to
be significant. The results suggest that the cash flow yield may be more
important in predicting dividend yield than other variables. Although, it is
important to be noted that the earnings yield and cash flow yield are highly
correlated (Table 2), the model 8 suggests that the cash flow yield may be more
informative than earnings yield, since reported earnings are likely to be distorted
by the substantial divergence between economic and reported depreciation. This
finding is in consistency with the “quality of earnings” explanation discussed by
Bernard and Stober (1989), according to which earning per share is more easily
manipulated.
Table 4 presents the regression results of various models of capital gain yield on
earnings yield, size, book to market value and cash flow yield. The overall results
show the positive relationship of capital gain yield with earnings yield and size,
and negative relationship with book to market value and cash flow yield. It may
be due to more fluctuations in capital gain yield than other variables.
Table 4
Estimated Relationship Between Capital Gain Yield and Fundamental
Variables
period of 1995/96 to 1999/00 by using linear regression model. The model is, CY = a + b1(E/P) +
b2(LS) + b3(B/M) + b4(C/P) + Ui. Where, CY, E/P, LS, B/M and C/P are capital yield, earnings
yield, market capitalization, book to market ratio and cash flow yield respectively. Results for
various subsets of independent variables are presented as well.

E/P LS B/M C/P
(1) 21.30 0.34 0.01 63.01 1.59
(3.50)* (1.26)
(2) -143.09 9.19 0.05 61.98 7.40
(2.29)** (2.72)*
(3) 45.03 -24.26 0.04 62.23 6.15
(4.95)* (2.48)*
(4) 27.27 -0.01 0.00 64.07 0.01
(3.59)* (0.01)
(5) -167.62 0.46 10.24 0.08 61.55 5.15
(2.63)* (1.67) (3.00)*
(6) 60.56 1.34 0.26 -58.46 0.16 59.00 7.81
(0.68) (3.68)* (0.06) (3.49)*
(7) -39.76 4.27 -31.54 -0.74 0.09 61.27 4.18
(0.46) (0.98) (2.08)** (1.84)
(8) 118.23 2.57 2.60 -64.45 -1.55 0.19 58.11 7.26
(1.29) (3.88)* (0.58) (3.86)* (2.21)**
(2) * and ** denote that the results are significant at 1 percent and 5 percent level of
significance respectively.
The t-statistics suggest that the book to market value coefficients are more
significant and, therefore, has higher predictive power than other variables. In
model 8, when all the fundamental variables are simultaneously included, t-
statistics are found to be significant for all except size. Therefore, size may not
play an important role in predicting capital gain yield than others. However, the
models estimated are generally poor as revealed by F-statistics and coefficients
of multiple determination (R2).
Table 5 presents the regression results of total yield on earnings yield, size, book
to market value and cash flow yield. The alternative specifications of the models
reveal the positive relationship of total yield with earnings yield and size,
whereas, negative relationship of total yield with book to market value and cash
flow yield. Model 1 provides insignificant relationship between total yield and
earnings yield, whereas, models 5, 6 and 8 provide significant relationship
between total yield and earnings yield. Similarly, models 2 and 5 indicate the
significant relationship between total yield and size, and models 6, 7 and 8
provide insignificant relationship between them.
Table 5
Estimated Relationship Between Total Yield and Fundamental Variables
period of 1995/96 to 1999/00 by using linear regression model. The model is, TY = a + b1(E/P) +
b2(LS) + b3(B/M) + b4(C/P) + Ui. Where, TY, E/P, LS, B/M and C/P are total yield, earnings yield,
market capitalization, book to market ratio and cash flow yield respectively. Results for various
subsets of independent variables are presented as well.

E/P LS B/M C/P
(1) 25.03 0.49 0.02 63.08 3.25
(4.11)* (1.80)
(2) -119.19 8.20 0.04 62.67 5.77
(1.88) (2.40)**
(3) 47.51 -20.18 0.03 62.97 4.16
(5.16)* (2.04)**
(4) 29.86 -0.20 0.01 64.24 0.34
(3.92)* (0.58)
(5) -150.75 0.59 9.55 0.08 61.81 5.26
(2.35)** (2.14)** (2.79)*
(6) 81.61 1.49 1.14 -59.53 0.16 59.17 8.02
(0.91) (4.07)* (0.26) (3.55)*
(7) -25.44 3.66 -32.00 -0.93 0.09 61.66 4.06
(0.29) (0.83) (2.10)** (2.30)**
(8) 131.69 2.56 3.17 -64.73 -1.35 0.18 58.56 7.05
(1.42) (3.83)* (0.17) (3.85)* (1.90)
(3) * and ** denote that the results are significant at 1 percent and 5 percent level of
significance respectively.
Of the four variables considered, book to market value has higher explanatory
power than other variables as indicated by significant relationship between total
yield and book to market value (Models 3, 6, 7 and 8). The cash flow yield is
found to be weak in determining the total yield, since only model 7 provides the
significant relationship between total yield and cash flow yield. However, the
models estimated are generally poor as revealed by F-statistics and coefficients
of multiple determination (R2).
4. Conclusions
This study addressed fundamentals of stock returns in the context of Nepal. It

examines if dividend yield, capital gain yield and total yield are related to
earnings yield, size, book to market ratio and cash flow yield. The study is based
on pooled cross sectional data of 40 enterprises whose stocks are listed in NEPSE
Ltd. and traded in the stock market. The overall results of study can be
summarized as follows:
 Earnings yield and cash flow yield have significant positive impact on
dividend yield, and an insignificant impact on book to market value,
whereas, size has negative impact on dividend yield. In the case of earnings
yield and cash flow yield, cash flow yield has been found to be more
informative than earnings yield.
 Capital gain yield is positively influenced by earnings yield and size,
whereas, the same is negatively influenced by book to market value and cash
flow yield. Book to market value has been found to be statistically strong in
predicting capital gain yield.
 Similarly, total yield is positively determined by earnings yield and size,
whereas, the same is negatively determined by book to market value and cash
flow yield. Book to market value has been found to be more informative than
other variables.
 The positive relationship exists among earnings yield, book to market value
and cash flow yield. However, the size is negatively related to these three
variables.
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***
Development of Stock Market and Economic Growth
in Nepal
- Dr. Bijay K.C.

Introduction
The relationship between stock market development and economic growth has
received renewed attention of academicians and policy makers in the present
decade both in the developed and developing countries as a result of the
emerging equity market phenomenon and of the need to provide liquidity for
privatization-linked equity issues. The growing importance of stock markets in
the developing countries has opened up many avenues for research in the
relationship between financial development and economic growth, with focus on
developmental role of stock markets. Empirical studies in many developing
countries suggest that every nation has a structure of financial system that exists
side by side with its real infrastructure, and the differences in the national
financial systems have profound impact upon the pace of economic growth of
nations. Evidence shows that financial development of a nation overwhelmingly
affects its economic growth.
A country’s financial system may be bank-dominated or market-oriented. Each

of these systems has different mechanisms for handling stakeholders’ interest and
addressing corporate control issues and agency problems. Though historically
countries seem to follow one of these paths for development of its financial
system, in recent years, some countries are developing their financial systems
through convergence between these two. Empirical studies show that banks and
stock market play complementary roles in the initial stage of financial
development of a country and neither of these is perfect substitute for the other.
Financial system in Nepal is basically bank dominated. However it cannot be
denied that stock market also has an important role to play in the development of
the country. The present article aims to look at some of the issues in the
development of financial sector, particularly in the context of the developmental
role of stock market, and economic growth in Nepal and tries to determine the
level of stock market development using various indicators.

Professor of Finance, Kathmandu University, School of Management
Growth of Financial Sector in Nepal
During the last one and half decade the financial sector in Nepal has grown
significantly. It is sad that despite a history of almost half a century of
developmental efforts under different national plans, conscientious efforts to
develop financial sector started quite late in Nepal. Although some efforts were
made to develop country’s infrastructure during the Rana regime, they were more
sporadic and aimed at fulfilling the need and the whims of the then Rana rulers.
Efforts to achieve economic growth in the country in a planned way started only
in 1956 with the adoption of the First Five-Year Plan by the government. Under
different plans the government set targets for economic growth and adopted
various policies and programs, which were directed towards developing
infrastructure necessary for the creation of national wealth. Unfortunately, these
policies and programs failed to take into account the need to develop the
financial structure that ought to exist side by side with the development of
infrastructure necessary for the growth of real sector. In one sense these policies
were lopsided because they sought to enhance growth in physical assets of the
nation by suppressing the development of financial sector of the country. The
policy of the government to maintain control of the financial sector by restricting
the entry of private sector into financial activities limited the growth of financial
sector in the country. As a result the country had limited financial institutions to
support its developmental activities for quite a long time. Till early eighties the
country had only two commercial banks, two development banks, one provident
fund and few insurance companies. As almost all of these financial institutions
were under the government sector they operated more under social welfare
concept than under commercial principles. As a result of the restrictive policy of
the government, the gaps created in the resources needed for the development of
the real sector and the resources available for it were met through foreign grants
and loans under different plans. While this increased the country’s dependency
on the foreign aid, it also made the government less concerned for the need to
mobilize resources locally to meet the resource gap. Apparently, this led to tardy
development of financial sector of the country where the real sector lagged
behind the financial sector.
The process of stock market development in the country actually started in 1976
when the government established Securities Exchange Centre to provide and
develop market for securities, both the government bonds and corporate
securities. However, visible impact on the development of financial sector was

observed only when the government changed its restrictive policy and opened up
hitherto closed financial sector to private sector and foreign participation in the
establishment of banks. With the adoption of privatization and economic
liberalization policy the process got further impetus and the financial institutions
in Nepal grew at a faster pace especially in quantitative terms. By the end of
2003 the financial sector in Nepal included 17 commercial banks, 58 finance
companies, 18 development banks, 17 insurance companies, 5 regional rural
development banks, 34 saving and credit cooperatives, 116 postal saving banks
and 44 non-government micro-credit institutions. In addition, there is one
Employee Provident Fund, one Credit Guarantee and Deposit Insurance
Corporation, and one Citizen Investment Trust. During this period some
discernible improvements took place in the stock market. In 1993, Securities
Board Nepal (SEBO) was established with the objectives to regulate, supervise,
and monitor the securities market. Similarly, the Securities Exchange Centre was
converted into Nepal Stock Exchange Limited (NEPSE) with the objectives to
provide secondary market for securities transaction. An open out cry system was
introduced by NEPSE for securities transaction, where the investors were
allowed to deal in securities only through licensed brokers.
The equity market activities grow with the development and reform in the
financial sector. Over the past 10 years the stock market of Nepal has made
some progress. For example, between the fiscal year1993/94 and 2002/03, the
number of listed companies in NEPSE increased almost two-fold from 62 to 113
and the market capitalization value rose almost two and half times from Rs.14
billion to Rs.35 billion. Likewise, during the same period the number of
securities listed with the exchange increased four times from 43 million to 160
million and the number of annual transactions increased eight times from around
nine thousands to 69 thousands. During this period NEPSE index jumped from
its base value of 100 to 204.86. Despite these progress stock market in Nepal is
still at a developing stage and has to make visible impacts on the economic
growth of the country.
Stock Market Development and Long-term Growth
Although the role of financial sector in the economic development of a nation

remained controversial for some time, recent theories in finance suggest that
stock markets do promote long-term growth. It has been experienced that the
development of stock markets in the emerging nations passes through four main
stages (Papaioannou & Duke, 1993, p.36). Development of equity markets in any
country requires political and economic stability and growth-oriented policies as
pre-conditions. At the second stage, equity prices rise and the investors gradually
gain confidence in the equity market. They accept equity as an alternative to
traditional bank deposits and government securities. As the second stage, equity
markets gain more credibility and market liquidity increases. Investors long for
rise in risk adjusted returns and demand a wide variety of securities to match
their risk preferences. Rules and regulations are refined and the equity markets
start functioning on the basis of self-discipline. Equity markets at this stage
gradually get integrated to the international markets and attract foreign investors.
At the third stage, equity markets become an integral part of the overall financial
system. Investors get higher, less volatile returns and easily absorb new issues of
stocks and bonds. The volume of trading increases as the equity markets become
more liquid and firms go for initial public offerings to replace their debts. At this
stage a mechanism for risk transfer develops, creating markets for equity and
currency-hedging instruments such as derivatives and index products. At the final
stage the equity markets get highly integrated with the global markets and the
equity risk premiums match with the internationally competitive levels. Equity
markets at this stage achieve stable growth and attain a mature state.
Despite its history of more than 25 years with respect to the above-mentioned
observation, the equity market in Nepal has barely entered the first stage of
development. Due to current political and economic instability, absence of
growth-oriented policies and weak regulatory framework of stock market has
failed to gain investors’ confidence. Unavailability of timely information and
weak supervision and monitoring has made the stock market highly risky for
general investors. Investors have not yet accepted investment in stock as an
alternative to bank deposits and government securities except in the case of stock
of some commercial banks. (K.C. & Snowden 1997)
By encouraging acquisition and dissemination of information, stock markets

reduce cost of mobilizing savings and facilitate investments. Well-developed
stock markets enhance efficiency of market for corporate control by mitigating
the agency problems between the stockowners and managers. In countries where
stock market discipline is effective, firms tend to be more productive, thereby
creating more wealth per unit of money invested.( Diamond and Verrecchia
1982; Jensen and Murphy 1990; Greenwood and Smith 1997).
Stock markets help expansion of economic activity by providing liquidity to

financial assets traded in them. Investments in real assets require long-term
commitment of capital, however, investors are reluctant to commit their savings
for long periods. Liquid stock markets make investment less risky because they
allow savers to buy and sell financial assets they hold cheaply and quickly and
restructure their portfolios any time according to their risk-return preferences. At
the same time, firms enjoy permanent access to long-term capital through equity
issues. By making assets less risky and providing easy access to permanent
source of capital, liquid stock markets improve allocation of resources, boost
investment and enhance long-term economic growth. Very liquid stock markets
may sometime deter economic growth by encouraging investor myopia. It is
argued that such stock markets may weaken investors’ commitment to exert
corporate control because they prefer to sell the stocks of the misgoverned
companies rather than to monitor and force managers to improve their
performance. However, empirical studies suggest that greater stock market
liquidity boosts and in many cases precede economic growth.
Indicators of Stock Market Development in Nepal
The level of stock market development and its impact on the national economy
can be measured by using various indicators broadly classified into following
categories (Demirguc-Kunt and Levine 1996):
1. Stock market size

2. Liquidity
3. Concentration, and
4. Volatility
Literature in finance examines the relationship between various attributes of

stock market and economic growth of nations and has developed a set of
indicators under these categories to conceptualise the nature of such relationship.
Stock Market Size
Generally large stock market size indicates developed stock market. One of the
measures of stock market size is the number of companies and scrip listed with
the stock exchange. Size of stock market increases with the increase in the
number of listed companies. In Nepal the number of companies listed with the
NEPSE was 66 in 1993/94, which increased to 108 in 2002/03. Similarly the
number of scrip listed increased from 43 million to 160 million during the period.
Similarly the paid up value of the listed securities was Rs.2.18 billion in 1993/94.
In 2002/03 it was Rs.12.6 billion. It is, however, interesting to note that despite
the increase in the number of companies and paid up value of the securities listed
with the exchange, only about 12 percent of the companies registered with the
Office of the Company Registrar as public limited period are listed with the
NEPSE during the ten year. Most of the companies that are listed with the
exchange belong to banking, finance, and insurance sectors. While only few
companies from the trading, hotel, manufacturing, and aviation sectors are listed
with the exchange, not a single company from power, information technology,
and construction sectors has entered the organized stock exchange of the country.
(SEBO, 2003 p.7). This indicates that firms tend to avoid stock market as an
alternative source of long-term capital in Nepal. Significant increase in the
number of companies registered as private limited in comparison to those
registered as public limited during last one and half decade also supports this
view. This has adversely affected the liquidity and supply of securities in the
stock market.
Another important measure of the stock market size is the market capitalization
ratio, which is aggregate market value of the listed shares divided by Gross
Domestic Product. This ratio indicates the relative importance of stock market to
the national economy and assumes that stock market size is positively correlated
with the ability to mobilize capital and diversify risk. As can be seen from Table
No.1, the market capitalization ratio has, on an average, been only around .07 for
the period between 1993/94 and 2002/03. It is important to remember that in
countries with developed stock market this ratio is greater than 1 and in many
developing countries it is between 0.2 and 0.4. Low market capitalization ratio in
Nepal indicates that stock market is yet to show its impact on the economic
activities of the country.
Table 1
Market Capitalization and Number of Companies listed with NEPSE
(Rs. in million)
Gross
Market Market No. of Paid up Values of
Domestic
Years Capitalization Capitalization Companies Listed Securities
Product
(Rs.) Ratio Listed (Rs.)
(Rs.)
1993/94 13872.00 191596 0.07 66 2182.2
1994/95 12963.00 209976 0.06 79 2961.8
1995/96 12295.00 239388 0.05 89 3358.5
1996/97 12698.00 269570 0.05 95 4476.5
1997/98 14289.00 289798 0.05 101 4959.8
1998/99 23508.00 330018 0.07 107 6487.4
1999/00 43123.33 366251 0.12 110 7347.4
2000/01 40063.33 393566 0.10 115 8165.2
2001/02 34704.00 404482 0.09 96 9685.0
2002/03 35240.39 428477 0.08 108 12560.1
Sometime it is argued that stock market size as measured by the number of listed
companies and the market capitalization ratio is not a good predictor of economic
growth because it does not take into account the liquidity aspect of stock market.
(Levine 1996,p.8). It is often seen that in countries where firms are closely held
and family controlled, very few shares are actually traded in the stock market. In
such case market capitalization does not bear significant relationship with the
economic activity of the country.
Liquidity
Liquidity in the stock market parlance refers to the convenience and ease in
buying and selling securities in the market. By allowing investors to alter their
investment portfolios conveniently at any time and low cost, liquidity makes the
financial assets less risky. This improves efficient allocation of resources and
promotes long-term economic growth. There are two main indicators of market
liquidity. One of these is the total value of shares traded in the stock market as a
percentage of Gross Domestic Products. Although this indicator does not
measure directly the cost of trading of shares, it does indicate the extent of ease
in trading in stock market in a country. It is expected that the volume of
organized trading of equities as a share of national output increase when such
trading is less costly and easy. Evidence shows that countries with relatively
liquid stock market tend to grow much faster than countries with illiquid markets.
(Levine, 1996).
Table: 2
Measures of Market Liquidity of NEPSE
(Rs. in million)
Values of Value of Shares
Value of Shares traded
Years Shares Traded traded
to Market Capitalization
(Rs.) to GDP
1993/94 431.34 0.002 0.031
1994/95 1054.26 0.005 0.081
1995/96 209.01 0.001 0.017
1996/97 416.19 0.002 0.033
1997/98 202.61 0.001 0.014
1998/99 1485.55 0.005 0.063
1999/00 1157.00 0.003 0.027
2000/01 2335.91 0.006 0.058
2001/02 1540.63 0.004 0.044
2002/03 575.80 0.001 0.016
As we can see from the table, ratio of the value of shares traded to Gross
Domestic Product was always below 0.005, except in the fiscal year 2000/01,
during the ten-year period between 1993/94 and 2002/03. During this period the
value of shares traded accounted, on an average, only for about 0.003 of Gross
Domestic Product. In countries with developed stock market this figure is as high
as .4 and in many developing countries the values of shares traded vary in a range
of .001 to .01 of Gross Domestic Product. Low ratio of value of shares traded to
Gross Domestic Product indicates that trading in equity relatively to the size of
economy is very low in Nepal.
Another measure of liquidity of stock market is the ratio of value of shares

traded to market capitalization. This measure, also known as turnover ratio,
equals the value of shares traded divided by market capitalization and is
indicative of the trading relative to the size of stock market. A high turnover ratio
may indicate low transaction cost and relative ease in buying and selling of
shares. Experience shows that countries with high turnover ratio develop faster
than countries with low turnover ratio. Countries with small stock market, as
measured by the market capitalization ratio, may have a high turnover ratio and
grow fast. In developed countries this ratio is greater than or very close to one
whereas in many developing countries this ratio stands in the range of 0.15 to
0.3. In Nepal the turnover ratio has remained very low during the ten-year period
between 1993/94 and 2002/03. This ratio was the highest in 1994/95, indicating
sizable turnover of shares. As the table shows, the value of shares traded relative
to both Gross Domestic Product and market capitalization is on decline since
2001/02, indicating growing illiquidity in the country’s stock market.
Taken together these ratios i.e. market capitalization, value of shares traded to
Gross Domestic Product, and turnover, indicate that the stock market in Nepal is
very small relative to its economy, and highly illiquid and stock market in Nepal
is yet to make its presence felt in the national economy.
Concentration
A country’s stock market is considered highly concentrated if few large

companies dominate it. In other words, in a stock market which has high
concentration shares of few companies account for major percentage of total
market value and are traded most frequently relative to stocks of other
companies. High concentration is not desirable as it adversely affects liquidity in
the stock market. Concentration in a stock market is measured by computing the
share of ten largest stocks to total market value of shares. Countries with family
owned, closed enterprises and limited number of listed companies have high
concentration ratio. Table 3 gives the market concentration ratio calculated on the
basis of market capitalization in the stock market in Nepal.
Table 3
Market Concentration Ratio in NEPSE
Years Market Concentration Ratio

1994/95 0.71
1995/96 0.73
1996/97 0.68
1997/98 0.66
1998/99 0.65
1999/00 0.68
2000/01 0.71
2001/02 0.58
2002/03 0.60
Countries with developed stock market have concentration ratios of about 0.2 of
the market whereas in countries with undeveloped stock market this ratio is as
high as .9. In Nepal the ratio was on an average around .67 over the past 10
years, which indicates that, the market value of shares of ten largest companies
account for 67 per cent of the total market value. The concentration ratio is as
high as .8 when it is computed on the basis of turnover. This indicates that the
stock market in Nepal is highly dominated by largest ten companies in terms of
either market capitalization or turnover. It is interesting to note that of the ten
largest companies dominating the market in 2003 nine are commercial banks,
indicating that the stock market in Nepal is highly dominated by the commercial
banks. High concentration has adversely affected liquidity and significance of the
stock market in the national economy.
Volatility
Volatility is one of the important indicators of development of a country’s stock

market. Although high volatility in the stock market denotes risk in equity
investment, it does not necessarily imply undeveloped stock market. It is
generally expected that developed stock markets absorb risks in financial assets
and offer higher return with less volatility. Put simply, it means that as an
indicator of a country’s stock market development less volatility is preferred to
high. Volatility may be measured as a twelve-month, rolling standard deviation
of market returns. Higher standard deviation means higher volatility, and
more risk.
Table 4
Volatility in the Nepal Stock Exchange
Twelve-month rolling Value-traded- ratio to
Years
standard deviation volatility
1993/94 26.47 0.0012
1994/95 7.36 0.0111
1995/96 4.11 0.0041
1996/97 2.71 0.0121
1997/98 4.57 0.0031
1998/99 3.79 0.0167
1999/00 5.53 0.0049
2000/01 9.24 0.0063
2001/02 12.79 0.0035
2002/03 3.08 0.0053
Although volatility in the stock market in Nepal was high during the initial years,
it was on decline till 1996/97indicating that equity prices in the stock market
tended to stabilize during this period. From 1998/99 onwards volatility in the
stock market had wider fluctuation but it showed a tendency to rise consistently.
Countries with high inflation rates seem to have higher volatility in the equity
markets. Except in 1993/94, 2000/01, and 2001/02 volatility in the stock market
in Nepal is less than the average volatility of other developing countries. The
reason for this is mainly low volume of trading of equities due to low demand.
Volatility in these three years was high due to increase in the volume of trading
triggered by speculative motive of investors.
Analysts argue that developed stock markets should not only provide high
liquidity but also handle large volume of trading with less price swings. In other
words a liquid market should allow large volume of trading with less volatility.
One of the indicators to measure this is a ratio of value-traded-ratio to volatility.
A high ratio indicates the ability of the stock market to provide liquidity and
handle risk. Empirical evidence shows that this ratio is a good predictor of
economic growth and countries with high ratios have grown much faster than
countries with low ratios. These ratios for the stock market in Nepal are
presented in column 3 in above table. These ratios indicate inability of stock
market in Nepal to handle risk relatively to volume of trading of shares. A
positive but very weak relationship is observed between volatility and volume of
trading of shares in the stock market.
Trends in the Indicators of Stock market Development
Figure 1 presents the trend in the indicators of stock market development in

Nepal for the period between 1993/94 and 2002/03. Market capitalization ratio
was on rise for the period between 1996/97 to 1999/00 again declined from
2000/01 on wards. Turnover ratio and value traded ratio to volatility showed
wide fluctuations during the period. It is interesting to note that none of these
indicators revealed a consistent trend during this period, indicating that the
development of stock market in Nepal lacks a definite direction and is not guided
by clear-cut policies and actions. Due to low volume of shares traded and wide
fluctuations, the stock market in Nepal has been highly illiquid and volatile.
Figure 1
Trend of Indicators of Stock Market Development in Nepal
0.14
0.12
Market Capitalisation
0.10 Ratio
Value of shares traded
0.08
Ratio
to GDP
0.06 Turnover Ratio
0.04 Value -traded ratio to

volatility
0.02
0.00
94 95 96 97 98 99 00 01 02 03
93/ 94/ 95/ 96/ 97/ 98/ 99/ 00/ 01/ 02/
19 19 19 19 19 19 19 20 20 20
Years
Summary and Conclusion
The relationship between financial development and economic growth, with

focus on developmental role of stock markets, has been in debate for some time
in the past. Empirical studies suggest that financial development does matter and
stock markets do spur economic growth. Unfortunately, in Nepal, despite a
history of about half a decade of planned economic activities to develop real
sector of the country, little attention was paid to the development of financial
sector. Over the past one and half decade, financial sector, despite many
problems has developed significantly in Nepal. However, most of the
developments were confined to the banking sector. Stock market has virtually
remained stalled because of the low priority in the government's financial reform
policies.
Various measures of stock market development indicate that the stock market in
Nepal is underdeveloped and has failed to show impact on the overall national
economy. Small market size has made it vulnerable to manipulation and price
rigging. Low turnover ratio and value-traded-ratio to volatility, and high
concentration ratio indicate that the stock market in Nepal is highly illiquid and
risky. Investors tend to avoid stock market because they do not have options to
invest in securities according to their risk-return preference. Similarly firms shun

it because stock market is less reliable source of raising funds for them. Due to
this financial system in Nepal has remained basically bank-dominated.
References
Arestis, Philip; Panicos O. Demetriades, & Kul B. Luintel (2001) Financial development and economic growth :
The role of stock markets”. Journal of Money, Credit, and Banking 33 (February). 16 – 41
Demirguc-Kunt, Asli & Ross Levine (1996) “ Stock markets, Corporate finance, and Economic growth: An
overview” The World Bank Economic Review 10 (May), 223 – 239.
Demirguc-Kunt, Asli & Ross Levine (1996) “ Stock market development and financial intermediaries: stylized
facts”. The World Bank Economic Review 10 (May), 291 – 321
Diamond, Douglas W., & R.E. Verrecchia (1982) “Optimal Managerial Contracts and Equilibrium Security
Prices.” Journal of Finance 37 (May). 275-87
Greenwood, Jeremy, & Bruce Smith (1997) “Financial markets in development and the development of
financial markets.” Journal of Economic Dynamics and Control 21 (January). 145-82
Jensen, Michael C. & Kevin J. Murphy (1990) “Performance Pay and Top Management Incentives.” Journal of
Political Economy 98 (April). 225 - 64
K.C., Bijay & P.N. Snowden (1999) Pricing shares on a nascent market: the Nepal Stock Exchange 1994-96”.
World Development 27s (June). 1083 – 1096
Levine, Ross. (1996) “Stock markets: A spur to economic growth” Finance & Development, 33 (March). 7- 10.
Papaioannou, Michael G. & Lawrence K. Duke.(1993) “The Internationalization of Emerging Equity Markets”
Finance & Development, 30 (September). 36 -39.
Securities Board, Nepal. (2004) Annual Report (2002-03). Securities Board Nepal, Kathmandu
Securities Board, Nepal (2004) Ten Years of Securities Board (in Nepali), Securities Board Nepal, Kathmandu
Walton, Michael (1997) “The maturation of the East Asian miracle” Finance & Development, 34
(September) 7- 10.
***
Eligibility for Trading of Securities and
Challenges
- Pramod Bhattarai*
Listing means registration of securities that are floated by corporate sector to

raise funds for the establishment and operation of a company. The importance of
listing cannot be overemphasized with few words. The company by means of
listing arranges liquidity on the floated securities. The Securities and Exchange
Board of India (SEBI) guideline defines listing as admission of the securities of a
public limited company on a recognized stock exchange which provides a forum
for the purchase and sale of securities. If the listed company is in need of
additional fund, it can raise such required fund from the market. Besides, listing
also facilitates to value the securities daily on the trading floor. The listing has
several advantages like the investor gets periodic reports of the listed companies
which help them to know company performance, the transaction of listed
companies are reported in daily newspapers and they are able to know the
intrinsic value of their investment.
If all other things remain constant, the investors attempt to sell higher volume of
securities at higher prices and tend to buy less number of securities at higher
prices. If the market price of the particular securities increases beyond the
intrinsic value of the securities then the investors holding that securities starts to
sell, which in turn, increases the selling pressure. The increased selling pressure
due to overvaluation of securities or over pricing reduces the demand and
ultimately the price will come down and equals the intrinsic value of the
securities. In the same way, if the securities are priced below the intrinsic value
or net value the demand for such securities increases and the increased demand
and lower supply of securities increases the market price, which again levels up
with the intrinsic value of the securities. In fact, transactions are be made at the
price where both the bid and ask price matches. Therefore, Capital Assets Pricing
Model (CAPM) assumes that capital market has to be in a state of equilibrium; if
not, the market will move towards the equilibrium position. Over-pricing and
under-pricing are temporary phenomena; the market price should equal the
*
Acting Manager, Nepal Stock Exchange Ltd.
intrinsic worth of the securities. It is the listing that facilitates occurrence of such
situation in the market.
Price is also a function of information and investors' perception. If the investors
perceive that the particular company will do better in future and also if the
present situation is far better than the forecast situation then such investors may
be ready to pay higher price as compared to others. In this situation the investors
cannot be blamed as being irrational. They are rational but, the prevailing
economic situation and quality of information affects their decisions as some
investors trade on the basis of asymmetric information.
Listing Provision
Different stock exchanges incorporated in different countries have their own
listing criteria depending on their geo-political and economic status. Stock
exchange provides the opportunity to invest when people have surplus funds and
to exit when they are in need of funds and also want to minimize the risks and
maximize the return. CAPM assumes that if there exists several financial
instruments having different rate of returns, but the same level of risks, investors
prefer the high rate yielding securities. On the other hand if there exists the same
rate yielding securities with different risk levels, the investors prefer less risky
instruments because the investors are risk averse. Therefore, Securities Exchange
Act 1983 of Nepal has made provision for listing considering the fact of giving
exit to the investors. Section 8 of Securities Exchange Act, 1983 prohibits
securities trading without being listed. This means that all the securities of public
limited company must be listed in the stock exchange to make them eligible for
trading. The listing by-laws has clearly spelled out that all issued and allotted
securities should be listed under the section 11 of the Act. The Act has defined
the term "issue" as all the issue made by issuing announcement or by private
placement to sell the securities. It has a wide coverage indicating all transactions
before listing are void. However, the securities listing by-laws spell out the
minimum requirements to be eligible for listing, which includes minimum
number of shareholders to be 500, the minimum paid up capital to be Rs.2.5
million above others. Besides this, several information and documents along with
dues should be submitted. Now the question can be raised- What will happen to
the securities of those companies, which do not meet such criteria as Nepal does
not have over-the-counter (OTC) market. It reveals that some of the existing
public limited companies are violating the existing laws by trading without being
listed on the exchange. In other words, listing is not compulsory but the
transactions of securities without listing is against the prevailing laws of the
country. In fact, this is the major weakness of our legal enforcement regime.
Grouping of Listed companies

Nepal Stock Exchange Ltd. (NEPSE) has developed and executed the system for
the grouping of listed companies. It has developed certain criteria for it. Such
criteria includes- paid up capital of the company to be Rs.20 million, the number
of shareholders to be 1000, the company must have furnished all the information
on timely basis and as prescribed by the listing by-laws, the net worth per share
should not be less than paid up value and the company must be in profit for the
last three years. Companies that meet the above said criteria are categorized in
group "A" and the rest in group "B". If a company does not meet any one
criterion from the first two criteria, the company will be kept in group "B".
Although it may appear unfair for the company when put among the sick
companies the listed companies are, however not interested whether to be in
group "A" group "B" as they do not have any incentives to be in group "A". If
certain incentives are provided to companies in group "A" they might be
encouraged to be on this group. Earlier 5 percent tax was exempted to the listed
companies. It is also good to adopt the policy to provide tax incentives to the "A"
group companies.
De-listing of securities
De-listing means cancellation of registration of listed securities from the stock
exchange. It is said that listing facilitates the investors to exit from investment
and this is also one of the targets of the stock exchange. However, if de-listing is
executed the objectives of the Act cannot be attained. Actually, this provision is
contradictory and impracticable in our context. As the provision for listing says
no securities can be traded without listing, on the other hand, several conditions
are given for de-listing on section 14 of the Act. This provision titled De-listing
of Securities also consists the provision for suspension or de-listing. The
conditions for de-listing as per the provisions are-
 If companies engage in activities that are contradictory to what the Act says.
 If directives or orders issued by the stock exchange are not obeyed by the
companies.
 If stock exchange feels it is necessary to de-list or suspend the transactions

of the listed companies to protect the interest of the investors.
Section 8 of Securities Exchange Act, 1983 makes the listing compulsory to

make securities trading eligible whereas the de-listing provision made in section
14 of the same Act, if implemented, makes the securities illiquid. The Act also
spells out the protection of the investors' interest. In this contradictory situation,
how can the interest of the investors' be protected? In the absence of OTC
market, de-listing of a company could trap their investment for unknown period
of time. In the US even if the company is listed, it can trade in OTC. However, in
order to be de-listed, the opinion from the audit committee must be obtained, the
board of directors of the exchange must approve the de-listing proposal, and 20
to 60 working days must be given to the general public to react on it. After
which, the de-listed company can be traded on OTC market. In our case, in order
to enlist the securities the decision from the board of directors is essential . This
board also consists the representatives from the general public. Therefore, the
basic requirement for de-listing is the approval from the BOD. Besides this, the
alternative arrangement for providing liquidity should also be made. Recently,
NEPSE has de-listed Nepal Bank Ltd. making its securities illiquid. The bank
had about 10,000 shareholders. Under the financial sector reform program, Nepal
Rastra Bank took over the management of the bank and contracted out the same
to the foreign management group. Despite their best efforts if the situation
deteriorates causing loss both to the shareholders and depositors then what will
be the role of central bank? Will the management take the responsibility? This is
a very critical point and all the investors should be aware of this. In the course of
attaining their commitments, the management committee of the bank requested
the stock exchange to de-list the bank. Their basic logic for de-listing the bank
was that the market price of the share did not reflect the performance, as the bank
was in huge loss with very high levels of NPL/NPA. However, the prevailing Act
does not have provision to de-list on the request of the listed company. NEPSE
sought the opinion of the central bank on this regard and was informed that it is
logical to de-list the bank. The board of directors of NEPSE approved the
proposal and the bank was de-listed. However, the consequences are that the
investment of the general public has become illiquid. Recently, news was
published that the bank is going to buy back its own share. In fact, according to
the Companies Act, 1997 no company can buy back its share. Such shares are
known as Treasury Shares in financial terminology, and the recently promulgated
Bank and Financial Institutions Ordinance has permitted it. However, this should
be done through secondary market creating sinking fund and others so that the
investors can be benefited. It has been said that the bank is going to buy its own
share at the price fixed by its management. In this light, the rights and powers
empowered to the management committee should be questioned as well as their
authority to request for de-listing.
Conclusion and Recommendations

The market price of the securities equals the intrinsic value of the securities and
the worth of the securities depends upon the performance of the company.
Investors should be provided with an exit point to retrieve their investment. On
this regard, it can be said that de-listing is a practical solution in the context of
our economy. In the absence of an efficient and organized market, several rumors
can be spread in the market, leading to anxiety among investors, which the large
investors can capitalize on by taking control the company's management. It
hinders the daily valuation of listed securities accurately as ample manipulation
can be done when such distortions exists in the market.
All the public limited companies registered in the country must be listed with
stock exchange to make them eligible for trading. It also meets the expectation of
the Securities Exchange Act. Nepal does not yet have OTC market and such
market can be partially created by making listing possible to all the public limited
company by creating special "General Listing" category similar to OTC
standards.
Once the companies are listed, they are required to furnish information as
prescribed by the law of the country to the investors. The grouping of companies
helps to separate better organization from sick organization. The companies that
are not disseminating information and not paying annual fee regularly are placed
on "Z" group. The general public is notified of the "Z" group companies in order
to create pressure through exposure. Companies, which do not respond within 6
months of NEPSE request for information, will be de-listed. This also facilitates
the privatization program of the country in our case and also facilitates to identify
the performance of such organization by the regulator as well as by the investors.
It also helps them to make more effective investment decision.
Supervisory role of regulators are very important for the listed companies. But
due to the conflicting provisions of existing Acts and misinterpretation of the
provisions therein creates a big confusion among the regulators. Their consensus
of opinion is quite essential to develop and operate a sound financial system in
the country. Capital market is one of the major components of the financial sector
and the listing de-listing is one of the key components of capital market system.
In order to make effective decisions, a high-level committee would be very
useful. The members of the committee should be senior officers of Nepal Rastra
Bank, Securities Board, NEPSE, Company Registrar's office and Ministry of
Finance.
***
Corporate Information Disclosure in Nepalese
Securities Market
- Paristha N. Poudyal
Introduction
There is a saying that an information is not an information unless it is

communicated. This saying highlights the importance of dissemination or
disclosure of information. In the context of information dissemination,
management experts have also presented a question, "if a tree falls in a forest and
no one hears it, does it make any noise?" They are of the opinion that this
question must be answered negatively as there is no dissemination of information
even if it occurred in reality. Thus, dissemination of information is more
important than the information itself. Such dissemination or disclosure of
information is of utmost importance in the securities market too.
Reliable, standard and timely disclosed information is the backbone of securities

market. On one hand, information helps an investor to decide whether or not to
invest in the stock of a certain company and on the other, it contributes to the
development of a fair, credible and transparent securities market. When the
securities market becomes more transparent, it can maintain and boost investors'
confidence and such confidence will help the entrepreneurs and corporate bodies
to raise necessary funds from the public.
In case of an issuing company, the important information to the investors are the
information regarding the nature and objective of business, background of the
promoters and directors, past performance and future prospects, financial status,
risk factor etc. Similarly, in case of listed companies, the information that are
important to investors are price sensitive information such as declaration of cash
and stock dividend, change in management, business expansion or contraction,
take over and merger etc. Other important information are quarterly reports,
semi-annual and annual reports of the companies regarding their operational
results. All these information affect the market price of shares. Listed companies
should comply to timely disclosure of required information that will help to
maintain market price of their shares according to their performance or activities.

Deputy Director, Securities Board, Nepal
Provisions regarding information disclosure
Present securities legislations in Nepal have made different provisions regarding

corporate information disclosure. One of such provisions is that an issuing
company, at the time of public issue, should publish prospectus that contains
information such as introduction, objectives, financial position, details of
promoters and directors, risk factors of its business etc. The public issue approval
guideline of Securities Board (SEBO) also requires the issuing companies to
make additional disclosures in the prospectus. Thus, prospectus is an informative
document on which basis investors can make rational investment decision.
Once the issuing company lists its securities in the stock exchange for secondary
transaction, it becomes a listed company. It is mandatory for such listed
companies to disclose all price sensitive information continuously to the stock
exchange once such information become available or generated in the company.
They are also required to submit semi-annual reports within sixty days after the
end of that period and annual reports within four months after the end of a fiscal
year to the stock exchange and SEBO. If they fail to file their audited financial
report for more than two years, Nepal Stock Exchange Ltd. (NEPSE) can de-list
the company as per the provision of its Securities Listing Bye-laws.
Securities Listing Bye-laws of NEPSE have prescribed that all the above-
mentioned information and reports disclosed by listed companies are to be made
public by NEPSE. NEPSE places these information on its notice board and some
information on its website.
As per the provision of Companies Act, 1997, public companies are required to
prepare their annual books of accounts within five months after the end of a fiscal
year and they should make necessary arrangements for their shareholders to see
the books of accounts. The Act also requires the public companies to notify their
shareholders regarding the conduction of annual general meeting (AGM) along
with the agendas of the meeting. They are also required to send the minutes of
AGM to their shareholders within thirty days after its conduction.
Companies Act, 1997 requires all the corporate bodies including the listed
companies to prepare their income statement, balance sheet and cash flow
statement in the prescribed format.
Initiatives taken
With the objective of increasing transparency in the securities market, SEBO has
been continuously making the listed companies aware of information disclosure
requirements as prescribed by securities legislations. In 2000, SEBO published a
booklet covering all the provisions related to information disclosure highlighting
the importance of information disclosure in the securities market. SEBO, in 1996,
reviewed the status of information disclosure. As SEBO found poor status of
information disclosure, it proposed to amend the Securities Exchange Act, 1983.
Accordingly, second amendment in the Act was made in 1997, which made it
mandatory for the listed companies to disclose their semi-annual reports in
addition to the annual reports. The amendment made it mandatory for the listed
companies to submit their semi-annual and annual reports to SEBO in addition to
the stock exchange. With the objective of discouraging non-compliance to the
provisions of information disclosure, SEBO has been publishing the names of
non-complying companies in its annual reports. Public notices were also
published to strongly discourage the non-compliers to comply with the
information disclosure provisions.
It is very important for the disclosed information to be uniform, reliable and

standard. One of the key factors that contributes to standardize the information is
the accounting standard as it helps to prepare the financial statements in a fair,
efficient and transparent manner. In this regard, the Accounting Standard Board,
established by HMG/N as per the provision of Institute of Chartered Accountants
of Nepal Act, has developed four standards namely NAS 01: Presentation of
financial statements, NAS 02: Net profit or loss for the period, fundamental
Errors and Changes in Accounting Policies, NAS 03: Cash Flow Statements and
NAS 04: Inventories. As per the tentative schedule of Institute of Chartered
Accountants of Nepal, all companies from 16 July 2004 have to prepare their
accounts following the standards developed.
Credit rating system also plays an important role in disclosure of reliable

corporate information. In 1999, SEBO had prepared a policy draft regarding the
operation and regulation of such system. Unfortunately, not much development
has taken place in this direction.
Status of information disclosure
The current status of information disclosure in Nepalese securities market cannot

be taken as satisfactory. The issuing companies are mostly found to present rosy
picture in their prospectus, forecasting high net worth, high net profit and high
dividends, which are found to differ significantly from the actual performance. A
study of SEBO has also shown significant difference in the projected and actual
financial results of issuing companies. Regarding the information disclosure of
the listed companies, most of them have not been able to disclose their semi-
annual and annual reports within the prescribed time. They are also found to be
lagging in disclosing price sensitive information. As per the annual reports of
SEBO of different fiscal years, the status of the disclosure of semi-annual and
annual reports of the listed companies is as follows:
Table 1: Disclosure of annual reports of the listed companies
Total number of Number of company Percentage of companies
Fiscal Year
listed company disclosing annual report disclosing annual report
1999/00 110 68 61.82
2000/01 115 67 58.26
2001/02 96 68 70.83
2002/03 108 67 62.04
 The number is lower than the previous fiscal year as NEPSE de-listed 25 companies for non-
compliance with the reporting requirement.
Out of the total listed companies, companies disclosing their annual reports
within four months after the end of fiscal year is 8.33 percent in fiscal year
2001/02 and 4.63 percent in fiscal year 2002/03.
Table 2: Disclosure of semi-annual reports of the listed companies
Number of company Percentage of companies
Total number of
Fiscal Year disclosing semi-annual disclosing semi-annual
listed company
report report
1999/00 110 8 7.27
2000/01 115 9 7.83
2001/02 96 5 5.21
2002/03 108 6 5.56
Table 2 shows that the level of compliance with the requirement of disclosing
semi-annual report is very poor.
Issues and Suggestive Measures
Following are some of the issues regarding our present system and practices in
the area of information disclosure and suggestive measures to resolve the issues.
 Although prospectus normally contains all the important information about the
issuing company, prospectus prepared by the listed companies are lacking
international standards. Therefore, with a view to make the prospectus more
informative and comprehensive, consideration should be given to review the
prescribed contents of prospectus. The actual performance and track record of
an issuing company is more important than its financial projections. On this
light more emphasis should be given to the past performance of an issuing
company rather than its financial projections. Hence, the present requirement
of presenting financial projection in the prospectus should be reviewed.
 It is in practice that some securities market regulators play an important role in

the effective enforcement of the accounting standards by undertaking the job
of reviewing reports of the listed companies. However, SEBO is lacking
necessary legislative measures to review such reports. In this perspective,
necessary provisions should be made to allow SEBO to review the financial
statements of listed companies against Nepal Accounting Standards.
 There is lack of uniformity and consistency in semi-annual and annual reports

of listed companies. Furthermore, these reports do not cover all aspects of
their operation. Therefore, to have better disclosure of the operating results of
listed companies, initiatives should be taken to develop a standard format for
semi-annual and annual reports. Moreover, provision should be made to
publish their annual and other periodic financial statements in national level
newspapers. Similarly, the provision to submit quarterly reports should also be
considered.
 Prevailing rules and regulations have different provisions regarding

information disclosure. As per the Companies Act, 1997, corporate bodies are
required to disclose their yearly operations within six months after the end of a
fiscal year, whereas securities legislations have prescribed four months for the
same. Bank and Financial Institutions Ordinance and Insurance Act also have
different provisions on this regard. Such provisions should be reviewed to
eliminate inconsistencies.
 As the corporate information is not disclosed on time, Nepalese securities

market has the characteristics of rumor-based market. In such a market,
investor will make investment decision based on general hearsay, which
results in formation of market price of shares differently than what it should
be. In this respect, there should be a system to penalize heavily the non-
compliers with information disclosure provisions.
On the basis of rumor, the market price of a share may go up or down in an

abnormal way and now there is no mechanism to check such ups and downs.
Consideration should be given to develop a system to halt the trading of shares
until the correct information comes from the concerned listed company.
 Although prevailing securities legislations have provisions for imposing

penalty to the non-complying companies, necessary procedures for taking such
actions are lacking. Initiatives should be taken to develop such procedures by
making separate provisions for taking action to the non-compliers regarding
information disclosure.
 Present system of de-listing securities to penalize the non-compliance with

reporting requirement is not investor friendly. It prevents their right to sell
their securities. So, consideration should be given to adopt other types of
sanctions in case of failure to file reports to stock exchange.
 There is lack of adequate provisions in the present securities legislations

regarding the identification of trading based on inside information and taking
penal action in case of such activities. As practice of such trading is an
obstacle in developing efficient securities market, initiatives should be taken
to strongly discourage such trading.
 Nepalese securities market is lagging in the use of information technology.

Initiatives should be directed towards making better use of such technology,
which helps to adopt electronic corporate reporting system that saves both
time and cost. SEBO, NEPSE and Company Registrar's Office (CRO) should
develop web sites containing all kinds of corporate information and keep them
updated. Transparency of corporate sector can also be enhanced by making the
corporate bodies to develop their own web sites, which incorporates price
sensitive information and periodic reports.
 Nepalese securities market is lacking credit rating system, which, among other
things, is supposed to rate various types of securities by analyzing the risk
factor involved and publish their ratings for the consumption of investors.
Hence, initiatives should be taken to establish such a system.
Conclusion
The role of securities market is vital in the economic development of a country. It

provides a medium to mobilize financial resources from the non-productive
sector to the productive sector. However, we cannot think of an efficient
securities market unless it is transparent enough to win the confidence of the
investors and other stakeholders. In this respect, concerned authorities should
collaborate to address all the relevant issues concerned with information
disclosure as well as give higher priority to enhance the transparency level of the
market.
***
IOSCO Principles of Securities Regulation and Nepalese
Regulator
- Niraj Giri
International Organization of Securities Commission (IOSCO) is an international

grouping of securities regulatory agencies. It was established in 1983 with the
objective to assist members to carry out their mission, to enhance cooperation to
promote high standards of regulation in order to maintain just, efficient and
sound markets, to exchange information on their respective experiences in order
to promote the development of domestic markets, to unite efforts to establish
standards and an effective surveillance of international securities transactions and
to provide mutual assistance to promote the integrity of the markets by a rigorous
application of the standards and by effective enforcement against offences.
IOSCO has grown rapidly since its creation and now IOSCO's membership
stands at 181 members. It comprises of regulatory bodies from countries that
have day-to-day responsibility for securities regulation and administration of
securities laws. These members are categorized into three different groups,
namely- Ordinary Members, Associate Members and Affiliate Members. The
organization's members regulate more than 90% of the world's securities markets.
IOSCO is recognized today as one of the world's key international standard
setting bodies. Cooperation and transfer of expertise, in particular between
developed and emerging markets, is at the heart of its mission.
Core Objectives Of Securities Regulation
Securities markets are vital to the growth, development and strength of market
economies. They support corporate initiatives, finance the exploitation of new
ideas and facilitate the management of financial risk. As they have a greater role
in the development of a nation, they need to be regulated, and in such a way that
it facilitates capital formation and economic growth. Regulation should aim to
ensure that investors are given fair access to market, market facilities and price
information. It should also promote market practices that ensure fair treatment of
orders and a price formation process that is reliable as well as market efficient. In
an efficient market, the dissemination of relevant information has to be timely

Deputy Director, Securities Board, Nepal
and widespread and should be reflected in the price formation process. Hence,
the regulation of the market should be based on the three core objectives;
 Protection of investors
 Ensure fair, efficient and transparent market
 Reduction of systematic risk
Investors should be protected from misleading, manipulative or fraudulent

practices including insider trading and the misuse of clients' assets. Full
disclosure of information material to investors is the most important means for
ensuring investor protection. This makes investors more capable of assessing the
potential risks and rewards of their investment and thus helping them to protect
their own interests. As a key component of disclosure requirement, accounting
and auditing standards should be in place and should be of internationally
acceptable standard.
Similarly, the regulators' approval of exchange and trading system operators and
of trading rules help to ensure fair market. The fairness of the markets is closely
linked to investor protection and, in particular, to the prevention of improper
trading practices. Market structures should not unduly favor some market users
over others. Transparency can be defined as the degree to which information
about trading (both for pre-trade and post-trade information) is made public. Pre-
trade information concerns the posting of firm bids and offers as a means to
enable investors to know, with some degree of certainty, whether and at what
prices they can deal. Post-trade information is related to the prices and the
volume of all individual transactions actually concluded. Regulation should
ensure the highest levels of transparency.
Although regulators cannot be expected to prevent the financial failure of market

intermediaries, regulation should aim to reduce the risk of failure (including
through capital and internal control requirements). Where financial failure
nonetheless does occur, regulation should seek to reduce the impact of that
failure, and, in particular, attempt to isolate the risk to the failing institution.
Market intermediaries should, therefore, be subject to adequate and ongoing
capital and other prudential requirements. If necessary, an intermediary should be
able to wind down its business without loss to its customers and counter parties
or systemic damage. Risk taking is essential to an active market and regulation
should not unnecessarily stifle legitimate risk taking. Rather, regulators should
promote and allow for the effective management of risk and ensure that capital
and other prudential requirements are sufficient to address appropriate risk
taking, allow the absorption of some losses and check excessive risk taking. An
efficient and accurate clearing and settlement process that is properly supervised
and utilizes effective risk management tools is essential. There must be effective
and legally secure arrangements for default handling. This is a matter that
extends beyond securities laws to the insolvency provisions of a jurisdiction.
The three objectives are closely related and, in some respects, overlap. Many of
the requirements that help to ensure fair, efficient and transparent markets also
provide investor protection and help to reduce systemic risk. Similarly, many of
the measures that reduce systemic risk provide protection for investors. Further,
matters such as thorough surveillance and compliance programs, effective
enforcement and close cooperation with other regulators are necessary to give
effect to all three objectives.
IOSCO Principles of Securities Regulation
Based on these three core objectives, IOSCO has adopted a comprehensive set of
Objectives and Principles of Securities Regulation that is also known as the
IOSCO Principles. These principles set out a broad general framework for the
regulation of securities, including the regulation of securities market, market
intermediaries, issuers of securities and management and operation of collective
investment schemes. These principles today are recognized by the world
financial community as international benchmarks for all markets. The IOSCO
principles are as follows;
A. Principles Relating to the Regulator
1. The responsibilities of the regulator should be clear and objectively stated.

2. The regulator should be operationally independent and accountable in the
exercise of its functions and powers
3. The regulator should have adequate powers, proper resources and the
capacity to perform its functions and exercise its powers.
4. The regulator should adopt clear and consistent regulatory processes.
5. The staff of the regulator should observe the highest professional standards
including appropriate standards of confidentiality.
B. Principles for Self-Regulation
6. The regulatory regime should make appropriate use of Self-Regulatory

Organizations (SROs) that exercise some direct oversight responsibility for
their respective areas of competence, to the extent appropriate to the size and
complexity of the markets.
7. SROs should be subject to the oversight of the regulator and should observe
standards of fairness and confidentiality when exercising powers and
delegated responsibilities.
C. Principles for the Enforcement of Securities Regulation
8. The regulator should have comprehensive inspection, investigation and

surveillance powers.
9. The regulator should have comprehensive enforcement powers.
10. The regulatory system should ensure an effective and credible use of
inspection, investigation, surveillance and enforcement powers and
implementation of an effective compliance program.
D. Principles for Cooperation in Regulation
11. The regulator should have authority to share both public and non-public
information with domestic and foreign counterparts.
12. Regulators should establish information sharing mechanisms that set out
when and how they will share both public and non-public information with
their domestic and foreign counterparts.
13. The regulatory system should allow for assistance to be provided to foreign
regulators who need to make inquiries in the discharge of their functions and
exercise of their powers.
E. Principles for Issuers
14. There should be full, timely and accurate disclosure of financial results and
other information that is material to investors’ decisions.
15. Holders of securities in a company should be treated in a fair and equitable

manner.
16. Accounting and auditing standards should be of a high and internationally
acceptable quality.
F. Principles for Collective Investment Schemes
17. The regulatory system should set standards for the eligibility and the
regulation of those who wish to market or operate a collective investment
scheme.
18. The regulatory system should provide for rules governing the legal form and
structure of collective investment schemes and the segregation and protection
of client assets.
19. Regulation should require disclosure, as set forth under the principles for
issuers, which is necessary to evaluate the suitability of a collective
investment scheme for a particular investor and the value of the investor’s
interest in the scheme.
20. Regulation should ensure that there is a proper and disclosed basis for asset
valuation and the pricing and the redemption of units in a collective
investment scheme.
G. Principles for Market Intermediaries
21. Regulation should provide for minimum entry standards for market
intermediaries.
22. There should be initial and ongoing capital and other prudential requirements
for market intermediaries that reflect the risks that the intermediaries
undertake.
23. Market intermediaries should be required to comply with standards for
internal organization and operational conduct that aim to protect the interests
of clients, ensure proper management of risk, and under which management
of the intermediary accepts primary responsibility for these matters.
24. There should be procedures for dealing with the failure of a market
intermediary in order to minimize damage and loss to investors and to
contain systemic risk.
H. Principles for the Secondary Market
25. The establishment of trading systems including securities exchanges should

be subject to regulatory authorization and oversight.
26. There should be ongoing regulatory supervision of exchanges and trading
systems, which should aim to ensure that the integrity of trading is
maintained through fair and equitable rules that strike an appropriate balance
between the demands of different market participants.
27. Regulation should promote transparency of trading.
28. Regulation should be designed to detect and deter manipulation and other
unfair trading practices.
29. Regulation should aim to ensure the proper management of large exposures,
default risk and market disruption.
30. Systems for clearing and settlement of securities transactions should be
subject to regulatory oversight, and designed to ensure that they are fair,
effective and efficient and that they reduce systemic risk.
Nepalese Regulator
Securities Board, Nepal (SEBO) was established by HMG/N in 1993 as an apex

regulator of the securities market under the Securities Exchange Act 1983. Its
objective is in line with the regulatory bodies of other countries such as to
regularize and manage the securities market and protect investors' interest. Since
a decade has passed of its establishment, I think it is time to assess the regulator
in terms of international benchmark and best practices. However, one should
keep in mind that, often there is no single correct approach to regulatory issues.
Legislation and regulatory structures vary between jurisdictions and reflect local
market conditions and the historical development.
Ever since its establishment, SEBO has been performing the role of a regulator as
well as that of a market developer. In both the roles, SEBO has not been able to
perform satisfactorily though it has made significant achievements along the
way. The work of SEBO is being hampered by the duplication and overlapping
provisions in the laws regarding regulatory duties like enforcement and
supervision, entry and exit of market intermediaries etc. This, in fact, is the
essence of the principles relating to regulator. The responsibilities of the
regulator are still not clearly and objectively stated in the legislations and it still
does not have adequate powers and resources to perform its functions and to
exercise its powers. It also lacks the operational independency. SEBO does not
have a comprehensive inspection, investigation and surveillance authority, which
have hampered its effort to build a fair, efficient and a credible market
Another aspect that comes into the forefront is the performance of NEPSE. Self-
regulatory organization is a valuable complement to the regulator in achieving
the objectives of securities regulation. The present regulation has provisions for
the development of NEPSE as a self-regulatory organization, which gives it the
authority to regulate some part of the securities market like trading and market
intermediaries' activities. But NEPSE has not been able to develop as a self-
regulatory organization.
All of these indicate that Nepalese regulator distinctly lags behind on the
principles developed by IOSCO. It has been operating as a police force without
the firearms. It has not been able to instill a sense of duty in the market
participants that a strong regulator is watching their activities. However, Nepal's
entry into WTO and her effort to attract foreign investment have made it very
important that its regulation and market mechanism are in line with international
best practices. For this to happen, the IOSCO principles should be one of the
major guiding forces for our future market reform initiatives. Besides SEBO,
which still has not taken IOSCO membership should look forward to
immediately joining the organization. We are still in a stage where we are
working for the development of basic infrastructures of the market. In such a
scenario, the IOSCO forum would be ideal in broadening our horizon and
developing our regulation and mechanism from the experiences of other
regulatory agencies.
***
The Essence of Corporate Governance: Lessons to be
learnt from the Sub-continent
- Abin Bhakta Pradhan
‘Corporate governance is an essential safeguard of a stable corporate sector. As

Asia emerges from the economic crisis, most institutions in the region want to
introduce good corporate governance.’
Good governance of corporate sector is the sine qua non of a healthy economy
and an efficient financial system. It can reduce the cost of capital and enhance
shareholder value. The focus on governance has been re-invigorated especially
after the Asian financial crisis in 1997. The crisis has, in part, been attributed to
serious inadequacies in the governance of banking and financial sector. Good
corporate governance rarely works in isolation. It needs to be accompanied by
good governance in the major constituents of the economy including the
governance of central banks, banking supervisory agencies and in the real and
corporate sectors. The post-crisis period has created an environment where most
of the major actors in Asia are now willing to implement governance reforms not
only as a way to ensure survival but also as a competitive weapon.
Following are some of the major pillars of corporate governance, which was
compromised by the South Asian countries leading to the Asian financial crisis:
Legal regime, Regulatory framework and Enforcement Mechanisms:
In most of the south Asian countries the provisions for good governance was
either missing from key legislation and regulations or were not effectively
enforced. While non-existence of key legislation and regulations to regulate
financial and securities markets lead to serious shortcomings in instilling good
governance, laws that were inconsistent, confusing or redundant were the major
cause of the financial crisis. Some of the key legislations that lacked provisions
for good corporate governance were, to name a few – Corporate, Securities, Bank
and Financial Institutions, Bankruptcy, Commercial, Secured Transactions Laws.
Loopholes in the legislation gave rise to weak monitoring and supervisory roles
of the regulatory institutions, such as the central banks. Weak enforcement due to

Mr. Pradhan is currently associated with Asian Development Bank
severe entrenchment of the management system in bureaucracy and politicization

was the key reason for widespread corruption making all reform activities
meaningless.
Corporate Ownership, Composition and Control:
Concentration of ownership has been the major obstacle to the independence of

the board of directors from the management. The highly concentrated and family
based ownership of corporate groups resulted in governance structure that
depended largely on internal control systems. Corporate financing relied
excessively on bank loans and Companies financed long-term investments with
short-term debt. They were in effect the controlling shareholders who maintained
the majority of outstanding shares and could hardly be replaced from the board.
They are also known to enhance control over companies through cross-
shareholdings, by setting up their own banks and investing shares among non-
financial companies within their group and in other groups’ companies. Due to
collusion between big businesses and political elite, banks lent on the basis of
who the borrower is rather than on the basis of the soundness of the project.
Banks had significant presence as members of affiliated business groups which
led to the easing of due diligence and monitoring standards when lending to
group members.
Capital Markets:
Listing requirements for companies that used the capital markets to raise funds
for their operations were not adequate. Over-lending by banks, inefficient
investment and excessive diversification of corporations and underdeveloped
stock markets were other results of poor governance. Perfunctory screening of
loan projects and debtors and extension of loans based on cross-payment
guarantees were other elements affecting the capital markets. Implicit guarantees
by Governments on bank loans to large businesses resulted in large non-
performing loans (NPL) in the banks.
Board of Directors:
Control and ownership were not separate and most of the decisions were made by
directors representing controlling shareholders, who were in most cases members
of the family business. Agency problem due to conflict of interest between the
controlling shareholders and minority shareholders was prevalent. Directors were

basically handpicked by the controlling shareholders from the senior managers
and were automatically approved at the annual general meeting. Most of the
independent directors were controlling shareholders from affiliated firms.
Creditors:
Creditors were mostly inactive in monitoring debtor firms and relied mainly on
guarantees and collateral. Loan agreements and debt indentures did not include
strict covenants. Even when the covenants were violated, the creditors did not
declare defaults.
At the highest level the Government is responsible for introducing measures to

address the weaknesses in the corporate governance. Following were some of the
major recommendations provided to the Government - post Asian financial crisis
- to those south Asian countries most drastically affected by the crisis to improve
their governance structure.
1. Strengthen the functioning of Board of Directors
The fiduciary duties of care and loyalty, and related liabilities on corporate
directors can and should be imposed in a variety of ways. It could include
compliance with effective anti-corruption laws, securities laws, corporate laws,
bankruptcy laws, environment laws, stock exchange listing requirements, as well
as laws that strengthen minority shareholders rights and contractual terms of
private equity or strategic equity investment. Activism of large institutional
investors can also impel corporate governance reforms. In case of the bank
supervisors, they should consider codifying objective criteria for the
disqualification of bank directors.
Since the major part of the cost of failed banks is usually borne by the
government, at the expense of the taxpayers, they should technically be allowed
to impose serious penalties on bank directors who are held accountable for
banking as well as other corporate mis-governance. Essentially the law could be
applied in a manner that imposes liability on directors if they are found to be
guilty of gross negligence or of simple negligence.
In 1994, the influential American Law Institute promulgated its Principles of

Corporate Governance, a summary of recommended corporate governance law
standards. These endorsed director liability for inattention to corporate
compliance systems. Directors should have legal duties to ensure that corporate
activities are conducted within the boundaries set by law. While this does not
mean that compliance in day-to-day corporate operations must be overseen
directly by board members, it does mean that monitoring duties concerning law
compliance must be responsibly delegated. The following table summarizes a
pro-active role of directors more accurately.
THE TEN COMMANDMENTS FOR DIRECTORS

1. Be honest and forthcoming in all matters related to the institution.
2. Prepare for and attend board meetings.
3. Leave your personal interests and those of your family and associates
outside the boardroom.
4. Consider the impact of your actions on the institution, its owners and
customers, and the surrounding community.
5. Evaluate proposals from management and other directors carefully.
6. Think independently.
7. Voice your opinion, even if it is unpopular.
8. Insist that proposals that do not make sense to you be clarified, modified, or
rejected.
9. Take personal responsibility for the safety, soundness, and profitability of
the institution.
10. Set an example for board management, employees, and competitors.
Source: Michael Patriarca. "The Role and Responsibilities of a Savings Institution Director",
Perspectives, Federal Home Loan Bank of San Fransisco, Fall 1998, p.4
2. Improve Listing Requirements
Stock exchange listing requirements are another tool by which the quality of
corporate governance can be influenced in the financial sector. The listing
requirements can call for disclosure of the corporate governance practices in the
annual reports of listed companies, including banks. It would be useful if the
director's could certify that the practices are in compliance with a relevant code
of best practice. For example, in U.K., directors of listed companies, including
banks, need to make a statement about compliance with the Cadbury Code of
Best Practice in annual reports and explain areas of non-compliance. Reforms in
the structure and governance of stock exchanges themselves will be a positive

influence on corporate and bank governance.
The Korea Stock Exchange, the Stock Exchange of Thailand and the Kuala
Lumpur Stock Exchange have begun to raise the bar of corporate governance.
Institutions that are listed on the Korean Stock Exchange were previously
required to have only a quarter of their board as independent members.
Following the economic crisis, the number of independent directors required has
been raised to half in 1999.
In December 1997, the Stock Exchange of Thailand published a booklet titled

‘The Role, Duties and Responsibilities of The Directors of Listed Companies’.
Mr. Singh Tangtatswas, Past-President of the Krung Thai Bank, stated, “the main
aim is to make the management of all the companies listed on the Stock
Exchange of Thailand more transparent, efficient and effective, and so increase
the confidence of all investors in the securities of every listed company.” Under
the guidelines, it was recommended that all listed companies, including banks,
should establish Audit, Nomination, and Remuneration committees.
Kuala Lumpur Stock Exchange (KLSE), with the assistance of

PriceWaterhouseCoopers, prepared a comprehensive report titled “Corporate
Governance: Survey of Institutional Groups and Corporate Governance: Survey
of Public Listed Companies.” The Malaysian Securities Commission has also
published corporate governance standards on its website. The KLSE Chairman
stated “It must be appreciated that the success of these measures is dependent not
only on the government and its regulatory agencies, but also on the co-operation
and commitment of all parties involved in corporate governance”. The KLSE has
also made a monetary contribution to the Malaysian Institute of Corporate
Governance. According to Anne Simpson of the Pensions Investment Research
Consultants, UK, the requirements for training of directors and for controlling
shareholders not to vote when they have a conflict of interest were some of the
positive features of corporate governance in Malaysia.
3. Protection of minority shareholder’s rights
The corporate law should be reviewed and amended to mitigate pervasive control
of large shareholders, who are able to finance risky and unprofitable projects by
easily overruling minority representation. The laws could be amended to

empower minority shareholders by raising the majority percentage of votes
required on critical corporate decisions and mandating minimum representation
of minority shareholders on the board. It should also have provisions requiring
company management to get prior approval of shareholders to undertake major
investments and raise capital in national and international markets
4. Improve prudential regulations and governance for banking operations
Quality governance of central banks and other bank supervisory agencies is an

important pre-requisite for good governance in the banking industry since the
regulators set the example. The Bank for International Settlements (BIS) has
enshrined independence of banking supervisors as the first precondition in its
Core Principles for Effective Banking Supervision. It states that -
"An effective system of banking supervision will have clear responsibilities and
objectives for each agency involved in the supervision of banking organizations.
Each such agency should possess operational independence and adequate
resource. A suitable legal framework for banking supervision is also necessary,
including provisions relating to authorization of banking organizations and other
ongoing supervision; powers to address compliance with laws as well as safety
and soundness concern; and legal protection for supervisors. Arrangements for
sharing information between supervisors and protecting the confidentiality of
such information should be in place".
Central bank examiners have traditionally followed the CAMEL methodology for
analysis and rating the soundness of banks. This analysis methodology may not
capture the full range of governance risks in a bank. Rating agencies have also
followed a similar framework for rating banks. The rating methodologies
employed by central banks, rating agencies creditors and investors do not appear
to explicitly include the analysis of governance risks. Given the widely-held
view that a key factor contributing to bank failure in Asia, was inadequate bank
governance systems, it may be worthwhile to expand the rating methodology to
include governance as a key risk factor. Perhaps the abbreviation CAMGEL will
be more appropriate in the future, where the G would stand for governance.
5. Mergers, Acquisitions and Consolidations
An active merger and acquisition market also provides an impetus to good

governance of corporate sector. Hurdles to smooth implementation of mergers
can lead to a sense of complacency amongst entrenched bank managements and
boards. Again, the environment in Asia has so far been favorable for introducing
legal reforms, including labor market reforms that reduce or eliminate the
impediments to bank merger and acquisition activity. This is justified by the need
to recapitalize banks, the need to end the credit crunch and the need to minimize
the adverse effects on employment in a large number of distressed banks. Several
bank regulators in the region favored the notion of bank consolidation. These
include Indonesia, Japan, Korea, Malaysia, Singapore and the Philippines.
Amongst the different types of impediments that need to be addressed are limits
on foreign ownership of banks; dual-classes of shares; disenfranchisement of
certain categories of shareholders; encouragement of labor mobility through tax
and labor market reforms, such as rules for early vesting of pension benefits and
portability of pensions; and tax and accounting changes which are M&A
friendly.
Directors have special duties when banks are involved in an M&A transaction.
Directors, including independent directors run the risk of acting primarily in their
own interest rather than the bank or the general body of the shareholders and the
attendant liability for breach of fiduciary duties. The directors have a fiduciary
duty to act fairly with respect to shareholders. A common flow of the directors of
acquiring banks is to overpay for a target as mentioned in a recent BIS study.
Conversely, the directors of a target bank may reject a good offer contrary to the
interests of its general body of shareholders. If a bank’s long term plan involves a
merger, the next item on the board’s agenda should be to form a special
committee consisting of disinterested independent directors to manage that
process, review documentation and ensure that the entire board is fully informed
on all proposals, especially on competing bids.
Major governance issues have arisen in the Philippines & Malaysia about the
role of government linked institutions in supporting or mandating bank mergers.
Under what conditions should state-linked pension funds take sides with an
acquiring bank? Perhaps, the solution might be to privatize and parcel out the
fund management activity of state-linked pension funds to a number of
competing, private and professional fund managers and institute procedures to

avoid conflicts of interest and insulate the investment activity of pension funds
from political interference. In Malaysia, the issue has arisen as to under what
circumstances can or should the central bank mandate bank mergers? Clear and
transparent criteria for such actions should be spelt out in fairness to all
shareholders. Intervention by bank supervisory agencies is usually justified in
situations of: (i) systemic risk, (ii) depletion of bank capital to a level much
below that deemed appropriate under the BIS Capital Adequacy guidelines; (iii)
provision of liquidity from taxpayer sources for purchase of bad loans or to
prevent a ‘run on the bank’; and (iv) failure of existing shareholders to invest
additional capital after a reasonable opportunity has been given to them. In these
types of situations the issue becomes one of fairness to taxpayers and fairness to
bank shareholders. If bank capital is essentially lost, the shareholders must bear
the loss and prompt intervention in the form of government temporary takeovers,
mandated mergers or purchase and assumption resolution may be justified.
6. Anti-Corruption Legislation
Banking collapse in Asia has been partly attributed to corruption. Commercial

banks are highly vulnerable to the "cancer of corruption". Thus a policy to
introduce best governance practices in banks should be accompanied by an
effective anti-corruption law together with suitably empowered enforcement
agencies. Even in the U.S. the Foreign Corrupt Practices Act was passed after
some well-publicized cases of corporate corruption. Indonesia has taken a
positive step by passing an anti-corruption law.
Implementation of the Bank for International Settlements (BIS) Core Principles

also serves to tackle corruption in banks that is manifested in the form of
connected lending. One of the Core Principles requires that: " In order to prevent
abuses from connected lending, banking supervisors must have in place
requirements that banks lend to related companies and individuals on an arms-
length basis that such extensions of credit are officially monitored, and that other
appropriate steps are taken to control or mitigate the risks." The evasion of
regulatory ceilings on such lending is a key governance concern in banks.
According to the report of a World Bank Mission to Indonesia few years ago,
following were some of the possible steps highlighted to combat corruption:
Make immediate progress in transparency and information. While creating a

more open environment is a long-term process, there are actions the government
could take immediately. Action could be taken to promulgate regulations, and
create the necessary institutional capacity to implement, in order to create:
 a "freedom of information" measure that makes all government actions

open unless there is a specific, agreed upon necessity for secrecy;
 "whistle blower" protection that prevents the use of legal intimidation to
suppress legitimate complaints,
 a requirement for the declaration of assets of all major public officials;
 prohibitions against conflict of interest in government decision making,
 legislation to support establishment of watchdog agencies such as the
Independent Commission Against Corruption in Hong Kong.
7. Governance Education
As the rules of the game get tighter, the need for professionalism in bank
directorships is increasingly critical. Establishment of Institutes of Directors
Asia-wide is now gaining a new priority. The U.K. based Institute of Directors
grants the professional governance and qualification of the Chartered Director.
Such professional directorship training will contribute to enhancing the quality of
board directors and bank governance. Many U.S. business and law schools
include board training in their curriculum – a practice that should be adopted in
Asian schools of business, law, economics, accountancy and financial analysis.
8. Independent Spotlight
Independent think tanks, associations, institutes, newspapers and magazines in

the region should be encouraged to throw the spotlight on board dynamics and
governance issues in Asia. Wider publicity of strengths and weaknesses in
corporate governance and the resultant transparency will trigger debate in
boardrooms and spur a beneficial long-term effect on the quality of corporate
governance in Asia. The efforts of major US-centric magazines such as Business
Week and Fortune, which issue scorecards of the best and worst boards
currently, cover only US institutions and corporations. Similar efforts by locally
based independent and disinterested actors may have a favorable outcome for the
quality of corporate governance in Asia.
9. Protection of creditor’s rights
This mainly involves the reinforcement of Bankruptcy Law to provide sufficient

confidence to the creditors in the smooth entry and exit from the financial
markets. In addition the Law should also help in the orderly restructuring,
recapitalization and liquidation of corporate assets.
Other equally important measures recommended to the government of those

countries for improved governance, which are self-explanatory, are as follows:
10. Improve accountability of controlling shareholders and the board

11. Improve managerial transparencies
12. Removal of cross-guarantees of loans among group members
13. Adherence to international accounting and auditing standards
14. Voting rights to Independent Directors and institutional investors
15. Enforcement of improved disclosures of financial information
16. Establishment of function specific committees such as – Audit,
Governance, Nomination, Compensation, Compliance, and Risk
Management Committees
17. Revision of all key legislations including, Corporate and Bankruptcy laws
18. Minimize government intervention in bank and corporate management
Conclusion
This paper shows that the principles of corporate governance are actually derived
from common principles of business ethics rather than from some complicated
mathematical algorithm. Nevertheless, its importance should not be underplayed
since the consequences can be costly, or catastrophic in the worst case. Being an
intangible asset, good governance requires attention and investment of time,
money and the need for recourse to sources of professional governance expertise
and advice. A growing realization of the benefits of good corporate governance
is already occurring in Asia. Many Asian companies have reconstituted their
boards since the Asian Crisis. As the corporate culture moves forward with this
re-invigorated mantra, good corporate governance should remain at the top of the
agenda in Asia.
***
Secondary Market: Limited Opportunities
- Mr. Jagdish Agrawal
Stock exchanges in many countries have a long history of more than one century.
These stock exchanges have faced so many ups and downs during this period
including sacking of brokers. We must note that just ten years’ period is not
sufficient to make a history of a stock exchange but the Nepal Stock Exchange
Ltd. (NEPSE) has created a history. All the features of a stock exchange have
been applied and the possible happenings in a secondary market have already
taken place during this short span of period. The big bullish period, the long
bearish period, the unprecedented market capitalization, the quite fair market
driven by innocent and honest market intermediaries, the quite unfair market
driven by unfair practices, the rumor driven market, the big changes in ownership
of joint venture banks, the addition and subtraction in the listed companies, etc.
are some of the key events in the history of the Nepalese stock market.
There are changes in the NEPSE since the inception of open out cry system of
trading in 1993. The noted changes are the shifting of the office from a rented
house to owned house, the introduction of computer hardware and software
systems in the clearance, appointment of two brokers as members of NEPSE's
Board of Directors, the shifting from T+5 system of settlement to T+3 system
and changes in Rules and Regulations in favor of the market, etc.
However, it can be argued that the most needed changes, which are fundamental
for development of a stock exchange, are still to be introduced. Some of these
have been categorically explained in this paper.
The electronic system of trading: NEPSE is still following the old and outdated
open out cry system of trading. Such a system is neither efficient nor scientific.
The online trading system or an advanced electronic system of trading should be
introduced without any further delay.
The automation in the clearance system: Presently the investors have to

physically deliver or receive the share certificates for sales and purchases made.

Mr. Agrawal is a Chartered Accountant and also associated with the stock brokering business in
Nepalese securities markets
'Netting Out' system of delivery of shares should be introduced and the system
should generate daily broker-wise statement, which shows the net share
certificate or net amount payable by a broker. The system should be IT-based.
The De-mat system of securities: There are so many disadvantages of keeping

physical share certificates, as a proof of ownership on the shares. The hurdles
like lengthy system of clearance from NEPSE, a big time taken by the listed
companies for transfer of ownership, etc., can be overcome by introducing de-
mat system. The chances of fake certificates, loss of certificates, etc., can also be
minimized, by converting from paper based share certificates to electronic
equivalents.
Lack of mutual funds: Even in developed countries most of the investors are
dependent on the mutual funds for investment in secondary markets. It is only
because most of the investors have little knowledge on conducting financial
analysis of the listed companies. Mutual funds get regular services of qualified
financial analysts and the investments in securities made by them are based on
their regular studies of available financial figures and regular watch of the factors
affecting the market. An investor may rely more on a mutual fund and may invest
in it instead of investing in shares of listed companies, which holds higher risk.
In Nepal, presently, there are two mutual funds: one established by NIDC Capital
Markets and another by Citizen Investment Trust. Both of these mutual funds are
not successful in attracting investment from general public.
The rules for establishment of a mutual fund by private sector including banks
and finance companies should be favorable and market oriented. They should
have direct approach to participate in primary market and have direct access to
the trading floor of NEPSE, like other market makers. The concept of secondary
market was developed specially for the promotion of portfolio management of
big business houses and big investors. But the concept has completely failed in
our country due to restrictions on their direct participation in the market.
Market makers, on the outset, had played a safe game to fill up the gap for
mutual funds and institutional investors. However, as of today there are no
market makers in the floor of NEPSE.
Opening of secondary market for foreigners: From the very beginning I am in

favour of allowing foreign investors to participate in the secondary market up to
a certain percentage of the outstanding shares of a company. Specially, I am of
the view that the foreigners residing in Nepal should be allowed to participate in
the secondary market. The demand of shares can increase by many folds by
doing so.
Absence of corporate investors: Some of the finance companies had tried hard
to participate in the secondary market but the changes in the regulations
governing investment in shares by a bank or a finance company has compelled
them to stop the purchase of shares; rather, they off-loaded some of their
holdings. One has to understand that only the big investors like banks and finance
companies can afford the expenses incurred in the analysis of the market.
A restriction on them to participate freely in the secondary market means a
restriction on the system as a whole.
Absence of rating agencies: True, scrutinized, and credible information about

the listed companies are not available because of the absence of credit rating
agencies.
Absence of regulation over financial information from the listed companies:

Secondary market is a calculative market based on financial information of the
listed companies. It should be mentioned that information is not received on time
and the available information does not meet the required standards. The
Accounting Standards Board has till date issued four Accounting Standards,
which are applicable from July 16, 2004. These Standards are not sufficient to
compel a listed company to generate financial figures, which are true and fair.
Taragaon Regency Hotels Limited had come out with its annual accounts for the
fiscal year 2002-2003, which are in major deviation from the International
Accounting Standards and also from the generally accepted accounting
principles. The figures of loss during operation were capitalized treating the loss
as for trial period, so that the book value of the shares does not decrease to the
face value of the shares. Recently, the market price of shares of Bank of
Kathmandu Ltd., had increased to Rs.218 from Rs.200 because of a rumor that
the Bank has earned Rs.21 crores as profit. Investors have no time to confirm the
unpublished figures and to know whether the income of Rs.21 crores is before
provisions and taxes or after that. How an unpublished report was made available
to the investors is a point worth noting down.
Regulators must be sure that information is reaching to the public in time and that
the quality of such information is held high. Effective interventions made to
minimize rumor and unauthenticated figures from creating unwanted noise in the
market.
Privatization of stock exchange: In spite of a HMG/N's policy and the interest

of donor community to privatize the stock exchange, the process of privatization
has been quite slow. Out of seven members of Board of Directors of NEPSE only
two representatives are from the market intermediaries. The Chairman is
nominated by Ministry of Finance. Majority of Directors should have be from the
person having qualification and experience with regard to capital market and the
chairman should also be selected from these experts. Progress of secondary
market can be difficult without effective operation of NEPSE.
I have observed that lots of investors have large funds to invest but there is dearth
of opportunities. Bank interest rates are going down, Government bonds are
rarely available, there is a persistent slump in the real estate business, and the
bullion market is unorganized, which can capitlized by secondary market. The
primary market seems to be doing well as they are usually subscribed especially
with issues of banks and financial companies. But the secondary market is solely
dependant on one or two industrial companies, banks, financial companies, and
insurance companies.
Ample opportunities for developments are available in Nepal. The big water
resource, the favorable time zone, the center for natural resources including the
Everest, the big consumer markets in neighbor (India, China, Pakistan,
Bangladesh, etc.), are all favorable conditions for economic development of this
country. But, we are very much unfortunate not to explore the opportunities.
Our country is passing through a turbulent phase resulting to the deteriration of

the economy. Most part of our budget is being expended for administrative and
security expenses. The heavy loss in public infrastructure, frequent closure
(Bandha) of markets and transport systems, and overall insecurity feelings in the
general public have damaged the overall economic situation and the image of the
country.
Secondary markets have direct relation with the economic growth. Economic
growths come with more earning capacity, opportunities to save and also the
opportunity to invest. It must also be noted that economic growth is, to a great
extent, dependant on the industrialization in a country. Some of the multinational
organizations have established their subsidiaries in Nepal but most of them are in
the form of private limited corporate. Dabur Nepal, Asian Paints and so many
others are performing well but adding nothing directly to secondary market. The
position shows lack of policy with regard to corporate farming in Nepal. One or
two of the listed industrial companies are helpful for the secondary market. The
performance of one of such companies is notable despite a host of unfavorable
conditions.
Extract from Directors’ Report of Nepal Lever Limited: “Exports were on the
decline from 2000/01 consequent to the fiscal changes introduced in the Indian
Budget and with the emergence of many new tax-exempt zones in India. Further
withdrawal of the rebate on income tax on profits on exports and the high costs in
manufacturing for exports from Nepal have made the exports business unviable.”
It means not only the domestic but the international circumstances were also not
in favor of our industries. Under such circumstances the financial results of
Nepal Lever Limited was quite commendable. The table below shows the key
indicators.
Fiscal Year
Particulars
2000/01 2001/02 2002/03
Sales (Rs. in million) 1541 1236 1245
Cost of sales (Rs. in million) 1221 938 843
Gross profit (Rs. in million) 320 298 402
% of Gross Profit to sales 21 24 32
Net profit after tax (Rs. in million) 68 43 93
% of Net Profit to sales 4.41 3.48 7.47
Earning per share (Rs.) 74 46 101
% of export to sales 54 29 18
The above figures show that the year 2001/02 was not a good period for the
industry but timely planning for development of domestic market had helped the
industry to grow in 2002/03.
Those companies which are either rely on major raw materials available in local
market or the volume of products that is consumed in the country, are running
successfully. Besides a handful of companies, the secondary market is facing
acute shortage of companies that are running in profit.
Some of the hotels are playing a leading role in promoting tourism industry but
the internal disturbances have made their efforts very difficult.
Necon Air, the only reputed listed company from the services sector, has almost
closed its business due to heavy losses. It still has heavy liabilities for to the
Nepal Civil Aviation Authorities towards landing and parking fees, besides other
heavy dues.
In a nutshell, the financial sector has solely taken the burden to run the secondary
market in the country. In spite of the overall unfavorable conditions, the banks
and finance companies are making progress but the growth rate is very nominal.
During the year 2001/02 Nepal Rastra Bank had come with strict policy for loan
loss provision. During that year the net profits of almost all the banks and finance
companies had declined due to stricter loan loss provision as per the new
provisions. But the year 2002/03 is a year of better feelings for them. Financial
figures of 2002/03 of some banks are given below.
Shareholders’ Shareholders’ Book Book

EPS
Name of the Bank Fund Fund* Value Value*
(Rs.)
(Rs. in Million) (Rs. in Million) (Rs.) (Rs.)
Standard Chartered Bank (Nepal)
1369 1701 149 403 500
Ltd.
Nepal Investment Bank Ltd. 639 789 40 216 267
Himalayan Bank Ltd. 1063 1906 49 248 444
Nepal SBI Bank Ltd. 570 897 11 134 211
Everest Bank Ltd. 613 754 26 135 166
Bank of Kathmandu Ltd. 579 892 18 125 192
Nepal Industrial & Commercial
552 695 5 110 139
Bank Ltd.
Laxmi Bank Ltd. 327 328 - 99 99
Development Credit Bank Ltd. 168 184 10 105 115
* Including loan loss provision
The P/E ratios as on April 17 2003 of these banks are given here.
Name of the Bank P/E Ratio

Standard Chartered Bank (Nepal) Ltd. 10.74
Nepal Investment Bank Ltd. 19.78
Himalayan Bank Ltd. 16.43
Nepal SBI Bank Ltd. 23.36
Everest Bank Ltd. 19.77
Bank of Kathmandu Ltd. 11.94
Nepal Industrial & Commercial Bank Ltd. 33
Development Credit Bank Ltd. 16.20
The above figures show that there are favourable opportunities to invest in shares
especially with the shares of commercial banks.
In conclusion it can be said that the investors have lost their confidence on the
secondary market not only because the existing few listed companies are not
performing well but also due to fear of internal unrest that could further
deteriorate the economic conditions of the country.
Some of the corrections as suggested above may substantially increase

opportunities to invest in the secondary market. Needless to say, the situation of
our country must improve in order for investors to be eager to invest more
confidently.
***
Securities Markets in Nepal
-Mr. Nabaraj Adhikari
Introduction
Securities markets facilitate the exchange of financial assets by bringing together

buyers and sellers of securities. Securities markets provide an effective way of
raising money for commercial enterprises and at the same time provide an
investment opportunity for individuals and institutions. Securities markets have
both theoretical and practical perspectives. Securities markets provide value and
significance to the financial assets. Practically, the activities of buying and
selling securities on the securities markets are extremely important for the
allocation of capital within economies. The securities markets serve as a reliable
guide to the performance of companies, and thereby promoting efficiency.
The act of raising funds by issuing shares to the general public in Nepal started in
1937. Though, the development of securities markets could not be a national
policy for a long time, the then industrial policy of Nepal led to institutional
development of securities markets with the establishment of Securities Exchange
Center in 1976. Securities Exchange Center used to manage and operate primary
and secondary markets of long-term government securities and corporate
securities. After some years of establishment policies and programs were made to
develop and promote stock exchange, issue manager, underwriter, securities
dealer, stock broker and portfolio manager in the markets with the objective of
avoiding possible conflict of interest between various market participants.
With the objective of regulating securities transactions and protecting interest of

investors, Securities Exchange Act was enacted in 1983. The Act provided some
legal and institutional basis for the securities markets development. The first
amendment in the Act in 1993 led to the establishment of Securities Board, Nepal
(SEBO) to regulate and manage securities markets. The Securities Exchange
Center was converted into Nepal Stock Exchange Ltd. (NEPSE) with the
objective of operating and managing secondary transactions of securities. After
this conversion, the open out cry system of trading among stock brokers started.

Officer, Securities Board, Nepal
The second amendment of the same Act was made in 1997. This amendment
made provisions for registering securities businesspersons in SEBO. The
amendment also made mandatory provisions for the listed companies to submit
semi-annual and annual reports to SEBO.
Regulatory Mechanism
SEBO is the apex regulator of securities markets in Nepal. It provides licenses to

stock exchange and securities businesspersons (stockbroker, securities dealer,
market maker and issue manager). It approves public issues of securities. NEPSE
is the market operator and it provides membership to securities businesspersons.
Listed companies, and securities businesspersons report their performance to
SEBO and NEPSE. As there are different provisions in the Companies Act, 1997
regarding approval of prospectus, allotment of securities, transfer of ownership,
disclosures, and other relating aspects of securities, the Company Registrar's
Office (CRO) also has a role in regulating securities markets in Nepal.
Performance
Some major indicators that indicate the performance of securities markets are
number of issue approval, amount of issue approval, number of listed companies,
number of traded companies, annual turnover, market capitalization, turnover on
market capitalization, market capitalization on nominal GDP at market price and
NEPSE index etc. Table 1 presents the performance of securities markets in
Nepal.
Table 1: Performance of Securities Markets

(Rs. in Million)
Fiscal Year
S.N. Major Indicators
1998/99 1999/00 2000/01 2001/02 2002/03
1 Number of Issue Approval 5 9 9 16 17
2 Amount of Issue Approval 258.0 630.31 717.20 1555.11 854.42
*
3 Number of Listed 107 110 115 96 108
Companies
4 Number of Traded 69 69 67 69 81
Companies
5 Annual Turnover 1499.98 1157.03 2344.16 1540.63 575.80
Fiscal Year
S.N. Major Indicators
1998/99 1999/00 2000/01 2001/02 2002/03
6 Market Capitalization 23508.0 43123.3 46349.4 34703.9 35240.4
7 Turnover on Market 6.38 2.68 5.06 4.44 1.63
Capitalization (%)
8 Market Capitalization on 7.12 11.77 11.78 8.58** 8.22#
Nominal GDP at Market
Price (%)
9 NEPSE Index (Points) 216.92 360.70 348.43 227.54 204.86
* #
25 companies were de-listed Preliminary Estimate of GDP
**
Revised Estimate of GDP
Source: SEBO, Annual Report, 2002/2003.
The above table shows that number and amount of issue approval during the past
five year has been increasing except in the fiscal year 2002/03 where it
decreased. Similarly, the numbers of traded companies have remained almost
constant each year except in the fiscal year 2002/03, where it increased
noticeably. However, annual turnover, market capitalization and the ratio of
turnover on market capitalization have been fluctuating during the said period.
These indicate that the performance of Nepalese securities markets is not stable
though it is improving gradually.
Issues
The provisions incorporated in the existing securities laws and supporting

regulations do not provide adequate power to the securities market regulator for
effective regulation. The securities rules and regulations have not specified the
liabilities of the directors in case of a company is de-listed by NEPSE. The term
"insider trading" and the "insiders" are not clearly defined and there is no
provision regarding investigation and penalty. Moreover, there are overlapping
and duplicating provisions in various laws creating hindrance in effective
enforcement. The public issue process falls under the jurisdiction of more than
one regulator, i.e., CRO and SEBO making the fund raising process costly.
Companies generally hesitate to disclose adequately the material information and
risk factors associated with their business while going public. Markets lack
infrastructures such as central depository system for securities, over the counter
market, and e-trading system necessary for promoting securities market standards
and its dynamism. There is lack of accounting and auditing standards against
which financial reports can be reviewed. Securities market is dominated by risky
instrument, i.e., equity share. There are very few issues of corporate bonds and
mutual funds in the markets. Corporate bonds, the corporate bond issue practice
is yet to be popular due to lack of benchmarking interest rate provided by
government securities and lack of incentives to the issuers.
There are no clear provisions regarding the entry and exit process of securities
businesspersons in the securities markets. The Membership of Stock Exchange
and Transaction Bye Laws, 1998 states that companies interested to operate as
securities businesspersons can apply for membership only when NEPSE
publishes a notice for the same. Whereas, the Securities Exchange Act, 1983
states that the Stock Exchange can only grant membership to those companies
registered as securities businesspersons in SEBO. Full-fledged brokerage firms
are yet to be developed in the markets. There are two securities dealers but are
not working. The markets lack market makers and investment advisors.
Institutional investors such as employee provident fund, insurance and pension
funds, Citizen Investment Trust etc. can play great role in stabilizing market
prices of securities. However, their participation in the market is virtually lacking
due to lack of incentives and the present level of securities markets.
These are some of the major issues of Nepalese securities markets that need to be
addressed to make it an important alternative for capital mobilization.
Prospects
Capital plays a vital role in the economic development of a country. Being a

capital deficient country, Nepal has to make every endeavor to mobilize available
capital efficiently. Securities markets provide mobility of the scattered savings.
Retail investors with limited capital fund could also participate in the industrial
development process of the country through their investment in the securities.
However, both individuals and institutions are putting most of their savings into
bank deposits and bullion markets because of the present state of the securities
markets. Thus, long-term savings that should be invested in the securities
markets are going into short-term investments. Presently, stock exchange facility
is available only in Kathmandu valley. Hence, there is a scope of expanding this
facility in other regions of the country. Privatization of public enterprises such as
Nepal Telecommunication Corporation, Royal Nepal Airlines and other public
enterprises using share sale mode of privatization as announced by HMG/N in
the budget speech of FY 2003/04 could provide a huge investment opportunity in

the securities markets.
Tourism and hydropower sector can be the backbone for Nepal's economic
development. Hydropower projects, in particular, are long-term investment
projects and Nepalese banks, which normally lend for short-term purpose, can
not be a suitable source of financing. Hence, the issue of debt securities for this
purpose could provide a strong dynamic for the development of the securities
markets in Nepal.
Development of the securities markets depends crucially on the quality of

financial information. HMG/N has established Accounting Standards Board and
Auditing Standards Board for improving accounting and auditing standards.
These Boards have developed some accounting and auditing standards to be
implemented in the country. It is expected that the implementation of these
standards would improve quality of financial information. Improved financial
information would help to make informed investment decisions in the securities
markets leading to efficient securities markets in the country.
The Tenth Five Year Plan (2002-2007) has objectives such as developing and
expanding securities market as an important source of long-term funds,
increasing the depth and breadth of the market, modernization of the stock
exchange etc. regarding the capital market development. Corporate and Financial
Governance Project, which presently is in the inception phase of its
implementation, has the objectives of strengthening institutional capability of
SEBO and CRO, modernizing NEPSE and establishing central depository system
of securities. Successful implementation of these plans and projects could bring
institutional investors into the markets, encourage the creation of new savings
vehicles, and lead individuals to invest more in corporate debt and equity.
***
Financial Projection and Actual Results of the Issuer
Companies
DHRUBA TIMILSINA
ABSTRACT
This study compares projected net worth per share and net profit of the companies
in the prospectuses at the time of initial public offering of equity shares in
Nepalese securities markets with the actual results shown by their annual reports.
The study revealed significant deviation in the financial projection and the
deviation in almost all the cases are found to be negative. Further, the study
revealed that the deviation in financial projection is more significant in cases of
the companies from non-finance group compared to that of the finance group.
Financial projection can be prepared for various purposes like supporting

business plan, budgeting for fund, issuing securities to the public etc. Various
models and methods are applied for the financial projections. Since the financial
projections are made under certain assumptions, the accuracy of the projected
financial results is dependent on those assumptions prepared to accompany the
projections (Newbury, 1958).
In securities markets of many countries, it is mandatory for issuer companies to

disclose financial projections in the prospectus while going public. Prospectus is
an important legal document, which provides information about the issuing
company and the securities. It includes company's information on major
functioning, capital, financial situation, management, promoters and directors,
operational status and the future prospects. As per the provision of section 7(f) of
Securities Exchange Act 1983, before issuing securities, public companies have
to register their securities to the Securities Board (SEBO) and get issue approval.
Similarly, Companies Act 1997 in section 20(1) has made provision for the
public companies to publish prospectus before issuing its securities to the public.
According to the section 20(2) of the same Act, the prospectus should first be
approved from the Company Registrar’s Office.

Officer, Securities Board, Nepal
To make the prospectus informative, Companies Act 1997, Securities Exchange

Act 1983 and the regulation, directives and by-laws issued under the Securities
Exchange Act 1983 have made various provisions. Some of these provisions
have given emphasis on the disclosure of financial projections of the issuer
companies. As per the provision of section 21.1(r) of the Companies Act 1997,
the prospectus should include projected income and expenditure at least of the
last three years. Similarly, while registering its securities to SEBO, section
17.2(l) of Securities Exchange Regulation, 1993, has made the provision that the
company should submit along with the application, the audited profit and loss
account and balance sheet of past three years and projection for the same for the
next three years. This provision is further clarified in Securities Registration and
Issue Approval Guidelines 2000, which in section 6.2(f) states that the issuing
company should clearly state in its prospectus the projected net worth, projected
profit and loss account, projected balance sheet for the three years as well as the
basis of projection, name, address, qualification and experience of the person or
institution involved in the financial projection. This guideline in section 2.11
further states that the issuing company at the time of registering its securities in
SEBO, along with the application should also submit the remarks of the experts,
stating that he/she is satisfied with the projected balance sheet, profit and loss
account and other financial information included in the prospectus and with the
basis for projection.
As financial projection gives the future prospects of the company, securities

market legislation has given importance to its incorporation in the prospectus. It
should help the investors to make better investment decision during public
offering of the securities.
Investors' concern towards the financial projection is its accuracy. However, the
accuracy of projected financial indicators is always debatable. Many studies
argue that there is always a significant deviation in projected financial situation.
In Nepalese securities markets the financial projections of most of the issuer
companies are highly overstated (SEBO, 1999). It is obvious that forecasting
accuracy of the companies enhances their credibility resulting in higher pubic
response to the subsequent equity offerings. However, in case of Nepal, as per
the documentation of SEBO, the major surprise is that though the companies are
frequently presenting the biased projection of financial situations, investors'
responses are found to be indifferent. Studies have shown that the managers'
attitudes to window-dress their accounting pictures while offering its securities to

the public. Jain and Kini (1992) in their study found declining post issue
operating performance of the IPO firms and argue that one of the reasons for the
decline of performance may be due to the fact that the managers of the issuing
companies attempt to window-dress their accounting numbers prior to going
public leading to overstated pre-IPO performance and understated post-IPO
performance.
Review of literatures revealed that the studies comparing projected and actual
financial results of IPO firms are rarely found. Though some researches have
documented considerable variation in firms' management forecasts and have
offered possible reasons for these variations, they are not regarding the financial
forecasting of the IPO firms. Francis and Soffer (1997) in their study provided
evidence on the market reaction to earning forecast revision. Brous (1992)
examined the earning expectations and release of unfavourable information.
Ackert, Church and Shehata (1997) investigated how individual behaviour is
applied by the presence of forecast bias, where the bias is systemic and upward.
Hirst, Koonce and Miller (1999) examined that the investors reaction to
management earning forecast is a joint function of the form of the forecast and
managements' prior forecast accuracy.
In this study, I have made attempts to compare;
 the projected net worth per share and the net profit of the issuer
companies to the actual and,
 the deviations in these financial indicators between the issuer
companies of finance and non-finance group.
However, in this study simple comparison of the projected and actual financial
results have been made using mean absolute deviation method for testing
projection accuracy and the result may differ if more sophisticated statistical
tools are applied. The underlying assumptions and the accuracy of those
assumptions are not analysed. Qualifications and experiences of the persons
making financial projections are ignored and so far as I came to know from the
review of securities acts and regulations, the qualification, experiences and other
criteria are not prescribed in the Nepalese context and this study ignores the
possibility of higher deviation in financial projection due to the involvement of
less qualified personnel. This study has only taken the cases of initial public
offering of the equity shares. The cases of additional offerings of equity and other
types of securities are ignored.
This study has been organized into three sections. Section 1 deals with the study
methodology, Section 2 consists of results and discussion and finally the
conclusions are presented in Section 3.
1. Methodology
Sampling and the Data

As this study compares the projected net profit and projected net worth per share
of the issuer companies with the actual one the data used in the study are all
secondary. The sources of data for the projections are obtained from the
companies' prospectus prepared at the time of their initial public offerings and the
actual results are obtained from the annual reports of the respective years.
For the purpose of this study issuer companies, which have gone to initial public
offering of equity (hereafter called IPO companies) in between the fiscal years
1996/97 and 1999/2000, are categorized into finance and non-finance group. In
this study bank, finance companies and insurance companies are included in
finance group and manufacturing and processing companies and hotels in non-
finance group. Only those companies were selected, which have obtained issue
approval from SEBO, their prospectus have been published and includes
projected net worth per share and projected net profit for the three years and
annual reports for the respective projected period were available.
Table 1
Selection of Sample
Total number of IPO No. of Sampled Sampling
Group
Companies IPO Companies Percentage
Finance Group 26 5 19.23
Non-finance Group 7 5 71.43
Total 33 10 30.30
As mentioned in table 1, five companies each from finance and non-finance

group are selected. Equal number of sample from each groups is taken for the
purpose of comparing deviation in the financial projection in between the two
groups, though it constitute different sampling percentage. The companies and

the fiscal year for which the data are used in this study are given in table 2.
Table 2
List of Sampled IPO Companies
Data Used for the Fiscal Year
S.N. Sampled IPO Companies
1st Year 2nd Year 3rd Year
Finance Group
1 NIC Bank Ltd. 1999/00 2000/01 2001/02
2 Nepal Development Bank Ltd. 2000/01 2001/02 2002/03
3 NB Finance and Leasing Co. Ltd. 1999/00* 2000/01* 2001/02
4 Alliance Insurance Ltd. 1997/98 1998/99 1999/00
5 Sagarmatha Insurance Ltd. 1999/00 2000/01 2001/02
Non-finance Group
6 Nepal Bitumin and Barrel Co. Ltd. 1996/97 1997/98 -
7 Bhrikuti Pulp & Paper Ltd. 1995/96 1996/97 1997/98
8 Shree Ram Sugar Mills Ltd. 1996/97 1997/98 1998/99
9 Oriental Hotels Ltd. 2000/01 2001/02 2002/03
10 Taragaon Regency Hotels Ltd. 1999/00 2000/01 2001/02
* Provisional financial reports are taken
Calculation for Measuring Projection Accuracy

In this study mean absolute deviation (MAD) is calculated for comparing,
quantitatively, the accuracy of projection. MAD measures projection error by
calculating the average difference between projected and actual values and is
computed using the following equation.
[Sum (actual value –projected value)]

MAD 1 =
Number of Values
The negative mean absolute deviation implies that the actual value is lower than
projected one while positive mean absolute deviation implies that the actual
value is higher than projected one.
1
Targett, David (1997)
2. Result and Discussion
Projected and actual net worth per share and net profit of the sampled IPO
companies for the fiscal year as mentioned in table 2 are obtained for the first
year, second year and third year and the absolute deviation of each year and
mean absolute deviation for the three year is calculated for each of the
companies. Then the average of the mean absolute deviation is compared
between the companies of the finance and non-finance group.
Mean Absolute Deviation in net worth per share

Table 3 presents mean absolute deviation in the projected net worth per share of
the individual companies. Higher deviation is found in case of Bhrikuti Pulp &
Paper Ltd. and the deviation is negative, while in case of Sagarmatha Insurance
Ltd. the deviation is positive. However, the average value of all the mean
absolute deviation is found to be -36.00 i.e. on an average the actual net worth
per share is lower than the projected value.
Table 3
Mean absolute deviation in the projected net worth per share (Rs.)
Actual Value -Projected Mean
S.N. Sampled IPO Companies Value Absolute
1st Year 2nd Year 3rd Year Deviation
1 NIC Bank Ltd. -0.38 -9.13 -23.86 -11.12
2 Nepal Development Bank Ltd. -0.91 -7.75 -27.00 -11.89
3 NB Finance and Leasing Co. Ltd. 1.46 0.33 -23.62 -7.28
4 Alliance Insurance Ltd. - -3.22 -15.87 -9.54
5 Sagarmatha Insurance Ltd. 8.11 5.40 5.92 6.48
6 Nepal Bitumin and Barrel Co. Ltd. -81.7 -82.13 - -81.92
7 Bhrikuti Pulp & Paper Ltd. -43.25 -88.33 -172.18 -101.25
8 Shree Ram Sugar Mills Ltd. -46.31 -74.73 -117.59 -79.54
9 Oriental Hotels Ltd. -14.36 -61.86 -98.03 -58.08
10 Taragaon Regency Hotels Ltd. -0.84 -6.29 -10.38 -5.84
Average -36.00
Mean Absolute Deviation in net profit

Table 4 shows that the average of the mean absolute deviation in projected net
profit is -67.16. Highest mean absolute deviation is found in case of Bhrikuti
Pulp & Paper Ltd. The result shows that the projected net profit is significantly
higher than the actual net profit. This result is consistent with some previous
researches.
Table 4
Mean absolute deviation in the projected net profit (Rs. in Million)
Actual Value -Projected Mean
S.N. Sampled IPO Companies Value Absolute
1st Year 2nd Year 3rd Year Deviation
1 NIC Bank Ltd. 6.15 -2.98 -73.68 -23.50
2 Nepal Development Bank Ltd. -2.95 -15.26 -43.10 -20.44
3 NB Finance and Leasing Co. Ltd. 0.89 0.47 -8.16 -2.27
4 Alliance Insurance Ltd. - 0.13 -8.41 -4.14
5 Sagarmatha Insurance Ltd. 3.26 3.84 2.73 3.28
6 Nepal Bitumin and Barrel Co. Ltd. -0.20 1.57 - 0.69
7 Bhrikuti Pulp & Paper Ltd. -24.62 -268.22 -355.90 -216.25
8 Shree Ram Sugar Mills Ltd. -63.13 -94.05 -118.87 -92.02
9 Oriental Hotels Ltd. -87.54 -195.86 -133.27 -138.89
10 Taragaon Regency Hotels Ltd. - -156.47 -199.58 -178.03
Average -67.16
Comparing Mean Absolute Deviation of finance and non-finance group

The above results reveal that in an average the actual result is lower than the
projected net worth per share and net profit. Table 5 shows comparisons of
average of the mean absolute deviation in the projected net worth per share and
the net profit between the finance and non-finance groups. It is found that the
deviation is considerably higher in non-finance group than in finance group.
Table 5
Average of the mean absolute deviation
Average of the Mean Average of the Mean
S.N. Group Absolute Deviation in Net Absolute Deviation in
Worth per Share Net Profit
1 Finance Group -6.67 -9.41
2 Non-finance Group -65.33 -124.90
3. Conclusion
From this study, it can be concluded that both the financial indicators tested show
the negative deviation in the projection. It means that the IPO companies while
offering their securities to the public overstate their accounting figures.
Therefore, due consideration should be given either to improve the projection
accuracy or to review the incorporation of financial projections in the prospectus
of the issuer companies.
References:
Ackert, Lucy F., Church, Bryan K. and Shehata, Mohamed; “An Experimental Examination of the Effects of
Forecast Bias on Individuals Use of Forecasted Information” The Journal of Accounting
Research, Vol. 35, No. 1, Spring 1997.
Brous, Peter Alan; “Common Stock Offerings and Earnings Expectations: A Test of the Release of
Unfavourable Information” The Journal of Finance, Vol. 47 No. 4, September 1992.
Francis, Jennifer and Soffer, Leonard; “The Relative Informativeness of Analysts’ Stock Recommendations and
Earnings Forecasts Revision” The Journal of Accounting Research, Vol. 35, No. 2, Autumn
1997.
Hirst, Eric D., Koonce, Lisa and Miller, Jeffrey; “The Joint Effect of Managements’ Prior Forecast Accuracy
and the Form of its Financial Forecasts on Investors’ Judgement” The Journal of Accounting
Research, Vol. 37, Supplement 1997.
Jain, Bharat A. and Kini, Omesh; "The Post-Issue Operating Performance of IPO Firms" The Journal of
Finance. Vol. 49, No. 5, September 1994.
Ministry of Law and Justice; "Companies Act (1997)", Kathmandu: Nepal Law Books Management Board.
Ministry of Law and Justice; "Securities Exchange Act, 1983 (1st and 2nd Amendment)", Kathmandu: Nepal
Law Books Management Board.
Ministry of Law and Justice; "Securities Exchange Regulation, 1993, (2nd Amendment)", Kathmandu: Nepal
Gazette, 1998.
Newbury, Frank D., “Business Forecasting – Principles and Practice” McGraw Hill Book Company
Incorporation, USA, 1958.
Securities Board, Nepal; "Securities Registration and Issue Approval Guidelines, 2000", Kathmandu.
Securities Board, Nepal; “A Comparative Study on Projected and Actual Profit/(Loss) of Issuing Companies”
1999.
Targett, David; “The Management of Business Forecasting", Analytical Decision Making, McMillan India Ltd.,
1997.
Thomas, Shawn; “Firm Diversification and Asymmetric Information: Evidence form Analysts’ Forecasts and
Earning Announcements” Journal of Financial Economics, Vol. 64, No. 3, June 2002.
***
Public Offering of Securities
- Mr. Deepesh Vaidya and Mr. Pravin Raman Parajuli
Public offering of various securities like equity shares (both ordinary as well as
right share issue), debentures, bonds etc. to the general public by corporates as
well as the government are made through the Merchant Bankers (MBs). As such
the MBs work as intermediaries between the fund concentrated groups (the
general public and institutions) and the fund deficit groups (corporates) to cater
the needs of both through efficient fund mobilization. The MBs are mainly
engaged in creating and expanding primary and secondary market for securities
and money market providing advisory services to corporations as well as
managing their investment portfolio.
The capital market mobilizes the savings of individuals/institutional investors as

investment in shares, debentures, bonds, mutual funds and other financial
instruments, which in turn are deployed for productive purposes in various
sectors of the economy which have potential to yield a higher return on their
investments.
Thus, public offering involves raising of funds for governments or corporations

from the public through the issuance of various securities in the primary market
and is often the only major source of obtaining large sums of fixed rate, long-
term funds. Equity issuance formed a significant portion of total issue in the
capital market since FY 1993/94 till FY 2002/03, which accounted for 76.42% of
the total shares (Ten Year of SEBO, 1993-2003). The issuance of such securities
is a viable opportunity for risk-seeking investors who wish to take greater risk for
higher return. The risk-averse investors on the other hand would seek to invest on
securities like bonds issued by corporations and government, debentures,
preference shares etc., which would provide them fixed return over a period of
time with very little on their investment. The corporate bonds/debentures of only
four institutions viz. Sri Ram Sugar Mills Ltd., Bottlers Nepal Ltd., Himalayan
Bank Ltd. and recently that of Nepal Investment Bank Ltd. have been issued in
the capital market till date. Of these, debentures issued by Bottlers Nepal Ltd.
and Sri Ram Sugar Mills Ltd. have already matured. This itself speaks for the

Mr. Vaidya and Mr. Parajuli are associated with Nepal Merchant Banking and Finance Ltd.
need to increase the issuance of more viable risk-averse investment opportunities

to cater for that category of investors. The issuance of hybrid instruments
including bonds is likely to gain momentum in the near future, as the capital
adequacy requirement (CAR) of the financial institutions are being strictly
monitored by Nepal Rastra Bank as part of financial sector reform strategy/plan.
An efficient capital market is one where the stock/security price reflects all
information related to it. The information is of utmost importance to all the active
participants/investors (in the secondary market) to make their investment
decision whether it be purchase of new shares or sale of existing holdings. The
information is mainly in the form of Audited reports, Annual reports and other
bulletins that the institutions have to submit to the regulatory authorities and for
information to the general public within stipulated period of time. The
information reflects the financial health and soundness of institutions as well as
its future prospects. The positive or the negative spiral that is created in the
market through positive or negative dissemination of institution’s information
has a direct bearing on its share price.
Number of problems our capital market currently facing are explained as under:
 The stock price reflects little or no information about the Company, which is
a requisite for a smooth and efficient functioning of the capital market
system. This information sharing deficiency of the Companies with Nepal
Stock Exchange Limited (NEPSE) have resulted in determination of stock
prices through speculation with major dominance on the market by the
speculators. This has resulted in a negative attitude amongst the general
public/investors towards investment in the capital market, which in turn is
clearly evident from the decreasing level of participation of the general
public during the Initial Public Offering as well as in the Secondary market.
 The decline in the investor's confidence level on the capital market is also
clearly visible from the NEPSE Index which had reached a level high of
360.70 in FY 1999/00 but since the burst of the capital market bubble in FY
2000/01, it has been declining with NEPSE Index of 227.54 in FY 2001/02
and 214.08 in FY 2002/03 (Ten Year of SEBO, 1993-2003).
 The decreasing level of participation of the general public in the capital

market (both primary and secondary markets) can also be attributed to the
following factors:
1. Centralized stock exchange located in Kathmandu with no diversification
into regional branches to cater the needs of the investors there.
2. We are still following the open out cry system that has been replaced in
most of the countries around the world. This system makes the physical
presence of brokers on the stock floor compulsory to undertake any
transaction.
3. Such restricted access has resulted in a very low participation of out-of-
valley investors mainly in the secondary market. The problem does not
arise for primary issue as collection centers are designated at various
parts of the country for investor’s convenience but once they become the
shareholders of some company, their reach to stock floor to actively
participate in the capital market is limited.
4. Although few brokers provide services to their out-of-valley investors
via consulting firms operating at regional levels, the transaction cost to
be borne by such investors is very high.
 The maximum volume of transactions that occurs in NEPSE each year is

mainly from sectors like banks, finance companies and insurance. Their
transaction volume accounts for 60% - 90% of the total volume transacted
(Tenth Year of SEBO, 1993-2003). This shows the dominance of these
sectors over sectors like hotels, manufacturing and processing and others.
This is attributed to existing regulation, requiring every financial institution
to offer its prescribed portion of issued shares to the general public, which, at
present is 30% (as per Bank and Financial Institutions Ordinance, 2004).
Similarly, Insurance Board also requires every insurance company with its
registered office in Nepal to offer 20% of its issued shares to the general
public. The other sectors, however, are not bound by any such regulations.
Further, banking and financial sectors are better regulated than other sectors
in the country resulting in higher confidence among the investors.
 Companies that go public by offering a certain portion of their issued shares
to the general public neither receive any special tax benefits or tax holidays
nor special concessions which motivates them to offer their shares to the
general public. In addition, these Companies often face continuous hassles

from the public through their involvement in the Company’s management,
which negatively affect their productivity and efficiency. This is considered
as one of the major impediments to the corporate in offering their shares to
the general public and for the same reason, their participation in the capital
market.
 The present law in the country requires lengthy approval process from the
concerned regulatory authorities before offering shares to the general public.
Financial institutions are first required to obtain an approval from the
Company Registrar's Office (CRO), then from Securities Board (SEBO) and
then register with Nepal Rastra Bank. The recently passed Bank and
Financial Institutions Ordinance 2004, requires the financial institutions to
get their prospectus finally registered in NRB even after getting the
permission from SEBO. This has resulted in duplication of work. If any
changes are recommended by NRB at this stage i.e. after receiving the final
issue approval from ROC and SEBO, the same changes has to be approved
by all regulatory bodies too before seeking its final issue approval from the
NRB. This would further delay the process.
Thus it is recommended that the deficiencies highlighted above to be improved

upon for the overall efficiency of our capital market, detailed as under:
 Approval process should be streamlined to make it easy and hassle free. If
possible, one window policy should be adopted in providing approval.
 NEPSE has to ensure that all companies share all relevant information on a
timely basis so that the stock price reflect their company’s status more
accurately.
 An independent analysis on the latest security offers in the capital market by
professionals should be encouraged. This benefits the potential investors in
making informed investment decisions. Economic Journalism is encouraged
to come forward in this connection to fulfil their responsibility to the society.
 Increase awareness amongst the general public about the capital market,
regarding nature of risk and return, through promotional campaigns,
seminars, publications, and programs in FM/TV etc.
 NEPSE can expand its services to the regional levels rather than just
concentrating solely in the valley. They should also replace the old and
outdated open cry system with on-line trading system following international
standards.
 Issuance of directives by regulatory authorities not to solicit unaccounted
payments to the shareholders other than dividend.
 Discourage the possibilities of insider's trading through improved corporate
governance and initiate strict corrective measures for compliance.
 Encourage active participation of other sectors of the economy besides
banks, finance companies and insurance through the enforcement of good
corporate governance.
 Independent rating agencies should be encouraged to establish here so that
the potential investors will have a confident picture of the financial health
and future prospects of organizations/instruments.
***
Regulation of Nepalese Securities Market and
Investors' Protection
- Mr. Basu D. Upadhayay
Securities market in Nepal, till the recent past, had all the characteristics of an
underdeveloped economy. It was characterized by the absence of professional
promoters, underwriting agencies, market intermediaries, organized market,
regulatory bodies, and rules and regulations. However, after the restoration of
democracy in 1990, a trend towards an organized stock market can be marked
with numerous developments in the Nepalese securities market, removing its
earlier deficiencies.
A detail legislative code has been adopted by the Government to protect the
investors' interests. The Securities Exchange Regulation, 1993, provides for those
reforms in stock exchange trading methods and practices. The Regulation has
added further functions, powers and duties of the Securities Board, Nepal
(SEBO). The regulation has authorized the SEBO for internal housekeeping
matter, made provision regarding licensing stock exchange and their subsequent
operation, specified requirements for the registration and listing of securities
along with authority for the registration of market intermediaries such as brokers,
market makers, dealers and issue managers. Under chapter II of the regulation,
different provisions regarding allowances and benefits as well as duties, powers
and functions of chairman of SEBO have been prescribed. Similarly, other
provisions regarding funding, accounting and auditing are also specified by the
regulation.
The Companies Act, 1997, marks an important stage in the development of

corporate enterprises in Nepal. The provisions made under this act especially
relevant to the securities market are provisions regarding the issuance and
publication of the prospectus, which is necessary for public issue of securities. As
per this provision, the details of the content of prospectus are prescribed and the
prospectus is to be approved by the Companies Registrar's Office (CRO). Under
this act, different provisions have been made for the establishment of a company
(either public or private) and its liquidation, conduction of Annual General

Mr. Upadhayay is associated with Rural Development Society, Nepal (RDS, Nepal), Bhaktapur
Meeting (AGM), incorporation of Memorandum and Articles of Association,

issue of shares and debentures, preparation of annual accounts and their audit and
the annual report .
Securities Exchange Act, 1983 (Second Amendment) provides reforms in

securities market regulating practices. It can be taken as the very important
legislation of the securities market. The act has been formulated to systematize
and regularize the stock exchange in order to maintain the economic interest of
the people. It also contributes to the economic development of the country, to
protect the interest of the investors and to increase the participation in the
industrial sectors. For this purpose, this act provides legal framework for the
securities regulatory system by establishing SEBO as an apex regulatory body .
As per this act, SEBO provides license for the operation of stock exchange,
registers securities and grants issue approval, supervises and monitors stock
exchange and market intermediaries. This act also enables SEBO to issue
directives and make by-laws and guidelines and also allow the stock exchange to
frame by-laws. Similarly, some provisions have been made regarding inside
information and other forbidden activities, however, they are not covered
broadly.
In order to manage sales and promotion of securities and make the sales and issue
manager accountable for their services, SEBO has issued the Securities Issue
Management Guidelines, 1998. This guideline has been made as per the
provision of Section 35 of the Securities Exchange Act, 1983 (Second
Amendment). The guideline further specified various provisions regarding
disclosure, application for registration of securities, agreement between issue
manager and issuing companies, execution procedures of the sales management
and code of conduct to be specified etc. Similarly, Share Allotment Guidelines,
1994 issued by SEBO make the share allotment procedures fair and transparent.
The directives were intended to create broader ownership according to the mass
participation policy.
Thus, from the foregoing brief discussion, it is clear that the Securities Exchange
Act, 1983 (second amendment) and Securities Exchange Regulation, 1993 set up
a general framework for regulating securities market, which has facilitated and
encouraged the development of securities market of Nepal.
Despite these, the securities market of Nepal is still in a nascent stage as it still
has many issues specially related to regulation and investors' protection. The
major deficiencies and further suggestions can be discussed below:
 SEBO and NEPSE are operating under the government ownership. This has
put breaks on the development of Nepalese securities market. The ownership
of NEPSE should be handed-over to the private and develop it as a self-
regulatory organization. It helps SEBO to regulate the activities of NEPSE
and market intermediaries.
 The current securities legislations do not have sufficient room for regulation
and enforcement. It is therefore recommended that SEBO should be
strengthen by amending rules and regulations, providing it with adequate
regulatory powers. This can enable SEBO to carry out investigations and
enforcement activities. A strong regulator will help but not nearly as much a
clearly regulatory framework.
 The prevailing securities legislations are silent on the transfer of shares
including paperless trading, validity of transfer deed, transfer deed fees and
duration of receiving share certificate. In most developed countries, securities
transaction, the transfer of securities ownership, known as clearing is now
done electronically. This should be followed in Nepal and a Central
Depository System (CDS) should also be established. These will make hassle
free securities transaction.
 Securities Exchange Act, 1983 (second amendment) provides prohibition in
insider trading. But it lacks clear-cut pictures to prohibit such trading. This
creates problems in the enforcement of the provision. In the context of
developed capital market, the United States Securities Exchange Act, 1934
prohibits corporate insiders from short selling. In the United States it is illegal
for any one to enter into a securities transaction, if he or she has taken
advantages of inside information about the company that is unavailable to
other people involved in the transaction. This prohibition includes not only
insiders but also those to whom they give such secret information.
 The securities legislation lacks creation of Investor's Protection Fund. It is
required to compensate the investors in the event of loss incurred on account
of defaults committed by stock brokers. Each member of the stock exchange
should obtain insurance cover with a view to protecting the investors against
the loss of documents in transit or by fire and in the event of fraudulent acts
committed by its staff members.
With a view to professionalizing the existing members, stock exchange and

concerned authorities must conduct from time to time refresher courses. Member
of the stock exchange and others associated with the working of the capital
market should have reasonable background in corporate finance, capital market,
economics and financial engineering etc.
References
Ministry of Law and Justice (MOLJ), Company Act (1997), (Kathmandu: Nepal Law Books Management
Board), pp. 259-352.
MOLJ, Securities Exchange Act (1st and 2nd Amendment (1983), (Kathmandu: NLBMB) pp. 151-162.
MOLJ, Securities Exchange Regulation (2nd Amendment), 1993, (Kathmandu: Nepal Gazette, 1998)
Nepal Stock Exchange Ltd., Membership and Transaction By-Laws (1998), (Kathmandu: 1998), pp. 1-38.
NEPSE, Securities Listing Bye-Laws (1996), (Kathmandu: 1996)
Upadhyay, Basu D. Share Price Behaviour in Nepal (2001). Unpublished Masters Degree Thesis, Central
Department of Management, Tribhuvan University.
NEPALI SECTION
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tyf k'FhLahf/sf] k|jw{g Pj+ ljsf;sf nflu tTsfn sfod /x]sf] sfg'gL Joj:yf ckof{Kt
7x/ eof] . k'FhLahf/df lghL If]qsf] k|j]zn] ubf{ ;]So'l/6L v/Lb laqmL s]Gb| cfkm}n] ahf/
Joj:yfkg / lgodgsf] sfo{ ubf{ Pp6} ;+:yfn] lgodg lgsfo / sfo{Gjog lgsfosf] ?kdf
sfd ubf{ x'g ;Sg] Conflict of Interest ;d]tnfO{ Wofgdf /fvL @)$(÷*÷!! df lwtf]kq
sf/f]af/ P]g, @)$) df klxnf] ;+zf]wg ul/of] . pQm ;+zf]wgn] ;]So'l/6L v/Lb laqmL
s]Gb|nfO{ g]kfn lwtf]kq ljlgdo ahf/ ln= df kl/0ft ug]{ / ;+ul7t ;+:yfn] cg'dltkq
k|fKt u/L lwtf]kq ahf/ ;~rfng ug{;Sg] Joj:yf u¥of] . ;fy} ;+zf]wgn] lwtf]kq af]8{sf]
:yfkgf ug]{ gofF Joj:yf u/L af]8{nfO{ k'FhLahf/sf] lgodg lgsfo (Regulatory Body)
sf] ?kdf :yflkt u¥of] .
lwtf]kq sf/f]af/ P]gdf ePsf] klxnf] ;+zf]wg kZrft lwtf]kq af]8{sf] :yfkgf u/L lwtf]kq
sf/f]af/nfO{ lgoldt / Jojl:yt u/L nufgLstf{sf] lxtsf] ;+/If0f / ;Daw{g ug]{ tyf
lwtf]kq ahf/sf] ljsf;df 6]jf k'¥ofpg] ;d]t lhDd]jf/L pQm af]8{nfO{ lbOof] . ;fy}
lwtf]kq sf/f]af/ ug]{ u/fpg] p2]Zon] lwtf]kq ahf/ ;~rfng ug{ rfxg] ;+ul7t ;+:yfn]
cg'dltkq lng'kg]{ Joj:yf u/L tTsfn sfod /x]sf] ;]So'l/6L v/Lb laqmL s]Gb|nfO{ lwtf]kq
sf/f]af/ P]g @)$) åf/f g} g]kfn lwtf]kq ljlgod ahf/ ln= (Nepal Stock Exchange
Ltd.) df kl/0ft u/L ;DklQ tyf bfloTj ;d]t ;f]xL ;+:yfdf ;g]{ Joj:yf ul/of] . o;/L

>L zdf{ clwjQmf x'g'x'G5
lwtf]kq sf/f]jf/ P]gdf ePsf] klxnf] ;+zf]wgn] sfof{Gjog lgsfo / lgodg lgsfosf] 5'§f
5'§} Joj:yf u¥of] .
o;sf ;fy} ;fj{hlgs?kdf lgisfzg x'g] lwtf]kqx? lgisfzgk"j{ lwtf]kq af]8{df btf{
ug'{kg]{ Joj:yf ;d]t ul/of] . To;}u/L lwtf]kqsf] sf/f]af/ -v/Lb, laqmL tyf
ljlgdo;DaGwL sfd_ lwtf]kq ahf/sf ;b:odfkm{t ug{'kg]{ Joj:yf ;d]t ul/of] . P]gsf]
kl/R5]b % df ;+zf]wg u/L af]8{sf] ljz]if clwsf/sf ;fy} lg/LIf0f tyf hfrFa'em ug{ ;Sg]
clwsf/ ;d]t yk ul/of] . o;/L lwtf]kq sf/f]af/ P]g, @)$) df ePsf] k|yd ;+zf]wg
kZrft dfq lgodg lgsfo (Regulatory Body), lwtf]kq ahf/ (Stock Exchange) /
lwtf]kq ahf/ dWo:y ;+:yf (Market Intermediaries) ;d]tsf] Joj:yf u/L jf:tljs
?kdf lwtf]kq ahf/sf] :j?k sfod ePsf] b]lvG5 .
o; P]gdf ePsf] k|yd ;+zf]wgn] ;+:yfut ;+/rgfdf kl/jt{g Pj+ ;'wf/ eO lwtf]kq
ahf/n] jf:tljs :j?k k|fKt u/]sf] / To;kl5 lwtf]kq ahf/df kF'hL kl/rfngsf] dfqf
a9\g'sf] ;fy} ahf/ r/dtf (Boom) lt/ pGd'v eof] h;sf] sf/0f ahf/nfO{ :jR5,
k|lt:kwL{ / :j:y /fVg P]gdf ePsf k|fjwfgx? kof{Kt ePgg\ . ahf/df leqL sf/f]af/,
em'§f ljj/0fsf] k|:t'lt cflb h:tf ljs[ltx? b]lvg yfn]sf] / To:tf ljs[ltx? lgoGq0f ug{]
plrt / kof{Kt Joj:yf gePsf]n] P]gsf] bf]>f] ;+zf]wg ckl/xfo{ eof]] .
lwtf]kq sf/f]af/ P]gdf bf]>f] ;+zf]wg u/L lwtf]kq Joj;fo ug{rfxg] lwtf]kq Joj;foLn]
lwtf]kq af]8{df btf{ eO k|df0fkq lng' kg]{ Joj:yfsf ;fy} lwtf]kq Joj;foLn] /fVg'kg]{
Go'gtd k'FhL, lng kfpg] ;]jf z'Ns, k|df0fkq lnFbf hdfgt /fVg' kg]{ nufotsf Joj:yfx?
u/L lwtf]kq Joj;foLx?nfO{ :j–cg'zfl;t u/fpg]tkm{ ljz]if hf]8 lbOof] . lwtf]kq
Joj;foLn] P]g ljkl/t sfd u/]df btf{ k|df0fkq g} vf/]h ug]{ Joj:yf ;d]t ul/of] . o;
cltl/Qm af]8{df btf{ ePsf lwtf]kq Joj;foLnfO{ dfq ;b:otf k|bfg u/L lwtf]kq ahf/df
sf/f]af/ ug]{ cg'dlt lbg'kg]{ Joj:yf klg ul/of] . ;fy} lwtf]kqsf] leqL sf/f]af/ ug{ gx'g]
tyf lwtf]kqsf] sf/f]af/ d"Nodf cg'lrt k|efj kfg{ gx'g] Joj:yf u/L To:tf] sfo{ u/]df
;hfo x'g] ;d]t Joj:yf ul/of] .
lwtf]kq sf/f]af/ P]g @)$) df b'O{ k6s ;+zf]wg u/L Jofks kl/jt{g Pj+ ;'wf/ ul/Psf]
ePtf klg Pl;ofnL ljsf; a}+ssf] cfly{s ;xof]udf ljutdf ePsf] cWoogn] ;f] ;'wf/
ckof{Kt b]vfpg'sf] ;fy} sfg'gdf g} Jofks ;'wf/ ug'{kg]{ ;'emfj lbPsf] lyof] . lwtf]kq af]8{
/ lwtf]kq ahf/sf] If]qflwsf/, vf;u/L lwtf]kq Joj;foLsf] btf{ / ;b:otf k|bfg

ug]{;DaGwdf pTkGg ljjfb, g]kfn lwtf]kq ljlgdo ahf/ ln= df /x]sf] >L % sf] ;/sf/sf]
:jfldTj, lwtf]kq ahf/sf] ;+u7gfTds :j?k tyf b08 ;hfo;DaGwL :ki6 sfof{ljLwsf]
cefjn] klg P]g k|efjsf/L x'g g;s]sf] b]lvof] . To;}u/L sDkgL /lhi6«f/sf] sfof{no /
lwtf]kq af]8{sf] If]qflwsf/df k/]sf] bf]xf]/f]kg / If]qflwsf/sf] :ki6 ;LdfÍg x'g g;s]af6
klg P]gsf] sfof{Gjog kIf k|efjsf/L x'g ;s]g . oL ;a} s'/fnfO{ b[li6ut u/L Pl;ofnL
ljsf; a}+ss} cfly{s ;xof]udf cGt/f{li6«o sfg'gljb\sf] ;d]t ;+nUgtfdf ljBdfg P]gnfO{
vf/]h u/L gofF P]g agfpg] qmddf ælwtf]kq;DaGwL P]gÆ sf] d:of}bf ePsf] 5 .
o;/L ljBdfg lwtf]kq sf/f]af/ P]gdf b'O{ k6s ;+zf]wg u/L Jofks kl/jt{g ul/Psf] ePtf
klg o;n] lwtf]kq sf/f]jf/sf] lgodg tyf Joj:yfkgsf] ;Dk"0f{ kIf ;d]6g g;s]sf]
ljleGg cWoogaf6 ;d]t k'i6L x'g cfof] . o; cltl/Qm nufgLstf{x?sf] lwtf]kqdf nufgL
ug]{ rfxgf j9b} uPsf], k'FhL ahf/sf] ljsf;df lwtf]kq sf/f]af/sf] cxd\ e"ldsf /xg] /
nufgLsftf{sf] lxtsf] ;+/If0f / ;Djw{g tyf lwtf]kq ahf/sf] ;d'lrt ljsf;sf nflu
cfly{s ck/fwsf] ;d]t plrt lgoGq0f u/L sf/f]af/nfO{ :jR5 / k|lt:klw{ agfpg gofF
sfg'g g} agfpg' kg]{ / oL ;a} Joj:yfx? e}/x]sf] P]gdf ;+zf]wgaf6 dfq} ;Dej gx'g]
b]lvof] . t;y{ jt{dfg lwtf]kq sf/f]af/ P]g @)$) vf/]h u/L ælwtf]kq;DaGwL P]gÆ th'{df
u/L ;+;b lj36g x'g' k"j{ g} ;+;bdf k|:t't e};s]sf] lyof] . t/ ;+;b lj36g ePsf] sf/0f
pQm k|:tfljt P]g ;+;baf6 kfl/t x'g ;s]g . o; P]gsf] cf}lrTo / cfjZostfnfO{ dx;';
u/L o;nfO{ cWofb]zs} ?kdf eP klg Nofpg] k|of; e}/x]sf] 5 . k|:tfljt cWofb]z -o;
kl5 æP]gÆ elgPsf]_ df s] s:tf] Joj:yf ul/Psf] 5 / ljBdfg P]gdf ;+zf]wg gu/L gofF
P]g agfpg'sf] cfjZostf / cf}lrTo ;Da4 ;a}sf] rf;f]sf] ljifo x'g;S5 . o; kl/k|]Iodf
k|:tfljt P]gsf d'Vo d'Vo ljz]iftfx?sf] oxfF pNn]v ug'{ ;fGble{s g} x'g]5 . k|:tfljt
P]gsf] d:of}bfnfO{ s]nfpFbf pQm P]gsf d'Vo–d'Vo ljz]iftfx? lgDg adf]lhd /x]sf 5g\ .
!= P]gn] lwtf]kq af]8{nfO{ cfjZos clwsf/;lxtsf] s]Gb|Lo lgodg lgsfosf] ?kdf
:yflkt u/]sf] 5 / cGt/f{li6«o:t/sf] lgodg k4tLsf] ;d]t Joj:yf u/]sf] 5 .
@= lwtf]kq af]8{nfO{ :jtGq / :jlgoldt agfpg af]8{sf] ;+/rgfnfO{ km/flsnf] agfO{
af]8{sf ;b:ox? lgo'Qm ubf{ k]zfut ljz]if1x? ;d]t /xg ;Sg] Joj:yf ul/Psf] 5 .
#= af]8{sf s[ofsnfk e/kbf]{, kf/bzL{ tyf lhDd]jf/Lk"0f{ agfpg cfjZos Joj:yf ug'{sf]
;fy} af]8{sf] jflif{s k|ltj]bg ;fj{hlgs ug]{ ;d]t Joj:yf ul/Psf] 5 .
$= P]gn] lwtf]kqsf] ;fj{hlgs lgisfzg ug{;Sg] u/L :yflkt ;+:yfn] cfkm"n] lgisfzg
ug{] lwtf]kq lgisfzg ug{'cl3 lwtf]kq af]8{df btf{ ug'{kg]{ Joj:yf u/]sf] 5 . o;
cltl/Qm ;fj{hlgs lgisfzg ePsf lwtf]kqx? dWo] lwtf]kq ahf/df ;"rLs/0f ePsf
lwtf]kqsf] sf/f]af/ lwtf]kq ahf/n] lgodg ug]{ / lwtf]kq ahf/df ;"rLs/0f gePsf
jf x'g g;s]sf jf ;"rLs/0f vf/]h ePsf lwtf]kqsf] sf/f]jf/sf] lgodg lwtf]kq
af]8{n] ug]{ ljz]if Joj:yf ul/Psf] 5 .
%= lwtf]kq btf{ tyf lgisfzg cg'dlt;DaGwL Joj:yfnfO{ ;/nLs/0f ug'{sf] ;fy}
k|efjsf/L agfOPsf] 5 .
^= ljj/0f–kq l:js[t ubf{ bf]xf]/f] gk/f]; tyf kf/blz{tf ;d]t sfod /xf]; eGg] p2]Zon]
ljj/0f–kq lwtf]kq af]8{n] l:js[t ug]{ / sDkgL /lhi6«f/ sfof{non] btf{ ;Dd dfq ug]{
Joj:yf ul/Psf] 5 .
&= ljBdfg sfg'gL Joj:yfcGtu{t ;"rLs/0f gePsf jf ;"rLs/0f vf/]hdf k/]sf
lwtf]kqsf] sf/f]jf/;DaGwdf s'g} Joj:yf 5}g . t/ k|:tfljt P]gn] ;"rLs/0f gePsf
jf ;"rLs/0f vf/]h ePsf lwtf]kqsf] nflu 5'§} ahf/ Joj:yf ug{ ;lsg] k|fjwfgsf
;fy} To:tf] sf/f]af/sf] plrt lgodgsf] ;d]t Joj:yf u/]sf] 5 .
*= ;+ul7t ;+:yfn] k|sflzt u/]sf] em"§f jf unt ;"rgf jf hfgsf/L jf ljj/0fsf]
cfwf/df s'g} nufgLstf{n] lwtf]kqdf nufgL u/]sf] sf/0fn]] xfgL gf]S;fgL Joxf]g{ k/]sf]
v08df To:tf nufgLstf{nfO{ Ifltk"lt{sf] Joj:yf u/L Ifltk"lt{ sf]ifsf] :yfkgf ug]{
;d]t Joj:yf ul/Psf] 5 .
(= P]gdf lwtf]kq ahf/sf] sfd, st{Jo / clwsf/nfO{ cGt/f{li6«o:t/sf] agfOPsf] 5 /
lwtf]kq sf/fjf/nfO{ lgoldt, ;'Jojl:yt tyf kf/bzL{ agfO{ lwtf]kq ahf/nfO{ :j–
cg'zfl;t ;+:yfsf] ?kdf ljsl;t ug{ cfjZos k|fjwfgx? /flvPsf] 5 .
!)= lwtf]kq x:tfGt/0f;DaGwL sfd sf/jfxLnfO{ l56f] 5l/tf] tyf k|efjsf/L agfpg
s]Gb|Lo lwtf]kq lgIf]k k2tL (Central Depository System) :yfkgf ug{ ;lsg]
cfjZos Joj:yf /x]sf] 5 .
!!= lwtf]kq ahf/nfO{ lwtf]kq ;"rLs/0f u/]sf ;+ul7t ;+:yf / cfkm\gf ;b:o /x]sf
lwtf]kq Joj;foLnfO{ cfjZostf cg';f/ lgb]{zg lbg ;Sg] clwsf/ k|bfg ul/Psf] 5 .
!@= lwtf]kq Joj;fonfO{ :ki6?kdf jlu{s/0f ug'{sf] ;fy} Pp6} 5fgfd'lg ;a} k|sf/sf
lwtf]kq Joj;fo;DaGwL ;]jfx? pknAw u/fpg ;lsg] yk Joj:yf u/]sf] 5 .
!#= P]gn] a}+s tyf ljQLo ;+:yfn] lwtf]kq Joj;fo ug{rfx]df ;xfos sDkgL v8f u/L
To:tf] ;xfos sDkgLdfkm{t dfq ug'{kg]{ Joj:yf u/]sf] 5 . t/ o:tf] Joj:yf tTsfn
nfu" gu/L To:tf] ;xfos sDkgL vf]Ng cfjZos ;do k|bfg u/L >L % sf] ;/sf/n]
lglZrt ;do tf]ls nfu" ug{ ;Sg] Joj:yf ul/Psf] 5 .
!$= P]gdf lwtf]kq Joj;foLsf] tkm{af6 sfd ug]{ k|ltlglwsf] lgo'lQm;DaGwL Joj:yf
ul/Psf] 5, h;n] ubf{ sf/f]af/df ;+nUg JolQm klxrfg ug{ / lhDd]jf/ agfpg
;lhnf] x'g]5 . ;fy} Pgn] To:tf] JolQmsf] of]Uotf lgwf{/0f ug{'sf ;fy} k|ltlglw lwtf]kq
af]8{df btf{ x'g' kg]{ / cg'dltkq lng'kg]{ ;d]t Joj:yf u/]sf] 5 . o;n] sf/f]af/nfO{
a9L :jR5 / e/kbf]{ agfpg ljz]if d2t ub{5 . o; cltl/Qm k|ltlglw / k|ltlglw
lgo'Qm ug]{ lwtf]kq Joj;foLsf] lhDd]jf/L ;d]t :ki6 ul/Psf] 5 .
!%= ;fd"lxs nufgL, Psf+s tyf o:t} cGo art of]hgf (Collective Investment
Schemes) ;~rfng ubf{ To:tf of]hgf lwtf]kq af]8{df btf{ u/L cg'dltkq lng' kg]{
Joj:yf ul/Psf] 5 . o:tf art of]hgfx?sf] lgoldt ?kdf cg'udg tyf ;'kl/j]If0f
ug]{ / sf/f]af/nfO{ lgoldt u/fpg] clwsf/ lwtf]kq af]8{nfO{ lbOPsf] 5 . ;fy} art
of]hgfsf] ;DklQsf] ;+/If0f;DaGwdf cfjZos Joj:yf u/L ;~rfng sfo{ljlw
lgodåf/f tf]lsg] Joj:yf ul/Psf] 5 .
!^= s'g} sf/0fn] sDkgLsf] ;fwf/0f ;ef x'g g;s]df jf lgoldt n]vf k/LIf0fsf] lgldQ
sDkgLsf] n]vf k/LIfs lgo'Qm x'g g;s]df To:tf] sDkgLsf] ;fwf/0f ;ef af]nfpg],
cfly{s ljj/0fx? z]o/jfnfx?sf] hfgsf/Lsf] nflu k|sfzg u/fpg] clwsf/ lwtf]kq
af]8{nfO{ lbO{Psf] 5 . o; cltl/Qm pQm P]gdf lwtf]kq af]8{n] nufgLstf{sf] lxt
;+/If0fnfO{ Wofgdf /fvL To:tf sDkgLsf] lx;fj lstfj ljz]if1åf/f hf+r u/fpg ;Sg]
;d]t Joj:yf /x]sf] 5 .
!&= P]gdf lwtf]kqsf] leqL sf/f]af/, d"Nodf cg'lrt ptf/ r9fj u/fpg], ahf/df cg'lrt
k|efj kfg]{, em"7f jf e|fds ;"rgf jf hfgsf/L k|jfx ug]{, hfn;femk"0f{ sf/f]af/ ug]{,
ljj/0f jf sfuhftx? n'sfpg] h:tf sfo{x?nfO{ ck/fw dfgL To:tf sfo{ ug]{
u/fpg]nfO{ ;hfosf] Joj:yf ul/Psf] 5 .
!*= P]gdf lwtf]kq sf/f]af/;DaGwL ck/fwsf] cg';Gwfg ug]{, d'2f rnfpg] tyf ck/fwsf]
lsl;d / uDeL/tfsf] cfwf/df ;hfo ug]{ ;d]t Joj:yf /x]sf] 5 . o;sf ;fy}
hl/jfgf lwtf]kq af]8{n] g} klg ug{ ;Sg] / s}b s} ;hfo ug'{kg]{ ePdf cbfnt hfg'kg]{
Joj:yf ul/Psf] 5 .
!(= Ps sDkgLn] csf]{ sDkgL lnbf jf s'g} sDkgLsf] Joj:yfkg sAhf ug]{ p2]Zon] Ps}
k6s jf k6s–k6s u/L z]o/ v/Lb u/]df To;nfO{ kf/bzL{ agfpg] tyf lgoldt
agfpg];DaGwdf klg P]gdf cfjZos Joj:yf ul/Psf] 5 .
o;/L k|:tfljt P]g lwtf]kq sf/f]af/nfO{ lgoldt, Jojl:yt, kf/bzL{ / k|lt:kwL{ agfO{
nufgLstf{sf] lxt ;+/If0f ug{'sf] ;fy} :jR5 sf/f]af/åf/f lwtf]kq ahf/sf] ljZj;gLotfdf
clej[l4 u/L ;du| k'hL ahf/sf] ljsf;df 6]jf k'¥ofpg w]/} xb;Dd ;xfosl;4 x'g]df
låljwf b]lvb}g . xfn >L % sf] ;/sf/n] Pl;ofnL ljsf; a}s+sf] cfly{s ;xof]udf ;du|
k'FhLahf/sf] ljsf;sf nflu lwtf]kq ahf/, lwtf]kq af]8{ / sDkgL /lhi6«f/sf] sfof{nonfO{
;d]t ;zQmLs/0f u/L k|ljwL ljsf; ;d]t u/fpg ljb]zL ljz]if1sf] 6f]nL sfo{/t
u/fO/x]sf] k|l/k|]Iodf k|:t't P]g kfl/t eO o; cGtu{tsf lgod, ljlgod / lgb]{lzsfx?
;d]t aGg' cltg} h?/L 5 . ;fy} To:tf lgod, ljlgod / lgb]{lzsfx? agfpg] sfddf
ljz]if1 6f]nLsf] ;xof]u a9L nfek|b x'g] s'/fdf klg b'O{ dt gxf]nf . ctM k|:tfljt P]g
jt{dfg kl/k|]Iodf cWofb]zs} ?kdf eP klg oyfzSo rfF8f] cfpg' h?/L b]lvG5 .
***
lwtf]kqsf] ;fj{hlgs lgisfzgM ;d:of tyf ;dfwfgsf ljsNkx?
– ljgob]j cfrfo{
k[i7e"ld
s'g} klg ;+ul7t ;+:yfnfO{ cfjZos kg]{ k'FhLsf] dfu k"/f ug{ pknAw ljleGg dfWodx?
dWo] lwtf]kqsf] ;fj{hlgs lgisfzg Ps k|d'v dfWodsf] ?kdf /x]sf] 5 . g]kfndf lj=;+=
!(($ df la/f6gu/ h'6 ldN; ln= sf] z]o/ laqmL ePkZrft ;fj{hlgs lgisfzg ug]{
k|yfsf] z'?jft ePsf] xf] . tTkZrft lj=;+= @)## ;fndf ;]So'l/6L v/Lb laqmL s]Gb|sf]
:yfkgf ePkl5 ;du|df lwtf]kq ahf/;DaGwL sfdsf/jfxLx? pQm s]Gb|af6 x'g yfNof] .
lj=;+= @)%) ;fndf lwtf]kq ahf/nfO{ lgoldt / Jojl:yt ug{ lwtf]kq sf/f]af/ P]g,
@)$) sf] klxnf] ;+zf]wgkZrft k;FhL ahf/sf] lgodg lgsfosf] ?kdf lwtf]kq af]8{sf]
:yfkgf eof] . o;kZrft ;+ul7t If]qdf lwtf]kqsf] ;fj{hlgs lgisfzg u/L cfjZos k'FhL
k|fKt ug]{ qmd a9\b} uPsf] kfO{G5 . cfly{s jif{ @)%).%! b]lv cfly{s jif{ @)^).^! sf]
kmfu'g d;fGt;Dddf ljleGg If]qsf ;+ul7t ;+:yfx?n] ?= ^ ca{ $# s/f]8 #( nfv %)
xhf/ d"No a/fa/sf] lwt]fkqsf] ;fj{hlgs lgisfzgsf nflu lwtf]kq af]8{af6 cg'dlt
lnPsf 5g\ . o;/L cg'dlt lng] ;d"xsf ;+ul7t ;+:yfx?df jfl0fHo a}+s -!%_, ljsf; a}+s
-#_, ljQ sDkgL -%^_, aLdf sDkgL -!!_, xf]6n -#_, pTkfbg tyf k|zf]wg sDkgL -@)_,
Jofkf/ sDkgL -!_ tyf cGo -$_ ;d"x /x]sf 5g\ . o;} k[i7e"ldnfO{ b[li6ut u/L ;fj{hlgs
lgisfzgdf hfg;Sg] sfg'gL k"jf{wf/x?, ;fj{hlgs lgisfzg ug]{ k|s[of tyf xfn b]lvPsf
;d:of / To;sf] ;dfwfgsf j}slNks pkfox?;DaGwdf 5f]6s/Ldf ljj]rgf ug{ vf]lhPsf]
5.
sfg'gL k"jf{wf/x?
;fj{hlgs lgisfzg dfkm{t ;j{;fwf/0fnfO{ lwtf]kq laqmL u/L k'FhL p7fpg rfxg] ;+ul7t
;+:yfx?n] ljleGg P]g, lgod, lgb]{lzsfdf ePsf] Joj:yfx? k"/f ug'{kb{5 . k|d'v ?kdf
;fj{hlgs lgisfzgdf ljj/0fkq tof/ u/L :jLs[lt k|fKt ug]{ Joj:yfsf nflu æsDkgL P]g,
@)%#Æ, ;fj{hlgs lgisfzg ug{ k|:tfj u/]sf] lwtf]kqx?sf] btf{ u/L cg'dlt k|fKt ug]{
Joj:yfsf nflu ælwtf]kq sf/f]af/ P]g, @)$)Æ / ælwtf]kq sf/f]af/ lgodfjnL, @)%)Æ
/x]sf 5g\ . o;}u/L lwtf]kq ;fj{hlgs lgisfzg k|s[ofnfO{ cem ;/n, Jojl:yt / kf/bzL{

clws[t, lwtf]kq af]8{, g]kfn
u/fpg ælwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%&Æ, æz]o/ afF8kmfF6 ;DaGwL
lgb]{lzsf, @)%!Æ tyf ælwtf]kq btf{ tyf lgisfzg k|aGw lgb]{lzsf, @)%$Æ x? /x]sf 5g\
eg] ;fj{hlgs?kdf lgisfzg ePsf lwtf]kqx?sf] v/Lb÷laqmLsf nflu lwtf]kq ahf/df
;"rLs/0f;DaGwdf ælwtf]kq ;"rLs/0f ljlgodfjnL, @)%#Æ /x]sf] 5 .
;fj{hlgs lgisfzg k|s[of
;fj{hlgs lgisfzgdf hfg] ;+ul7t ;+:yfn] sDkgL P]gsf] Joj:yfcg'?k lwtf]kq af]8{df
btf{ ePsf lwtf]kq Joj;foLsf] ?kdf sfo{ ug]{ lgisfzg tyf laqmL k|aGws jf cGo
ljz]if1af6 ljj/0fkq tof/ ug'{kb{5 . o;/L tof/ ul/Psf] ljj/0fkqdf k|d'v?kdf
sDkgLsf] gfd, 7]ufgf, p2]Zo, z]o/ k'FhL, ljQLo l:ylt ;Defljt hf]lvd tyf cGo ljj/0f
tyf hfgsf/Lx? pNn]v ug'{kb{5 . pQm ljj/0fkq >L % sf] ;/sf/, pBf]u, jfl0fHo tyf
cfk"lt{ dGqfno, sDkgL /lhi6«f/sf] sfof{noaf6 :jLs[t u/fpg' kb{5 .
o;}u/L lwtf]kq sf/f]af/ P]g, @)$) cg';f/ lwtf]kq ;fj{hlgs lgisfzg ug'{cl3 To:tf]
lwtf]kq lwtf]kq af]8{df btf{ u/L lgisfzg cg'dlt lng'kb{5 . o;sf nflu :jLs[t
ljj/0fkqsf ;fy} ælwtf]kq sf/f]af/ lgodfjnL, @)%)Æ tyf ælwtf]kq btf{ tyf lgisfzg
cg'dlt lgb]{lzsf, @)%&Æ n] Joj:yf u/] adf]lhdsf] cGo ljj/0fx? ;+nUg u/L af]8{df
lgj]bg lbg'kb{5 . o;/L lgj]bg k|fKt ePkZrft af]8{n] pQm lgj]bg;fy ;+nUg ljj/0fkq
tyf cGo sfuhftx? k|rlnt P]g, lgod, lgb]{lzsf adf]lhd eP gePsf] hfFra'em u/L
gk'u ePsf ljj/0fx? dfu ug]{ tyf c:ki6 ljj/0fx?nfO{ :ki6 u/fpg] h:tf sfo{x?
;DkGg u/L lwtf]kq af]8{n] lwtf]kq lgisfzg cg'dlt k|bfg ub{5 . o; qmddf af]8{n]
;+ul7t ;+:yfn] tof/ u/]sf] ljj/0fkqdf pNn]v ul/Psf] ljj/0f tyf hfgsf/Lsf]
;Totfk|lt ;DalGwt sDkgL, o;sf ;+rfns / ;DalGwt ljz]if1sf] hjfkmb]xLtf /x]sf] /
pQm sDkgLsf] Joj:yfksLo, k|fljlws / cfly{s kIfsf] ljZn]if0ffTds cWoogaf6 lgisfzg
tyf laqmL k|aGws ;Gt'i6 x'g'sf] ;fy} ljj/0fkqdf plNnlvt cfly{s ljj/0fx? / cGo
hfgsf/L tYout, k"0f{ / ;xL b]lvPsf]n] nufgLstf{x?nfO{ nufgL;DaGwL lg0f{o lng d2t
x'g] egL lgisfzg tyf laqmL k|aGwsn] af]8{;dIf tf]lsPadf]lhd k]z u/]sf] Due
Diligence Certificate nfO{ ;d]t d'Vo cfwf/sf] ?kdf lng] u/]sf] 5 .
lwtf]kq lgisfzg cg'dlt k|fKt ug]{ qmddf ljBdfg P]g, lgodn] tf]s]cg';f/ lgisfzgstf{
sDkgL tyf lgisfzg tyf laqmL k|aGwsx?sf] lhDd]jf/L;DaGwdf ;j{;fwf/0f
nufgLstf{x?nfO{ a'em\g ;/n x'g] tyf nufgL;DaGwL hf]lvdaf/] nufgLstf{x? ;hu x'g
d2t k'Ug] s'/fnfO{ b[li6ut u/L ljj/0fkqsf] aflx/L k[i7df /xg] u/L æljj/0fkqdf pNn]lvt
ljj/0f tyf hfgsf/Lx?sf] ;Totfk|lt lgisfzgstf{ sDkgL tyf To;sf ;~rfns /
;DalGwt ljz]if1x?sf] hjfkmb]xLtf /x]sf] . lgisfzgstf{ sDkgLsf] Joj:yfksLo, k|fljlws
/ cfly{s kIfsf] ljZn]if0ffTds cWoogaf6 lgisfzg tyf laqmL k|aGws ;Gt'i6 x'g'sf] ;fy}
ljj/0fkqdf n]lvPsf cfly{s ljj/0fx? / cGo hfgsf/L tYout, k"0f{ / ;xL b]lvPsf]n]
nufgLstf{x?nfO{ nufgL;DaGwL lg0f{o lng d2t x'g] egL lgisfzg tyf laqmL k|aGwsn]
lwtf]kq af]8{df kfngfkq -Due Diligence Certificate_ k|:t't u/]sf] 5 . of] lwtf]kq ldlt
======== df lwtf]kq af]8{df btf{ e} lgisfzg cg'dlt k|fKt ePsf] 5 . lwtf]kqsf] nufgLdf
x'g ;Sg] hf]lvd af/] nufgLstf{ :jo+n] ljrf/ ug'{kg]{5Æ eGg] hfgsf/L /fVg'kg]{ Joj:yf
/x]sf] 5 . o;}u/L s'g} lglZrt d"Nodf ;fj{hlgs lgisfzg ePsf] z]o/ bf]>f] ahf/df
;"rLs/0f ePkl5 lgisfzg d"NoeGbf km/s d"Nodf sf/f]af/ x'g;Sg] / ;f] af/]
nufgLstf{x?nfO{ ;hu u/fO{ nufgL ug'{k"j{ sDkgLn] ug]{ ePsf] sfddf lglxt ;Defljt
cfly{s hf]lvdsf cltl/Qm lwtf]kqsf] d"No kl/jt{g;DaGwL hf]lvd af/] hfgsf/L lbg
cfjZos x'g] x'gfn] ;DalGwt sDkgLsf] ljj/0fkqdf ælwtf]kqsf] lgisfzg d"Non]
;"rLs/0fkZrft lwtf]kq ljlgdo ahf/df x'g] sf/f]af/ d"No ghgfpg] / lwtf]kqdf d"No
kl/jt{gsf] hf]lvd /xg] s'/f pNn]v ul/Psf] x'g'kb{5 Æ eGg] hfgsf/L /fVg'kg]{ Joj:yf
;d]t /x]sf] 5 .
;d:of tyf ;'wf/sf ljsNkx?
;+ul7t ;+:yfx?n] ;fj{hlgs?kdf lgisfzg ug{ k|:tfj u/]sf] lwtf]kqx?sf] btf{ tyf
lgisfzg cg'dlt k|bfg ug]{ sfo{nfO{ cem ;/n, kf/bzL{ tyf Jojl:yt agfO{ ;+ul7t
;+:yfx?nfO{ k'FhL ahf/df k|j]z ug{ k|f]T;fxg ug{sf] nflu ljBdfg Joj:yfx?df b]lvPsf
;d:ofx?nfO{ ;dfwfg ug{ cfjZos b]lvPsf] 5 . o;} k[i7e"lddf k|d'v?kdf lwtf]kq
lgisfzgsf] qmddf b]lvPsf ;d:of tyf ltgsf ;dfwfgsf nflu ckgfpg pko'Qm x'g;Sg]
j}slNks pkfox? b]xfocg';f/ /x]sf 5g\ .
!= ljBdfg Joj:yf cg';f/ ;fj{hlgs lgisfzgsf] k|s[ofdf lwtf]kq af]8{ / sDkgL
/lhi6«f/sf] sfof{no u/L b'O{ j6f lgodg lgsfox?sf] k|ToIf ;+Ungtf /x]sf] x'Fbf
;fj{hlgs lgisfzg ug]{ ;dofjlw nfdf] x'g hfg] tyf lgodg lgsfosf]
hjfkmb]xLtfdf lglZrttf gx'g] x'gfn] ;fj{hlgs lgisfzgdf hfg] k|s[of Pp6} lgodg
lgsfoaf6 ;DkGg x'g;Sg] u/L P]g, lgoddf ;+zf]wg ug'{kg]{ cfjZostf b]lvPsf] 5 .
@= ;fj{hlgs lgisfzgdf hfg rfxg] ;+ul7t ;+:yfx?n] k"/f ug'{kg]{ cj:yf / zt{x?
;DaGwdf k'g/fjnf]sg u/L sDtLdf # jif{ k"j{ ;~rfng l:ylt -track record_ ePsf]
/ kl5Nnf] jif{ d'gfkmfdf ;~rfng eO pQm jif{sf] n]vfk/LIf0f ePsf] ljQLo ljj/0f
k|sflzt u/]sf tyf lgisfzg ug]{ ;Dk"0f{ lwtf]kqx?sf] k|Tofe"lt -Underwriting_
u/]sf ;+ul7t ;+:yfx?n] dfq ;fj{hlgs lgisfzg ug{ kfpg] Joj:yf ug{ pko'Qm x'g]
b]lvG5 .
#= s'g} ;+ul7t ;+:yfx?n] ;fj{hlgs lgisfzg ubf{ lwtf]kqsf] lstfaL d"Nosf] cfwf/df
lgisfzg d"No tf]Sg;Sg] Joj:yf ug{ pko'Qm x'g] k[i7e"lddf xfnsf] Joj:yfnfO{
k'g/fjnf]sg ug'{kg]{ b]lvPsf] 5 .
$= ;+ul7t ;+:yfx?n] ljj/0fkqdfkm{t k]z u/]sf ljQLo ljj/0fx?nfO{ k'g/fjnf]sg ug{
;/n xf];\ eGg] p2]Zon] pgLx?n] k]z ug]{ ljQLo ljj/0fx?df Ps?ktf Nofpg
cfjZos b]lvPsf] 5 .
%= k|rlnt P]g, lgodsf] Joj:yfcg'?k ;fj{hlgs lgisfzgdf k|ToIf?kdf ;+nUg lwtf]kq
Joj;foLsf] ?kdf sfo{/t lgisfzg tyf laqmL k|aGwsx?sf] ;]jfnfO{ cem a9L
k]zfut?kdf ljsl;t ug'{kg]{ b]lvG5 .
^= ljBdfg sDkgL P]gsf] Joj:yfcg'?k af]8{sf] afF8kmfF6 lgb]{lzsfdf ;s];Dd ;a}
cfjb]sx?nfO{ z]o/ afF8kmfF6 ug]{ / olb cTolws?kdf z]o/ dfu ul/Psf] cj:yfdf
sd z]o/ dfu ug]{ z]o/jfnfx?nfO{ a9L ef/ lbg] eGg] Joj:yfn] cfjb]sn] /fd|f]
7fg]sf] z]o/df cfj]bgsf nflu b/vf:t lbFbf ;fgf] ;d"xdf cgfjZos?kdf a9LeGbf
a9L b/vf:t lbg] k|j[lQ /x]sf] b]lvG5 . o;n] ubf{ /fd|f nufgLstf{x? z]o/df nufgL
ug{af6 al~rt x'g] / lgisfzgstf{ sDkgLnfO{ b/vf:t lng], k|zf]wg ug]{ / afF8kmfF6
ug]{ sfo{df a9L vr{ nfUg] b]lvPsf] x'Fbf xfnsf] Joj:yfnfO{ k'g/fjnf]sg u/L
;dfg'kflts afF8kmfF6 -Proportionate Allotment_ k|0ffnL jf cGo pko'Qm k|0ffnL
cjnDag ug'{kg]{ b]lvG5 .
&= s'g} klg ;+ul7t ;+:yfn] cfkm\gf] z]o/ k'FhL a9fpg xsk|b z]o/ hf/L u/L tf]lsPsf]
Dofbleq cfjZos dfqfdf b/vf:t kg{ gcfO{ afFsL /xg uPsf] z]o/ laqmL ug]{ tyf
lgisflzt z]o/sf] %)Ü eGbf sddfq laqmL eO{ afF8kmfF6 x'g g;s]sf] cj:yf l;h{gf
x'g;Sg] b]lvPsf] ;Gbe{df o;/L xsk|b z]o/ hf/L ubf{ afFsL /x]sf] z]o/x? laqmL
ljt/0fsf nflu a9L dfu ug]{ ;d"x / sd dfu ug]{ ;d"xaLr afF8kmfF6 ug]{ k|s[of
ckgfpg] jf ;fljssf z]o/wgLx?nfO{ cfkm"n] kfPsf] xsdWo] ;Dk"0f{ jf cf+lzs xs
lghn] cGo JolQmnfO{ x:tfGt/0f ug{;Sg] Joj:yfsf nflu cfjZos gLlt agfpg'kg{]
cfjZostf b]lvPsf] 5 .
*= ;DalGwt ;+ul7t ;+:yfn] lgisfzg tyf laqmL k|aGwsdfkm{t lgisfzg;DaGwL
cfx\jfgkq tyf cGo ;"rgfx? ;fj{hlgs ug]{ qmddf a9fO{–r9fO{ ug{;Sg]
;DefjgfnfO{ b[li6ut u/L o;;DaGwdf cfjZos gLlt cjnDag ug'{kg]{ b]lvG5 .
(= ælwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%&Æ sf] bkmf @# df æcfkm"n]
lgisfzg u/]sf] lwtf]kqsf] ;DaGwdf jf cfkm"n] u/]sf] lgisfzg;DaGwL s'g}
sfo{;DaGwdf u'gf;f] ;'Gg] tyf ;dfwfgsf nflu cfkm\gf] ;+:yfdf 5'§} OsfO{ v8f u/L
jf :ki6?kdf tf]sL oyfl;3| ;dfwfg ug]{ Joj:yf ldnfpg'kg]{5Æ eGg] Joj:yf /x]sf]df
;f]xLcg'?ksf] Joxf]/f v'nfO{ To:tf u'gf;f ;'Gg / ;dfwfg ug]{ clwsf/L jf zfvfsf]
gfd ;d]t tf]sL ljj/0fkqdf ;dfj]z u/fpg] Joj:yf ug{ pko'Qm b]lvG5 .
!)= z]o/df dfq nufgL ug]{ p2]Zo lnO :yflkt OGe]i6d]G6 jf cGo sDkgLx?n] ;+:yfks
z]o/ v/Lb u/L sDkgLsf] tkm{af6 ;d]t ;~rfns ;ldltdf k|ltlglwTj ug{;Sg] /
ltgLx?df sf] sf] ;~rfns 5g\ eGg] hfgsf/L -Disclosure_ gx'g] x'Fbf pgLx?sf]
hjfkmb]xLtf -Accountability_ :ki6 gx'g] tyf Insider Trading x'g;Sg] ;Defjgf
/xg uO{ ahf/df gsf/fTds c;/ kg{;S5 . To;}n] ;+:yfkssf] ?kdf /x]sf] ;+ul7t
;+:yfx?n] cfkm\gf] ;+:yfsf] ;+:yfksx?sf] JolQmut ?kdf klxrfg u/fpg pgLx?sf]
kl/ro;DaGwL hfgsf/L -Disclosure_ ug{ nufpg] Joj:yf ug{ pko'Qm x'g] b]lvG5 .
!!= xsk|b z]o/ hf/L ubf{ k|sflzt ul/g] ljj/0fkqdf ;+ul7t ;+:yfsf] sDtLdf !
dlxgfsf] lwtf]kq ahf/df ePsf] sf/f]af/sf] l:ylt emNsg] lsl;dsf] ljj/0fx? ;d]t
ljj/0fkqdf ;dfj]z u/fpg pko'Qm x'g] b]lvG5 .
!@= ælwtf]kq btf{ tyf lgisfzg cg'dlt lgb]{lzsf, @)%&Æ sf] bkmf !( df v'nf?kdf jf
kl/kq ljlwåf/f lgisflzt lwtf]kqx? ;fj{hlgs?kdf sf/f]af/ x'g;Sg] u/fpg
lgisflzt lwtf]kqsf] afF8kmfF6 ePsf] $% lbgleq lwtf]kq ljlgdo ahf/df ;"rLs/0f
u/fO{ v/Lb laqmLsf] Joj:yf ldnfpg'kg]{5 / o;/L tf]lsPsf] cjlwleq ;"rLs/0f x'g
g;s]sf] cj:yfdf ;f] sf] dgfl;a dflkmssf] sf/0f vf]nL af]8{df lgj]bg lbPdf af]8{n]
;"rLs/0f x'g] Dofb a9Ldf tL; lbg yk ug{ ;Sg]5 eGg] Joj:yf /x]sf]df ;fj{hlgs
lgisfzgdf uPsf k|foM h;f] ;+ul7t ;+:yfx?n] pQm Joj:yfcg'?k Dofb yk ug]{
u/]sf] b]lvG5 . o;/L Dofb ykL afF8kmfF6 ePsf] &% lbgleq klg ;"rLs/0f gePsf]
cj:yf cfO/x]sf] ;Gbe{df ;fj{hlgs lgisfzgsf] cj:yfdf g} lwtf]kqx? ;"rLs/0fsf]
nflu lwtf]kq ljlgdo ahf/af6 :jLs[ltkq k|fKt ug]{ Joj:yf ug]{ jf af]8{sf] lgb]{lzsf]
Joj:yfcg';f/ lwtf]kq afF8kmfF6 ePsf] $% lbgleq ;"rLs/0f ul/;Sg'kg]{ Joj:yfnfO{
pQm lbgleq lwtf]kq ljlgdo ahf/df lgj]bg lbO;s]sf] x'g'kg]{ eGg] Joj:yf ug{
pko'Qm x'g] b]lvG5 .
!#= ;fj{hlgs lgisfzgdf cgfjZos?kdf b/vf:t xfNg] k|j[lQnfO{ /f]Sg];DaGwdf
;DalGwt nufgLstf{sf] gful/stfsf] gDa/ b/vf:t kmf/fddf clgjfo{?kn] /fVg
nufpg] / kl5 k|df0fkq jf lkmtf{ e'QmfgL lnFbf clgjfo{?kdf gful/stfsf] k|df0fkqsf]
k|dfl0ft k|ltlnlk /fVg] Joj:yf ug]{ tyf gfjfnssf] xsdf b/vf:t lbFbfsf] avtdf g}
>L % sf] ;/sf/, kl~hsflwsf/Lsf] sfof{noaf6 hf/L ul/Psf] hGdbtf{ k|df0fkqsf]
k|dfl0ft k|ltlnkL /fVg nufpg] Joj:yf clgjfo{?kdf ug{ nufpg] Joj:yf ug'k{ g]{
b]lvG5 .
!$= ;fj{hlgs lgisfzgdf hfgrfxg] ;+ul7t ;+:yfx?n] k|rlnt P]g, lgod, lgb]{lzsfx?sf]
k"0f{ kfngf u/]sf] kfngfkq -Compliance Report_ k]z ug'{kg]{ / s'g} s}kmLot
-Remarks_ eP ;f] ;d]t k]z ug'{kg]{ Joj:yf ug{ pko'Qm x'g] b]lvG5 .
pk/f]Qmfg';f/sf ;d:of tyf ;'wf/sf ljsNkx? dWo] P]glgoddf ;fd~h:otf Nofpg

ul/g'kg{] ;DaGwdf gofF lwtf]kq P]g tyf sDkgL P]gsf] d:of}bf ljwfog k|s[ofdf /x]sf] 5 .
To:t} xsk|b z]o/sf nflu xs x:tfGt/0f ug{ ;Sg], ;fj{hlgs lgisfzg / afF8kmfF6
sfo{nfO{ Jojl:yt ug{] h:tf sfo{x?sf nflu af]8{sf] lgb{]lzsfx?df k'g/fjnf]sg e}/x]sf]
5 . ;fy} gofF P]gx?sf] sfof{GjogkZrft pk/f]Qmfg';f/sf ;d:ofx?sf] ;dfwfg x'ghfg]
ck]Iff ug{ ;lsG5 .
***
lwtf]kq af]8{sf] ;+:yfut Ifdtf clej[l4M Ps cfjZostf
– d~h' pkfWofo
kl/ro
lwtf]kqsf nufgLstf{x?sf] xslxt ;+/If0f u/L lwtf]kq ahf/sf] ljsf; ug{sf] nflu
lwtf]kq sf/f]af/nfO{ lgoldt / Jojl:yt ug]{ p2]Zon] lwtf]kq sf/f]af/ P]g, @)$) df
ePsf] k|yd ;+zf]wgcGtu{t lj=;+= @)%) h]i7 @% ut] lwtf]kq ahf/sf] k|d'v lgodg
lgsfosf] ?kdf lwtf]kq af]8{sf] :yfkgf ePsf] xf] . lwtf]kq sf/f]af/ P]g, @)$) tyf
lwtf]kq sf/f]af/ lgodfjnL, @)%) n] u/]sf] Joj:yfcg';f/ lwtf]kq af]8{sf k|d'v
sfo{x?df lwtf]kq ahf/;DaGwdf cfjZos gLlt lgodx? th{'df ug{], lwtf]kqx? btf{ u/L
lgisfzg cg'dlt k|bfg ug{], lwtf]kq ljlgdo ahf/ ;~rfng ug{rfxg] / lwtf]kq Joj;fo
ug{rfxg] ;+ul7t ;+:yfx?nfO{ cg'dlt k|bfg u/L ltgLx?sf] ;'kl/j]If0f tyf cg'udg ;d]t
ug{] / lwtf]kq ahf/;DaGwdf cWoog, cg';Gwfg tyf r]tgf clej[l4 ug{] h:tf sfo{x?
/x]sf 5g\ . pk/f]Qmfg';f/sf sfd sf/jfxLx? ;Dkfbg ug{sf nflu kof{Kt sfg'gL clwsf/
pko'Qm ;+u7g 9fFrf, bIf hgzlQm, ;an cfly{s cj:yf cflbsf] cfjZostf /xg] tyf ;f]
df k'g/fjnf]sg u/L af]8{sf] ;+:yfut Ifdtf clej[l4nfO{ ljz]if hf]8 lbg'kg]{ cfjZostf
/x]sf] 5 .
;+:yfut Ifdtf clej[l4 ;DaGwdf af]8{sf k|of;x?

;+u7g Joj:yfdf ;'wf/
k|f/Dedf lwtf]kq sf/f]af/ P]g, @)$) n] k|d'v?kdf lwtf]kqsf] k|fylds lgisfzg sfo{nfO{
lgoldt / Jojl:yt ug{] tyf :6s PS;r]Ghsf] sfdsf/jfxLsf] /]vb]v ug{] lhDd]jf/L k|bfg
u/]cg'?k af]8{n] æk|fylds lgisfzg tyf ahf/ k|zf;g dxfzfvfÆ / æ:6s PS;r]Gh tyf
ahf/ cg'udg dxfzfvfÆ gfds b'Oj6f dxfzfvfx?sf] Joj:yf u/L sfo{ ub{} cfPsf]
lyof] . To; ;dodf af]8{df ^ hgf sd{rf/Lx?sf] Joj:yf lyof] .
lwtf]kq sf/f]af/ P]g, @)$) df ePsf] bf]>f] ;+zf]wgn] lwtf]kq af]8{nfO{ lwtf]kq
Joj;foLx?sf] btf{ u/L lgodg ug{] / ;"rLs[t ;+ul7t ;+:yfx?sf] ;"rgf k|jfxsf] :t/
clej[l4 ug{] h:tf yk lhDd]jf/Lx? k|bfg u/]cg';f/ pQm lhDd]jf/Lx?nfO{ k|efjsf/L?kdf

lgjf{x ug{] p2]Zon] af]8{n] cfly{s jif{ @)%%.%^ df Ps gofF ;+u7g 9fFrfsf] ljsf; u/L
sfo{ ug{ ;'? u¥of] . pQm ;+u7g 9fFrfcg'?k af]8{df % j6f dxfzfvfx? /x]sf lyP eg]
To; ;dodf af]8{sf] sd{rf/Lx?sf] ;+Vofdf j[l4 eO{ !( k'u]sf] lyof] .
af]8{df a9\b} uPsf] sfo{ef/nfO{ c? k|efjsf/L?kn] ;Dkfbg ug{sf nflu cfly{s jif{
@)%^.%& df af]8{sf] ;+u7gdf æahf/ lgodg ljefuÆ tyf æcg'udg tyf ljsf; ljefuÆ
sf] Joj:yf u/L k|To]s ljefucGtu{t #÷# j6f dxfzfvfx?sf] Joj:yf ul/of] . cfly{s jif{
@)%*.%( sf] cGt;Dddf af]8{df hDdf @% hgf sd{rf/Lx? /x]sf lyP . o:t} cfly{s jif{
@)%(.^) df af]8{sf] ;+u7g 9fFrfdf k'g/fjnf]sg u/L tNnf] txsf] ;d]t lhDd]jf/Lx? :ki6
ug]{ u/L gofF ;+u7g 9fFrfsf] ljsf; ul/of] . o; ;+u7g 9fFrfadf]lhd af]8{df @ j6f
ljefu, ^ j6f dxfzfvf tyf !) j6f zfvfx?sf] Joj:yf /x]sf] 5 . xfn af]8{df @^ hgf
sd{rf/Lx? sfo{/t /x]sf 5g\ .
;Lk tyf bIftf clej[l4

sd{rf/Lx?sf] ;Lk tyf bIftf ljsf; u/L af]8{sf] sfo{ut Ifdtf clej[l4 ub}{ hfg] sfo{nfO{
af]8{n] ljz]if hf]8 lbFb} cfPsf] 5 . o;} qmddf af]8{n] ;+:yfut ;'zf;g, k|ltj]bg n]vg,
;"rgf k|ljlw, k'FhL ahf/ ljsf;, Joj:yfkg ljsf;, lgodg, cg'udg, sfg'g k|jnLs/0f /
;+:yfut ;'zf;g h:tf ljifox?df cfof]lht tflnd tyf ;]ldgf/x?df sd{rf/Lx?nfO{
;xefuL u/fpFb} cfPsf] 5 .
lgodg Joj:yfdf ;'wf/

lwtf]kq sf/f]af/ P]g, @)$) df ePsf] klxnf] ;+zf]wgn] lwtf]kq af]8{nfO{ lwtf]kq ahf/sf]
k|d'v lgodg lgsfosf] ?kdf :yfkgf u/] tfklg ;"rLs[t ;+ul7t ;+:yf / lwtf]kq
Joj;foLx?;Fu af]8{sf] k|ToIf ;DaGw :yfkgf ePsf] lyPg . o;af6 af]8{nfO{ To:tf
;+:yfx?sf] lgodgsf ;DaGwdf ePsf sl7gfOx?nfO{ b[li6ut ub{} af]8{n] ;+zf]wgsf nflu
k|:tfj u/]cg';f/ cfly{s jif{ @)%#.%$ df pQm P]gdf bf]>f] ;+zf]wg eof] . pQm ;+zf]wgn]
lwtf]kq sf/f]af/df ;+nUg JolQmx?n] sDkgLdf kl/0ft u/L lwtf]kq af]8{df lwtf]kq
Joj;foLsf]?kdf btf{ x'g'kg{] / af]8{sf] lgodg bfo/fdf cfpg'kg{] Joj:yf ug{'sf ;fy}
;"rLs[t ;+ul7t ;+:yfx?n] ljleGg cfjlws tyf jflif{s ljj/0fx? ;d]t af]8{;dIf k]z
ug{'kg{] Joj:yf u¥of] . lwtf]kq ahf/sf] k|d'v lgodgstf{sf] ?kdf lwtf]kq ahf/sf]
k|efjsf/L?kdf lgodg ug{sf] nflu ahf/sf] ;'kl/j]If0f, cg'udg, cg';Gwfg, tyf sf/jfxL
h:tf kIfx?df kof{Kt / :ki6 sfg'gL clwsf/x? x'g cltg} cfjZos x'G5 . o;} k[i7e"lddf
af]8{n] lwtf]kq ahf/sf] ;~rfng / lgodgsf qmddf k|fKt cg'ej / lwtf]kq;DaGwL P]g
lgoddf ePsf sdL sdhf]/Lx?nfO{ x6fO{ clwsf/;DkGg lgodg lgsfosf] ljsf; ug{'sf
;fy} ljBdfg lgodg k|0ffnLnfO{ cGt/f{li6«o:t/sf] agfpg / :jlgodg lgsfox?sf]
;+:yfkgfnfO{ k|f]T;flxt ug{ tyf ahf/df cfjZos cGo k"jf{wf/x?sf] ljsf; ug{sf nflu
cfjZos sfg'gL Joj:yfx? ug{] p2]Zon] gofF lwtf]kq;DaGwL P]gsf] d:of}bf tof/ u/L >L
% sf] ;/sf/;dIf k]z u/]sf] 5 . xfn pQm d:of}bf ljwfog k|lqmofdf /x]sf] 5 .
;d:of tyf r'gf}ltx?

xfn lwtf]kq af]8{n] pknAw ;Lldt ;fwg;|f]tsf] pkof]u u/L cfkm\gf] lhDd]jf/Lx? axg ub}{
cfO/x]sf] 5 . af]8{sf] :yfkgfsfnsf] t'ngfdf xfn lwtf]kq lgisfzg ug]{ ;+ul7t
;+:yfx?sf] ;+Vofdf j[l4 x'gsf] ;fy} lwtf]kq ahf/sf] cfsf/df ;d]t j[l4 x'Fb} uPsf]
k[i7e"lddf lwtf]kq ahf/sf] k|efjsf/L?kdf lgodg ug{sf] nflu af]8{sf] ;+:yfsf] ;+:yfut
Ifdtfdf clej[l4 ug{ c? a9L hf]8 lbg' cTofjZos ePsf] 5 . af]8{sf] ;+:yfut Ifdtf
clej[l4 ;DaGwdf b]xfocg';f/sf ;d:of tyf r'gf}ltx? b]lvPsf 5g\ .
 lwtf]kq af]8{df ljj/0fkq tyf ;"lrs[t ;+ul7t ;+:yfx?sf] cfly{s ljj/0fx?sf]

k'g/fjnf]sg ug]{ n]vfljb\ tyf lwtf]kq;DaGwL P]glgodx?sf] k|efjsf/L?kdf kfngf
u/fpgsf nflu cfjZos sfg'gljb\ nufot af]8{sf] lhDd]jf/LnfO{ k|efjsf/L 9+un]
;Dkfbg ug{sf nflu kof{Kt hgzlQmsf] cefj /x]sf] 5 . o;sf ;fy} k|:tfljt
lwtf]kq;DaGwL P]g nfu" ePkl5 lwtf]kq af]8{sf] lgodg bfo/f c? a9L km/flsnf] x'g
hfg] / ;f]xLcg';f/ a9\g hfg] af]8{sf] sfdsf/jfxLx?nfO{ k|efjsf/L ?kdf ;Dkfbg
ug'{kg]{ k[i7e"ldnfO{ ;d]t ljrf/ u/L yk hgzlQmsf] Joj:yf ug'{kg]{ cfjZostf /x]sf]
5.
 af]8{sf] d'Vo cfly{s ;|f]tsf] ?kdf >L % sf] ;/sf/sf] ah]6 cg'bfg g} /x]sf] 5 .
af]8{sf] cGo cfly{s ;|f]tx?df lgisfzgstf{ ;+ul7t ;+:yfsf] lwtf]kq btf{ z'Ns,
lwtf]kq ahf/ ;~rfng cg'dlt / gjLs/0f tyf lwtf]kq Joj;foLsf] btf{ tyf
gjLs/0faf6 k|fKt x'g] /sd /x]sf] 5 . af]8{sf] ;+:yfut Ifdtf clej[l4 / ahf/sf]
lgodgsf] nflu xfnsf] cfly{s ;|f]t ckof{Kt /x]sf] 5 . ;fy} xfn tf]lsPsf] lwtf]kq
btf{ z'Ns Go"g x'g'sf ;fy} lgoldt ?kdf k|fKt x'g g;Sg] tyf lwtf]kq Aoj;foL btf{
/ gjLs/0f z'Ns ;d]t Go"g ePsf]n] af]8{sf] cfly{s ;|f]tdf k|efj kl//x]sf] x'gfn]
o;df k'g/fjnf]sg x'g' cfjZos b]lvPsf] 5 .
 af]8{sf sd{rf/Lx?nfO{ k|bfg ul/+b} cfPsf] ;'ljwf cGo ;dfg k|s[ltsf lgodg
lgsfox?sf] t'ngfdf Hofb} Go"g /xL ljBdfg hgzlQmnfO{ nfdf] ;do;Dd af]8{df /fVg
(Retain) tyf gofF bIf hgzlQmsf] lgo'lQm u/L af]8{sf] lgodg Ifdtf a9fpgdf
sl7gfO{ x'g;Sg] b]lvG5 . pk/f]Qm k[i7e"lddf af]8{sf] jt{dfg ;'ljwf;DaGwL
Aoj:yfx?sf] k'g/fjnf]sg ug{' h?/L b]lvPsf] 5 .
 lwtf]kq ahf/ ljsf;sf nflu cGt/f{li6«o?kdf :yflkt d"NodfGotf tyf cEof;x?sf

;DaGwdf hfgsf/L k|fKt u/L nfeflGjt x'g lwtf]kqsf] lgodg lgsfox?sf] cGt/f{li6«o
;+:yf (International Organization of Securities Commission, IOSCO) sf] ;b:otf
lng cfjZos x'G5 . t/ af]8{n] cfly{s ;|f]tsf] cefjsf sf/0f pQm ;+:yfsf] ;b:otf
k|fKt ug{ ;s]sf] 5}g .
 lwtf]kq af]8{sf] sfo{x?nfO{ ;'rf??kdf ;~rfng ug{sf nflu cfjZos ef}lts k"jf{wf/
h:t} cfkm\g} sfof{no ejg tyf cGo ef}lts k"jf{wf/x? kof{Kt Joj:yf x'g h?/L
e};s]sf] 5 .
 lwtf]kq ahf/ cToGt} ultzLn tyf ;+j]bgzLn k|s[ltsf] x'g]x'F+bf o;df sfo{/t
hgzlQmdf /x]sf] 1fg tyf of]UotfnfO{ kl/is[t ug'{kg]{ tyf gofF–gofF ;Lk / bIftfsf]
ljsf; ug'{kg]{ x'G5 . o;sf nflu sd{rf/Lx?nfO{ tflnd, cjnf]sg e|d0f tyf pRr
lzIff k|flKtsf] kof{Kt cj;/x? pknAw u/fOg'kg]{ ePtfklg af]8{sf] cfly{s ;|f]tsf]
cefjsf sf/0f af]8{n] sd{rf/Lx?nfO{ pNn]lvt cj;/x? kof{Kt ?kdf pknAw u/fpg
;s]sf] 5}g .
––––––––––––––––––––––––––––––––
;Gbe{ ;fdu|Lx?
!= lwtf]kq af]8{sf ljleGg cfly{s jif{sf aflif{s k|ltj]bgx? .
@= lwtf]kq af]8{sf] bz jif{ -@)%)–@)^)_ .
#= lwtf]kq sf/f]af/ P]g, @)$) tyf lwtf]kq sf/f]af/ lgodfjnL, @)%) .
***
z]o/ nufgLstf{x?sf] clwsf/M Ps ljj]rgf
– d'lQm gfy >]i7
kl/ro
lwtf]kq sf/f]af/ P]g, @)$) / ;f] cGt{ut ag]sf lgod, ljlgod, lgb]{lzsfsf ;fy} sDkgL
P]g, @)%# n] z]o/sf nufgLstf{x?sf] clwsf/;DaGwdf ljleGg Joj:yfx? u/]sf] 5 .
o;sf ;fy} a}+s tyf ljQLo ;+:yf / aLdf ;DaGwL sfg"gx?df ;d]t nufgLstf{x?sf]
clwsf/;DaGwdf ljleGg Joj:yfx? ul/Psf 5g\ . pQm P]g lgodx?df ePsf Joj:yfx?
sfof{Gjog u/fO nufgLstf{x?sf] xs–clwsf/sf] ;+/If0f ug{ lwtf]kq af]8{, sDkgL
/lhi6«f/sf] sfof{no, g]kfn lwtf]kq ljlgdo ahf/ ln=, g]kfn /fi6« a}+s, aLdf ;ldlt cflb
h:tf lgsfox? sfo{/t /x]sf 5g\ .
pk/f]Qmfg';f/sf P]glgodx?n] nufgLstf{x?sf] xsclwsf/ ;DaGwdf u/]sf k|d'v

Joj:yfx? b]xfocg';f/ /x]sf 5g\ .
-s_ ;'–;"lrt eO{ nufgL ug{ kfpg] clwsf/
nufgLstf{x?n] cfkm"n] nufgL ug{rfx]sf] z]o/ tyf ;DalGwt sDkgLsf ;DaGwdf ;Dk"0f{
hfgsf/Lx? k|fKt ug{ kfpg'kb{5 . o;}cg'?k lwtf]kq;DaGwL P]glgodx?n]
nufgLstf{x?nfO{ ;'–;"lrt eO{ nufgL ug{ ;3fp k'¥ofpg] p2]Zon] ljleGg Joj:yfx?
u/]sf] 5 . ;fj{hlgs lgisfzg ePsf z]o/x? v/Lb ug'{cl3 nufgLstf{x?n] z]o/
lgisfzg ug]{ ;+ul7t ;+:yf;DaGwL dxTjk"0f{ hfgsf/Lx? ;dfj]z ePsf] ljj/0fkq k|fKt
ug{ tyf lgisfzg cg'dlt;DaGwL sfuhftx? x]g{ o:tf] ljj/0f tyf sfuhftx? ;DalGwt
lgisfzgstf{ sDkgL tyf lgisfzg tyf laqmL k|aGws dfkm{t pknJw x'g] Joj:yf ul/Psf]
5.
o;}u/L nufgLstf{n] lwtf]kq ljlgdo ahf/ (Stock Exchange) df ;"lrs[t z]o/x? v/Lb
ug'{cl3 ;DalGwt ;"lrs[t sDkgLsf] sfo{;Dkfbg, ljQLo l:ylt, z]o/sf] ahf/ d"No h:tf
dxTjk"0f{ kIfx?af/] ;DalGwt sDkgL, lwtf]kq ljlgdo ahf/ tyf lwtf]kq bnfnx?dfkm{t
hfgsf/L k|fKt ug{ ;Sb5g\ .

-v_ z]o/ :jfldTj k|fKt ug]{ clwsf/
s'g} klg ;+ul7t ;+:yfsf] z]o/ v/Lb u/]kl5 nufgLstf{n] pQm ;+ul7t ;+:yfsf] :jfldTj
k|fKt ub{5g\ . o;/L k|fKt x'g] :jfldTj :j?k nufgLstf{n] tf]lsPadf]lhdsf] 9fFrfdf s'g}
;~rfns jf sDkgLsf] k|zf;sLo k|d'v jf sDkgL ;lrjdWo] s'g} b'O{ hgfsf] b:tvt /
sDkgLsf] 5fk ePsf] z]o/ k|df0fkq k|fKt ug{ ;Sb5g\ .
-u_ sDkgLsf] d'gfkmfdf ;l/s x'g] clwsf/
nufgLstf{n] cfkm"n] nufgL u/]s]f ;+:yfn] d'gfkmf cfh{g u/]df ;f] d'gfkmf afF8kmfF6 ubf{
;dfg'kflts?kdf nufgLcg';f/sf] d'gfkmf k|fKt ug{ ;Sb5g\ . o:tf] d'gfkmf gub nfef+z
jf af]gz z]o/sf] ?kdf k|fKt x'g ;Sb5 . ljBdfg P]g lgoddf nfef+z k|bfg ug]{ lg0f{o
ePsf]df k}+tfln; lbgleq z]o/jfnfx?nfO{ nfef+z ljt/0f ul/;Sg' kg]{ / olb pQm
;doleq nfef+z ljt/0f ug{ g;s]df tf]lsPcg';f/sf] Aofh yk u/L nfef+z ljt/0f ug'{kg]{
Joj:yf /x]sf] 5 .
-3_ ;fwf/0f ;efdf ;xefuL x'g] / dt hfx]/ ug]{ clwsf/
z]o/wgLn] ;DalGwt sDkgLsf] jflif{s ;fwf/0f ;efdf ;xefuL x'g] clwsf/ k|fKt ub{5g\ .
jflif{s ;fwf/0f ;ef ug{sf nflu slDtdf PSsfO{; lbgcufj} / ljz]if ;fwf/0f ;ef ug{sf
nflu sDtLdf kGw| lbgcufj} ;ef x'g] 7fpF, ldlt / 5nkmn ug]{ ljifo vf]nL
z]o/jfnfx?nfO{ ;"rgf lbg'kg]{ / ;f] s'/fsf] ;"rgf /fli6«o:t/sf] kqklqsfdf sDtLdf b'O{
k6s k|sflzt ug'{kg]{ Joj:yf /x]sf] 5 .
sDkgLsf] jflif{s ;fwf/0f ;efdf 5nkmn ul/g] lnvt, k|:tfj / ljj/0fx? ;ef x'g'eGbf
sDtLdf PSsfO; lbgcufj} sDkgLsf] /lhi68{ sfof{nodf tof/ u/L /fVg'kg]{ / s'g}
z]o/jfnfn] lgj]bg lbO{ k|ltlnlk dfu u/]df lghnfO{ To;sf] Ps k|lt k|ltlnlk lbg'kg]{
Joj:yf /x]sf] 5 . jflif{s ;fwf/0f ;efdf 5nkmn ug'{kg]{ laifodf sDkgLsf] lx;fa lstfa,
jf;nft, gfkmf gf]S;fgLsf] lx;fa, ;~rfns / n]vfk/LIfssf] k|ltj]bg, z]o/jfnfx?df
afFl8g] d'gfkmf, ;~rfns / n]vfk/LIfssf] lgo'lQm / n]vfk/LIfssf] kfl/>lds cflb
kb{5g\ . z]o/wgLx?nfO{ pQm ljj/0fx? ;d]t k|fKt ug]{ clwsf/ /xG5 .
z]o/wgLn] ;fwf/0f ;efdf pkl:yt eP/ k|:tfljt laifodf 5nkmn ug{, sDkgLsf] af/]df
cfkm\gf] lh1f;f /fVg, ;'emfj lbg, dt hfx]/ ug{ / ;f]s]f k|lts[of k|fKt ug{;Sg] clwsf/
k|fKt ub{5g\ . o;sf ;fy} hDdf dt ;+Vofsf] sDtLdf kFfr k|ltzt dtsf] k|ltlglwTj ug]{
z]o/jfnfn] rfx]df ;fwf/0f ;ef ;DaGwL ;"rgf hf/L x'g'eGbf cufj} ;~rfnsx?;dIf
lgj]bg lbO{ s'g} ljifo jflif{s ;fwf/0f ;efdf 5nkmn / lg0f{osf nflu k]z ug{ nufpg
;Sb5g\ .
-3_ sDkgL ;DaGwL ;"rgf tyf jflif{s k|ltj]bg k|fKt ug]{ clwsf/
lwtf]kq ;"rLs/0f u/fPsf ;+ul7t ;+:yfx?n] k|To]s jif{ jflif{s lx;fa aGb ePsf] ldltn]
rf/ dlxgfleq ;f] jif{sf] jf;nft gfkmf–gf]S;fgLsf] lx;fa tyf cGo cfly{s ljj/0f /
jflif{s k|ltj]bg lwtf]kq af]8{ / lwtf]kq ljlgdo ahf/;dIf k]z ug'{ kg]{ Joj:yf /x]sf]
5 . o;}u/L lwtf]kqsf] ahf/ d"Nodf c;/ kg{;Sg] s'g}klg ;"rgf (Price sensitive
information) ;d]t t'?Gt lwtf]kq ljlgdo ahf/df pknAw u/fpg'kg]{ Joj:yf /x]sf] 5 .
o;/L k|fKt x'g] ljj/0fx? nufgLstf{x?sf] hfgsf/Lsf nflu pknAw x'g] Joj:yf /x]sf] 5 .
-ª_ ;~rfnsx?sf] 5gf}6sf nflu dtbfg ug]{ clwsf/
;~rfnssf] lgjf{rg ug{sf] nflu dtbfg ubf{ ;DalGwt sDkgLsf] lgodfjnLdf cGoyf
Joj:Yff ul/Psf]df afx]s k|To]s z]o/jfnfnfO{ lghn] lnPsf] z]o/ ;+Vofn] lgo'Qm ug'{kg]{
;~rfnssf] ;+VofnfO{ u'0fg ubf{ x'g] ;+Vof a/fa/sf] dtsf] lx;fan] dtbfg ug]{ clwsf/
k|fKt x'G5 . To;/L dtbfg ug]{ z]o/jfnfn] cfk\mgf] ;a} dt Pp6} pDd]bjf/nfO{ jf PseGbf
a9L pDd]bjf/nfO{ lghn] tf]s]adf]lhd ljefhg x'g] u/L dtbfg ug{;Sg] Joj:yf /x]sf] 5 .
o;cg';f/ z]o/wgLx?n] ;~rfnssf] r'gfj ug{sf nflu z]o/ :jfldTjsf] cg'kft
cg';f/sf] clwsf/ k|fKt u/]sf x'G5g\ . ;~rfnssf] r'gfj x'Fbf z]o/ ;d"x / k|s[ltcg';f/
5'§f5'§} dtflwsf/sf] Joj:yf ul/Psf] klg x'g ;Sb5 .
-r_ laz]if ;fwf/0f ;ef af]nfpg lgj]bg lbg ;Sg] clwsf/
sDkgLsf] r'Qmf k"FhLsf] sDtLdf bz k|ltzt z]o/ lng] z]o/jfnfx? jf z]o/jfnfx?sf]

hDdf ;+Vofsf] sDtLdf kRrL; k|ltzt z]o/jfnfx?n] sf/0f vf]nL ljz]if ;fwf/0f ;ef
af]nfpg ;DalGwt sDkgLsf] /lhi68{ sfof{nodf lgj]bg lbPdf ;~rfns ;ldltn] To:tf]
ljz]if ;fwf/0f ;ef af]nfpg'kg]{ Joj:yf /x]sf] 5 . olb To:tf] lgj]bg k/]sf] ldltn] tL;
lbgleq ;~rfns ;ldltn] ljz]if ;fwf/0f ;ef gaf]nfPdf ;DalGwt z]o/jfnfx?n] >L %
sf] ;/sf/, sDkgL /lhi6«f/sf] sfof{nodf ph'/L ug{;Sg] / pQm sfof{non] To:tf] ;ef
af]nfO{ lbg ;Sg] Joj:yf /x]sf] 5 .
-5_ ;~rfns ;ldltsf] ;b:odf pDd]bjf/L lbg;Sg] clwsf/
sDkgLsf] lgodfjnLdf tf]lsPadf]lhdsf] z]o/ u|x0f u/]sf] tyf P]g lgodcg';f/ cof]Uo
gePsf] cj:yfdf z]o/wgLx?n] cfkm"n] z]o/ v/Lb u/]sf] sDkgLsf] ;~rfns x'gsf nflu
pDd]bjf/L lbg ;Sb5g\ .
-h_ z]o/ vl/bdf klxnf] xs k|fKt ug]{ clwsf/
sDkgLn] z]o/ kF"hL a9fpg k'gM ;fwf/0f z]o/ -xsk|b z]o/_ hf/L u/]sf] cj:yfdf ljBdfg
z]o/wgLx?nfO{ cfkm"n] u|x0f u/]sf] z]o/sf] cg'kftdf z]o/ lsGg] klxnf] xs k|fKt x'G5 .
-em_ z]o/wgLn] d'2f rnfpg ;Sg] clwsf/
sDkgLsf] s'g} xslxt k|rng u/fpgsf nflu sDkgLsf] ;f9] b'O{ k|ltzt jf ;f]eGbf a9L
z]o/ lnPsf] s'g} z]o/jfnf PSn}n] jf kfFr k|ltzt z]o/ k'Ug] PseGbf a9L z]o/jfnfx?
ldnL ;~rfns jf sd{rf/L jf sDkgL lgoGq0f ug]{ JolQm jf cGo s'g} JolQmlj?4 lhNnf
cbfntdf d'2f rnfpg;Sg] Joj:yf /x]sf] 5 .
-`_ alxu{dg ;DaGwL clwsf/
sDkgL P]g, sDkgLsf] k|aGwkq / lgodfjnLsf clwgdf /xL sDkgLsf] z]o/ rn

;DklQ;/x laqmL ug{;lsg] Joj:yf /x]sf] 5 . o;af6 z]o/wgLn] cfkm"n] nufgL u/]s]f
nufgLaf6 alxu{dg ug]{ clwsf/ k|fKt ub{5 . nufgLaf6 alxu{dgsf nflu z]o/wgLn]
cfkm\gf] z]o/ lwtf]kq ljlgdo ahf/dfkm{t a]rlavg jf xs x:tfGt/0f ug{ ;Sb5g\ . t/
;+:yfks z]o/sf] ?kdf /x]sf nufgLstf{x?n] eg] o:tf] clwsf/ k|of]u ug{ lglZrt cjlw
k"/f u/]s]f x'g'kg]{ k|fjwfg ;DalGwt P]glgodx?n] u/]sf] 5 .
-em_ u'gf;f ;dfwfg;DaGwL Joj:yf
nufgLstf{n] cfkm"n] z]o/df u/]sf] nufgL;DaGwdf s'g} u'gf;f eP ;DalGwt sDkgL,

lwtf]kq Joj;foL, lwtf]kq ljlgdo ahf/ jf lwtf]kq af]8{df lgj]bg lbO{ ;dfwfg ug{
;Sb5g\ .
-`_ cGo clwsf/x?
pk/f]Qm clwsf/x?sf cnfjf z]o/wgLx?n] cGo clwsf/x? klg k|fKt u/]sf x'G5g\ . oL
clwsf/x?df sDkgLsf] z]o/jfnf btf{ lstfasf] lg/LIf0f ug{ kfpg] clwsf/, btf{ lstfasf]
k|ltlnkL lngkfpg] clwsf/, sDkgL vf/]hL ePdf bfdf;fxL cg';f/sf] lx:;f kfpg] clwsf/
cflb /x]sf x'G5g\ .
pk;+xf/
z]o/df nufgL ug{rfxg] nufgLstf{x?n] z]o/df nufgL ubf{ ;f]rljrf/ u/]/ dfq nufgL
ug'{kg]{ cfjZostf Psftkm{ 5 eg] csf]{tkm{ nufgL ;DaGwL cfk\mgf] clwsf/ k|lt ;r]t x'g'
klg plQs} h?/L 5 . z]o/df nufgL ug]{ sltko nufgLstf{x?n] lwtf]kq ahf/df nufgL
ug'{nfO{ h'jf;Fu t'ngf ug]{ u/]sf] obfsbf ;'lgg] ul/Psf] 5 . To;} u/L sltko
nufgLstf{x? ahf/ kf/bzL{ gePsf] tyf lwtf]kq Joj;foLaf6 7lug' k/]s]f, ;DalGwt
sDkgLx?n] z]o/wgLx?nfO{ e|ddf kfg]{ u/]sf], sDkgLsf ;~rfnsx? unt s[ofsnfkdf
;+nUg x'g] u/]sf] u'gf;f] ub{5g\ . nufgL;DaGwdf o:tf u'gf;f]x? kfNg'eGbf cfk\mgf]
clwsf/sf] k|of]u u/]df o;n] ;d:ofsf] lgsf; lbgsf nflu w]/} xb;Dddf ;xof]u k'Ug]
s'/fdf s'g} ;Gb]x 5}g . nufgLstf{x?n] cfk\mgf clwsf/x?sf] af/]df hfgsf/L /fVg] /
To;sf] k|of]u ug]{ xf] eg] nufgL;DaGwL w]/} ;d:ofx? ;lhn} ;dfwfg x'g ;Sb5 . To;}n]
olb tkfO{ klg z]o/wgL x'g'x'G5 jf nufgL ug]{ ;f]rdf x'g'x'G5 eg] cfkm\gf] clwsf/ af/]df
;hu x'g'xf];\ . tkfO{+sf] ;hstfn] tkfO{+nfO{ dfq geO{ ;Dk"0f{ lwtf]kq ahf/nfO{ g} nfe
k'¥ofO/x]sf] x'G5 .
***
;fj{hlgs ;+:yfg lghLs/0f / lwtf]kq ahf/
-k'ik a?jfn
!= k[i7e"ldM
ljZjdf bf];|f] ljZj o'4sf] ;dflKt;Fu} o'4df ;+nUg /fi6«x?df cfjZos b]lvPsf j:t'x?sf]
pTkfbg, /f]huf/Lsf] cj;/ l;h{gf tyf /fh:j j[l4 u/L /fi6«sf] b|'Qf]t/ ljsf; ug{] p2]Zon]
;fj{hlgs ;+:yfgx?sf] :yfkgf ePsf] kfOG5 . To;a]nf pBf]u Joj;fosf] :yfkgf tyf
;~rfng /fHo :jo+af6 x'g] / pTkfbg tyf ljt/0f h:tf sfo{df cfkm\gf gful/sx?nfO{
;xefuL u/fOg] wf/0ffaf6 k|]l/t eO ;+:yfgx? :yfkgf ePsf] kfOG5 . o;} cg'?k g]kfndf
klg ;fj{hlgs ;+:yfgx?sf] :yfkgf x'g yfNof] . t/ ;fj{hlgs ;+:yfgx?df k|lt:kwf{Tds
Ifdtfsf] cefj, nufgLaf6 36\bf] k|ltkmn, a9\bf] /fhg}lts x:tIf]k cflb h:tf sf/0fx?n]
ubf{ clwsf+z ;fj{hlgs ;+:yfgx? :yfkgfsfnsf s]xL jif{kl5b]lvg} qmdzM c;kmn aGb}
uP . Psflt/ o;/L c;kmn aGb} uPsf ;+:yfgx?df /f]huf/ s6f}tLaf6 pTkGg x'g]
;d:ofnfO{ lgd{"n kfg{ ;+:yfg ;~rfng ug{'kg{] jfWotf / ;+:yfgx? ;~rfngsf nflu
/fi6«nfO{ jif{]gL ylkb} uPsf] cfly{s ef/ h:tf sf/0f ;+:yfg ;~rfngsf nflu j}slNks
pkfox?sf] vf]hL ug{'kg{] cfjZostf b]vfkg{ yfNof] eg] csf{]lt/ ;/sf/L :jfldTjdf /x]sf
;+:yfgx?sf] :jfldTj lghL If]qnfO{ x:tfGt/0f ug{] / lwtf]kq ahf/ ;+oGqsf] k|of]u ug{]
cEof; ;d]t a9\b} uof] . kmn:j?k ljZjdf clwsf+z ;fj{hlgs ;+:yfg lghLs/0f k|s[ofsf]
yfngL / ;+:yfgsf] :jfldTjdf ;j{;fwf/0f nufgLstf{ ;xefuL x'g] cj;/ l;h{gf ePsf]
kfOG5 .
@= g]kfndf lghLs/0fsf] Oltxf;M
g]kfndf ;fj{hlgs ;+:yfgx?nfO{ lghLs/0f ug{] ;f]rsf] ljsf; tTsfnLg k~rfotL

Joj:yfd} eP tfklg k|efjsf/L?kdf o;sf] sfof{Gjog eg] d'n'sdf k|hftGqsf]
k'gk|f{lKtkl5 ljz]if u/L lghLs/0f ;ldltsf] u7g / lghLs/0f ;]n (privatization cell) sf
?kdf lghLs/0f OsfOsf] u7g u/L lqmofzLn u/fOg'sf ;fy} lghLs/0f P]g, @)%)
sfof{Gjogdf cfPkl5 ePsf] xf] .

sf=d'= clws[t, lwtf]kq af]8{, g]kfn
d'n'sdf 5}7f}+ k~rjifL{o of]hgf -)#&-)$@_ cjlwdf ;+:yfg lghLs/0f;DaGwL k|of;x?

ePsf] kfOG5 . pQm cjlwdf d'gfkmfljxLg ;+:yfgx?nfO{ laqmL ug{] nIo /flvPsf] ePklg
Tolt pknAwLd"ns x'g;s]sf] b]lvb}g . To;a]nf r08]Zj/L 6]S:6fon pBf]u / g]kfn lrp/L
l3p KnfG6 laqmL ul/Psf] lyof] eg] g]zgn /fO; sDkgL nufotsf s]xL sDkgLx?nfO{
lj36g ul/Psf] lyof] .
lj=;++= @)$@ df tTsfnLg ;/sf/åf/f df ;fj{hlgs ;+:yfg lghLs/0f;DaGwL

Ps jif{leq !@ j6f ;fj{hlgs ;+:yfnfO{ gLlt, 9fFrfx? (Modalities) / ;+:yfgsf]
lghLs/0f ug{] dxTjsf+IfL of]hgf cl3 k|zf;sLo ;+oGq (administrative
;fl/of] . t/ pQm of]hgf k"0f{?kdf mechanism) ;DaGwdf Ps gLltkq
sfof{Gjog x'g eg] ;s]g . To;a]nf (policy paper) hf/L eof] .
/fli6«o jfl0fHo a}+s, /fli6«o aLdf ;+:yfg
/ g]kfn cf}Bf]lus ljsf; lgud u/L # lghLs/0f 9f“rf
j6f ;++:yfsf] z]o/ laqmL cfx\jfg ul/Psf] ! z]o/ laqmL u/]/
ePtf klg To;k|lt ;j{;fwf/0fsf] pT;fx @ ;xsf/Ls/0f u/]/
Hofb} g} sd b]lvPsf] lyof] . # ;DklQ a]rlavg u/]/
$ ;DklQ ef8fdf lbP/
% Joj:yfkgdf lghLIf]qnfO{ ;xeflu
lj=;+= @)$^ df lghLs/0f sfo{qmdsf] u/fP/
^ lghLs/0f ;ldltsf] l;kmfl/zdf >L %
k|efjsf/L sfof{Gjogsf nflu lghLs/0f sf] ;/sf/n] pko'Qm b]v]sf] cGo s'g}
OsfO u7g ul/of] . ;fy} lj=;+= @)$& dfWod ckgfP/ .
h;cGtu{t klxnf] r/0fdf cfly{s jif{ @)$(.)%) df e[s'6L sfuh sf/vfgf, afF;af/L
5fnf h'Qf sf/vfgf / xl/l;l4 OF6f tyf 6fon sf/vfgfnfO{ lghLs/0f ul/Psf] xf] . To:t}
bf];|f] r/0fcGtu{t cfly{s jif{ @)%).%! df g]kfn rnlrq ljsf; sDkgL, afnfh' sk8f
pBf]u, g]kfn la6'ldg P08 Aof/]n pBf]u, g]kfn No'a cfon ln= / sfFrf] 5fnf ;+sng tyf
lasf; s+= u/L % j6f ;+:yfgx? lghLs/0f ul/of] . xfn;Dd s'n @# j6f ;fj{hlgs
;+:yfgx?sf] lghLs/0f e};s]sf] 5 . h;dWo] # j6f sDkgL ;DklQ laqmL u/]/, !) j6f
z]o/ laqmL u/]/, ! j6fsf] Joj:yfkg s/f/, $ j6fsf] sDkgL P]gcg';f/ vf/]hL, @ j6f
sDkgLx? lghLs/0f P]gcg';f/ vf/]hL / # j6fsf] lj36g u/L lghLs/0f ul/Psf] 5 .
lghLs[t ;fj{hlgs ;+:yfg;DaGwL ljj/0f tflnsf g+= ! df k|:t't ul/Psf] 5 .

tflnsf g+=!
xfn;Dd lghLs[t ;fj{hlgs ;+:yf ;DaGwL ljj/0f
qm=;+= ;+:yfgsf] gfd laqmL d"No -?=xhf/df_ lghLs/0f ldlt lghLs/0f tl/sf
! e[s'6L sfuh sf/vfgf ln= @@(*)) cS6f]a/ !((@ ;Dklt tyf Joj;fo laqmL
@ xl/l;l4 OF6f tyf 6fon sf/vfgf ln= @!$*#) cS6f]a/ !((@ ;Dklt tyf Joj;fo laqmL
# afF;jf/L 5fnf tyf h'Qf sf/vfgf ln= @(*%$ dfr{ !((@ ;Dklt tyf Joj;fo laqmL
$ g]kfn rnlrq ljsf; sDkgL ln= ^$^^@ gf]e]Da/ !((# z]o/ laqmL
% afnfh' sk8f pBf]u ln= !&&!^ l8;]Da/ !((# z]o/ laqmL
^ sfFrf] 5fnf ;+sng tyf k|zf]wg s+= ln= #(() l8;]Da/ !((# z]o/ laqmL
& la6'ldg P08 Jof/]n pBf]u ln= !#!&@ hgj/L !(($ z]o/ laqmL
* g]kfn No'a cfon ln= #!)%& hgj/L !(($ z]o/ laqmL
( g]kfn h'6 ljsf; sDkgL !((# lj36g
!) ;'tL{ ljsf; sDkgL ln= dfr{ !(($ lj36g
!! g]kfn 9nf}6 sf/vfgf ln= !$$&# dfr{ !((^ z]o/ laqmL
!@ /3'klt h'6 ldN; ln= *@@)$ cui6 !((^ z]o/ laqmL
!# la/f6gu/ h'6 ldN; s+= ln= l8;]Da/ !((^ Joj:yfkg s/f/
!$ g]kfn a}+s ln=* !@%!$) dfr{ !((& z]o/ laqmL
!% g]kfn lrof ljsf; lgud @^&!)% h"g @))) lnh tyf z]o/ laqmL
!^ s[lif cfof]hgf ;]jf s]Gb| ln= @))! vf/]hL
!& 3/]n' x:tsnf laqmL e08f/ ln= @))@ vf/]hL
!* g]kfn sf]n ln= @))@ vf/]hL
!( x]6f}8f sk8f pBf]u ln= @))@ vf/]hL
@) g]kfn oftfoft ;+:yfg @))@ lj36g
@! a'6jn kfj/ sDkgL ln= *&$@)) + o' P; hgj/L @))# z]o/ laqmL
8n/ !) nfv
@@ lj/uGh lrgL sf/vfgf ln= @))# vf/]hL
@# s[lif cf}hf/ sf/vfgf ln= @))# vf/]hL
* >L % sf] ;/sf/sf] ax'dt z]o/sf] lx:;fnfO{ 36fP/ $! k|ltztdf NofOPsf] .
;|f]tM cfly{s ;e{]If0f, cfly{s jif{ @)%(.^), >L % sf] ;/sf/ cy{ dGqfno .
#= lghLs[t ;+:yfgsf] k'“hLahf/df k|j]z
cfjZos P]glgodsf] sdL tyf k'FhLahf/df k|j]zsf nflu ;do;fk]If ahf/ ;+oGqsf]
cefj cflb h:tf sf/0fx?n] ubf{ ;fj{hlgs ;+:yfg lghLs/0f sfo{ yfngLsf] nfdf]
;do;Dd lghLs[t ;+:yfgx? k'FhL ahf/df k|j]z u/]gg\ .
lj=;+= @)$) df lwtf]kq sf/f]af/ P]g, @)$) nfu" eof] . h;cGtu{t lj=;+= @)$@ df
g]kfn No'a cfon ln= n] tTsfnLg ;]So'l/6L vl/b laqmL s]Gb|dfkm{t cfkm\gf] ;]o/
;j{;fwf/0fdf laqmL u/]sf] lyof] . tyflk lghLs[t sDkgLx?sf] Jojl:yt?kdf lwtf]kq
ahf/df k|j]z / k'FhL kl/rfngdf lg/Gt/tf eg] lwtf]kq sf/f]af/ P]g, @)$) df k|yd
;+zf]wg eO lwtf]kq ahf/sf] ;+:yfut ljsf;sf] z'?jft;Fu} ePsf] xf] .
cfly{s jif{ @)%).%! df xl/l;l4 OF6f tyf 6fon sf/vfgf ln= n] ?= % s/f]8 #@ nfv /
g]kfn rnlrq ljsf; sDkgL ln= n] ?= @ s/f]8 !( nfv d"No a/fa/sf] ;fwf/0f z]o/
;j{;fwf/0fdf laqmLsf nflu lwtf]kq af]8{df btf{ u/fO lgisfzg cg'dlt lnPsf lyP .
To:t} cfly{s jif{ @)%!.%@ df afnfh' sk8f pBf]u / n]b/]h afF;af/L 6\ofg/L P08 z"
km\ofS6«Ln] ;j{;fwf/0fdf lgisfzgsf nflu lwtf]kq btf{ u/fO cg'dlt lnPsf lyP .
xfn;Dd lghLs/0f ePsf s'n ;fj{hlgs ;+:yfx?dWo] ( j6f ;+:yfx?n] lwtf]kq
ahf/dfkm{t s'n lgisflzt d"Nosf] (=&) k|ltzt cyf{t sl/a ?= %% s/f]8 @^ nfv #)
xhf/ d"No a/fa/sf] k'FhL kl/rfngsf nflu lwtf]kq af]8{af6 cg'dlt k|fKt ul/;s]sf 5g\ .
xfn;Dd ;fj{hlgs?kdf lwtf]kq lgisfzg ug{] lghLs[t sDkgLx?dWo] * j6f sDkgLx?n]

lwtf]kq sf/f]af/sf nflu cfkm\gf lwtf]kqx? lwtf]kq ljlgdo ahf/df ;"rLs/0f u/fPsf
5g\ . ahf/df tL sDkgLx?sf] lwtf]kqsf] s'n r'Stf k'FhL sl/a ?= ! ca{ @$ s/f]8 ^$
nfv @! xhf/ /x]sf] 5 eg] ahf/ k'FhLs/0f sl/a ?= ! ca{ $$ s/f]8 !# nfv ^* xhf/
/x]sf] 5 .
To:t} tL sDkgLx?sf] lwtf]kqsf] jflif{s r'Stf d"No;DaGwL ljj/0f tflnsf g+= @ df

sf/f]af/ (turnover) -cfly{s jif{ k|:t't ul/Psf] 5 .
@)%@.%# b]lv cfly{s jif{ @)%(.^)
cGt;Dd_ l:yltnfO{ x]bf{ s'n jflif{s lghLs/0f ePsf ;"rLs[t sDkgLx?sf] r'Stf d"No tyf
ahf/ k'“hLs/0f l:ylt
sf/f]af/sf] ^=&( k|ltzt cyf{t ?= %$ -?=bznfvdf_
s/f]8 # nfv &) xhf/ d"No a/fa/ lghLs/0f
s'n ;"rLs[t
ljj/0f ePsf ;"rLs[t s'n ;"rLs[t sDkgLdf lghLs[t
/x]sf] 5 . sDkgL
sDkgL sDkgLsf] lx:;f
-%_
r'Stf d"No !@$^=$) (^*%=)$ !@=*&
lwtf]kq ahf/df ;"rLs[t /x]sf lghLs[t
ahf/ !$$!=#$ #$&)#=*& $=!%
sDkgLx?sf] lwtf]kqsf] ahf/ k'FhLs/0f / k'FhLs/0f
tflnsf g+= @
lwtf]kq ahf/df k|j]z u/]sf lglhs[t ;+:yf;DaGwL ljj/0f
;fj{hlgs lgisfzg ug{] lgisfzg lgisflzt ;"rLs/0f ;"lrs[t s'n r'Stf ahf/
lghLs[t ;fj{hlgs ;+:yfx? cg'dlt k|fKt /sd ldlt lwtf]kq d"No k'“hLs/0f
ldlt -?= bznfv_ ;+Vof -?= bznfvdf_ -?= bznfvdf_
g]kfn la6'ldg P08 Aof/]n )%$.%.! &=$) )%^.!.@& @!)^*) @!=)^ @!=)^
pBf]u ln=*
xl/l;l4 OF6f tyf 6fon )%).^.!@ %#=@) )%!.!.@@ !*^%)))) !*^=%) @&=(&
sf/vfgf ln=*
n]b/]h afF;af/L 6\ofg/L P08 )%!.!!.#) !%=)) )%$.!@.!( %))))) %)=)) #!=%)
z" sf/vfgf ln=*
afnfh' sk8f pBf]u ln=* )%!.(.( &=%) gu/fPsf] - - -
g]kfn rnlrq ljsf; s+=* )%!.@.@@ @!=() )%#.#.#! $$^^@# $$=^^ @)=)(
e[s'6L kNk P08 k]k/ g]kfn )%@.*.!( !)%=)) )%$.%.!* #%))))) #%)=)) @!)=))
ln=*
a'6an kfj/ sDkgL ln=* )^).!).@& !))=^* - - - -
g]kfn No'a cfon ln= @)#(#^ @)=#( *!=%&
/3'klt h'6 ldN; )$%.#.# !!$)&)$) !*@=%! !*@=%!
g]kfn a}+s ln=¤ )%$.*.!@ @$!=(% )$@.^.& #*,)@,*$^ #*)=@* *%%=^$
la/f6gu/ h'6 ldN; ln= )$#.*.@( ^*&%) !!=)) !!=))
hDdfM %%@=^# #*&*(*&% !@$^=$) !$$!=#$
¤ xsk|b z]o/ lgisfzg . * lwtf]kq af]8{df lwtf]kq btf{ u/fO lgisfzg cg'dlt k|fKt u/]sf sDkgLx? .
$= k'“hL ahf/df k|j]z u/]sf lghLs[t ;+:yfgsf] sfo{;Dkfbg l:ylt
;fj{hlgs ;+:yfg lghLs/0f ug{'sf] p2]Zo ;f] ;+:yfgsf] sfo{ ;Dkfbg l:yltdf ;'wf/ NofO
k|ult tyf pGgltdf clej[l4 Nofpg' klg xf] . s'g} klg lghLs[t sDkgLsf] sfo{;Dkfbg
:t/n] pQm sDkgLdf nufgLsf nflu lghL If]qdf pT;fx k}bf u/fpg] / ;j{;fwf/0f
nufgLstf{nfO{ ;d]t tL sDkgLsf lwtf]kqx?df nufgL ug{ cfslif{t u/fpg] x'Fbf lghLs[t
sDkgLx?sf] sfo{;Dkfbg :t/ /fd|f] x'g' Hofb} g} dxTjk"0f{ x'G5 . t/ xfn;Dd lghLs/0f
ul/Psf ;fj{hlgs ;+:yfgx?sf] sfo{;Dkfbg l:yltnfO cWoog ug{] xf] eg] clwsf+z
lghLs[t ;+:yfgsf] sfo{;Dkfbg ;Gtf]ifhgs / ;sf/fTds b]lvb}g . cfly{s jif{ @)%*.%(
sf] cjlwnfO{ dfq cwf/ dfg]/ x]g{] xf] eg] klg o; cjlwdf lwtf]kq ahf/df k|j]z u/]sf
s'n lghLs[t sDkgLx?dWo] g]kfn No'j cfon ln=, g]kfn la6'ldg P08 Aof/]n pBf]u ln= /
/3'klt h'6 ldN; ln= sf] ;~rfng glthf ;sf/fTds b]lvPsf] 5 eg] afFsL sDkgLx?sf]
glthf gsf/fTds /x]sf] kfOG5 . lwtf]kq ahf/df k|j]z u/]sf lghLs[t sDkgLx?sf] k|ult
ljj/0f b]xfosf] tflnsf g+= # df k|:t't ul/Psf] 5 .
tflnsf g+= #
lwtf]kq ahf/df k|j]z u/]sf lghLs[t sDkgLsf] gfkmf gf]S;fg l:ylt
-?=bznfvdf_
;+:yf lghLs/0fcl3 lghLs/0fkl5 cf=j=@)%*.%( df
>L g]kfn a}+s ln= -#)&!=#)_
>L e[s'6L kNk P08 k]k/ ln= $=#) %=** -!!)=@$_
xl/l;l4 OF6f 6fon sf/vfgf ln= !=^% -@)=@*_
n]b/]h afF;jf/L 6\ofg/L z' km\ofS6«L ln= )=$* )=!#
g]kfn rnlrq ljsf; sDkgL -*=^&_ )=@%
afnfh" sk8f pBf]u -%=%^_ -)=@_
g]kfn la6'ldg P08 Aof/]n pBf]u ln= -$=^#_ %=#* )=($
g]kfn No'j cfon ln= )=^) !&=!$ ^=@@
>L /3'klt h'6 ldN; !!# -#=!*_ %=#$
ælghLs/0fkl5Æ zJbn] lghLs/0f ePsf] kl5Nnf] jif{nfO{ ;+s]t ub{5 .
;|f]tM Business age vol. 2 No 3 February, 2000 -lghLs/0f OsfO, cy{ dGqfno_
cfly{s jif{ @)%*.%( df g]kfn la6'ldg P08 Aof/]n pBf]u ln=n] cfkm\gf] pTkfbg tyf
ljt/0f b'j}df cf}ift j[l4 u/]sf] sf/0f cl3Nnf jif{x?df gf]S;fgdf ;~rfng x'Fb} cfPsf] o;
pBf]un] pQm cfly{s jif{df sl/a ?= ( nfv $) xhf/ d'gfkmf cfh{g ug{ ;kmn b]lvPsf]
5 . pQm cfly{s jif{df >L /3'klt h'6 ldN; ln= n] sl/a ?= %# nfv $) xhf/ v'b
d'gfkmf u/]sf] 5 eg] g]kfn No'j cfon ln= n] sl/a ?= ^@ nfv d'gfkmf u/L cfkm\gf
nufgLstf{x?nfO{ r'Stf k'FhLsf] !% k|ltzt gub nfef+; ljt/0f ug{ ;d]t ;kmn ePsf]
b]lvG5 . t/ lghLs/0f x'g'cl3 @^^% d]l6«s 6g sfuh pTkfbg u/L sl/a ?= $# nfv
d'gfkmf cfh{g u/]sf] / lghLs/0fkZrft klg pTkfbg tyf ljt/0f nufot sfo{;Dkfbg
l:yltdf ;'wf/ NofO{ d'gfkmf cfh{g ug{ ;kmn /x]sf] >L e[s'6L kNk P08 k]k/ ln= eg]
ljut s]xL jif{b]lv eg] lg/Gt/ 3f6fdf ;~rfng x'Fb} cfPsf] 5 . cf= j= @)%*.%( sf]
jf;nft x]g{] xf] eg] pQm cfly{s jif{df dfq ;f] sDkgL sl/a ?= !! s/f]8 3f6fdf /x]sf]
b]lvG5 . To:t} g]kfn a}+s lnld6]8 klg lg/Gt/ 3f6fdf ;~rflnt 5 . pQm cfly{s jif{ df
o; a}+s ?=# ca{ &! s/f]8 3f6fdf /x]sf] k|jflxt ljj/0fx?n] b]vfpF5g\ . xfn o; a}+ssf]
sfo{;Dkfbg tyf Joj;flos bIftfdf j[l4 Nofpg a}+ssf] Joj:yfkg ljb]zL lj1nfO{
s/f/df lbOPsf] 5 . lghLs/0fk"j{ ;~rfngdf /x]sf] n]b/]h afF;af/L 6\ofg/L P08 z"
km\ofS6«L lnld6]8 / lghLs/0fkl5sf s]xL jif{;Dd ;~rfngdf /x]sf] afnfh' sk8f pBf]u
lnld6]8sf] pTkfbg xfn nueu aGb cj:yfdf /x]sf] 5 .
%= P]glgod kfngf l:ylt
lwtf]kq ahf/df k|j]z u/]sf lghLs[t sDkgLx?dWo] w]/}h;f]df lwtf]kqsf] ;"rLs/0f

u/fpg], jflif{s ;fwf/0f ;ef ug{] tyf cfly{s tyf ljQLo ljj/0fx? k|jfx ug{] h:tf
k|rlnt P]glgoddf pNn]lvt Joj:yfx?sf] kfngf;DaGwdf pbfl;gtf /x]sf] kfOPsf] 5 .
lwtf]kq ;fj{hlgs lgisfzg u/]kl5 lgisflzt lwtf]kq afF8kmfF6 ePsf] $% lbgleq pQm
lwtf]kq sf/f]af/sf nflu lwtf]kq ahf/ (Stock Exchange) df ;"rLs/0f ug'{kg{] Joj:yf
lwtf]kq btf{ tyf lgisfzg cg'dlt lgb{]lzsf, @)%& n] u/]sf] 5 . t/ n]b/]h afF;af/L
6\ofg/L P08 z" km\ofS6«L lnld6]8 nufotsf s]xL sDkgLx?n] tf]lsPsf] cjlweGbf w]/}
kl5dfq lgisflzt lwtf]kqx? ;"rLs/0f u/fPsf 5g\ eg] cfly{s jif{ @)%!.%@ =df
;fj{hlgs lgisfzg u/]sf] afnfh' sk8f pBf]u ln=n] xfn;Dd klg lwtf]kqx? ;"rLs/0f
u/fPsf] 5}g .
To:t} sDkgLsf] ;fwf/0f ;ef ;DkGg ug{] / cfkm\gf cfly{s tyf ljQLo ljj/0fx? k|jfx ug{]
h:tf k|rlnt P]glgoddf tf]lsPsf Joj:yfx?sf] ;d]t pT;fxhgs?kdf kfngf ePsf]
kfOb}g . cfly{s jif{ @)%(.^) sf] cjlwnfO{ dfq x]g{] xf] eg] klg lwtf]kq ;"rLs/0f
u/fPsf * j6f lghLs[t sDkgLx?dWo] g]kfn a}+s ln=, >L e[s'6L kNk P08 k]k/ ln=,
n]b/]h afF;jf/L 6\ofg/L P08 z" km\ofS6«L ln=, xl/l;l4 O{6f tyf 6fon sf/vfgf ln= /
g]kfn rnlrq ljsf; sDkgLn] lgodfg';f/ ;DkGg ug{'kg{] jflif{s ;fwf/0f ;ef u/]sf
5}gg\ . g]kfn la6'ldg P08 Aof/]n pBf]u ln=, >L /3'klt h'6 ldN; ln= / g]kfn No'a
cfon ln= nufotsf sDkgLx?n] tf]lsPsf] ;dofjlweGbf kl5 dfq s]xL cl3Nnf cfly{s
jif{x?sf] ;fwf/0f ;ef u/]sf 5g\ .
o; k|sf/ lghLs[t sDkgLx?df b]lvPsf] lau|bf] sfo{;Dkfbg l:ylt tyf tL sDkgLx?n]

P]glgod kfngf;DaGwdf b]vfPsf] pbfl;gtf h:tf s'/fx?n] Psflt/ ;fj{hlgs ;+:yfg
lghLs/0f ug{] ;/sf/L gLlt g} unt xf] sL eGg] ;f]r ljsl;t x'g d2t k'¥ofpFb5 eg]
csf{]tkm{ lghLs[t sDkgLsf] lwtf]kqdf nufgL]sf nflu OR5's nufgLstf{x?nfO{ To:tf
sDkgLx?df nufgL;DaGwdf ljsif{0f k}bf u/fO ;du| k'FhL ahf/df g} gsf/fTds c;/
kfg{;Sb5 .
^= ;d:of tyf r'gf}ltx?
;fj{hlgs ;+:yfgsf] lghLs/0f ;DaGwdf b]lvPsf k|d'v ;d:of tyf r'gf}ltx? b]xfo
adf]lhd /x]sf 5g\ .
 w]/}h;f] ;fj{hlgs ;+:yfgx? lghLs/0f ul/Fbfsf] p2]Zo k|flKtdf c;kmn b]lvPsf
5g\ / clwsf+z ;+:yfgsf] ;~rfng glthf ;Gtf]ifhgs b]lvPsf] 5}g .
 lghLs/0f ubf{ ePsf ;Demf}tf tyf zt{x?sf] kfngf;DaGwdf lghLs[t sDkgLx?
pbfl;g /x]sf] kfO{G5 . o:tf ;Demf}tf tyf zt{x?sf] kfngfsf ;fy} lghLs[t
sDkgLx?sf] ;~rfng l:ylt, ;~rfng glthf, ltgsf] pTkfbg tyf ljt/0fsf] l:ylt
cflb ;DaGwdf ;d]t lgoldt cg'udg x'g ;s]sf] b]lv+b}g .
 clwsf+z lghLs[t sDkgLx?df k|rlnt P]glgodsf] kfngfsf] l:ylt sdhf]/ /x]sf]
b]lvG5 .
 lghLs[t sDkgLsf] lwtf]kq laqmL ubf{ lwtf]kq ahf/sf] k|of]u ug]{ ;DaGwdf :ki6
Joj:yfx? eO{;s]sf] 5}g .
&= pk;+xf/
;fj{hlgs ;+:yfgsf] lghLs/0f d'n'ssf] ;jn cy{tGq lgdf{0fsf] nflu pkof]uLl;4 b]lvb}
cfPsf] Pp6f cEof; ePtf klg of] Ps r'gf}ltk"0f{ sfo{ xf] . lghLs/0fsf] ;lx cEof; /
sfof{Gjogaf6 lghL If]qnfO{ pBf]u Joj;fodf nufgL ug{ dxTjk"0f{ cj;/ k|fKt x'g'sf]
;fy} ;du|df b]zsf] /fh:j tyf /f]huf/L clej[l4 ug{ dxTjk"0f{ of]ubfg k'Ub5 . lghLs/0f
ul/g] ;fj{hlgs ;+:yfgx?df a9LeGbf a9L hg;xeflutf a9fO{ art kl/rfng ug{
lwtf]kq ahf/ Ps pko'Qm dfWod ePsf] k[i7e"ldnfO{ dgg\ u/L lghLs/0f;DaGwL
sfdsf/jfxLnfO{ lwtf]kq ahf/dfkm{t cufl8 a9fpg ;lsPdf b]zsf] cfly{s ljsf;df yk
ultzLntf k|bfg ug{ d2t k'Ub5 .
=================================
;Gbe{ ;fdfu|Lx?M
!= lghLs/0f k|s[ofM s]xL ;jfn hjfkmx? ->L % sf] ;/sf/, cy{ dGqfno, .
@= lghLs/0f P]g, @)%)
#= Privatization of Public Enterprises in Nepal - ;]jf lgj[Q sd{rf/L kl/ifb, /fi6« ;]js jif{ !, c+s .
$= g]kfndf ;fj{hlgs ;+:yfgsf] lghLs/0fM ;Defjgf / r'gf}ltx? -lx/0o lg/f}nf, g]kfn /fi6« a}+s, ljz]iffª\s .
%= jflif{s k|ltj]bgx? -lwtf]kq af]8{ .
^= Trading Reports- Nepal Stock Exchange Ltd.
&= New Business age Vol 2 No 3 February 2000
***

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SEBO Journal

Vol. I Special Publication June 2004

Securities Board, Nepal

Towards Good Corporate Governance

- Deepak Raj Kafle

1.1 Transparency, accountability, information disclosures and stringent ethics

1.2 In today's liberalized environment, corporate sector demands reduced

2. As a regulator, Securities Board (SEBO) wants to see improved image of

corporate governance. This infrastructure and capacity building program

Consistent legal framework

2.1 Improved corporate governance emanate from consistent legal framework.

2.3 SEBO's role as an effective regulator can be realized through enhanced

These initiatives also include developing and prescribing corporate

2.5 To supplement stock exchange efficiency, Central Depository System, a

2.7 Improved financial transparency and disclosure is the basis of sound

2.8 Another set of reform is taking place in improving legal enforcement

resolution are the initiatives that would be helpful, although indirectly, to

2.9 The legal and institutional framework is evolving to become progressively

3 Survey on Corporate Governance

3.1 SEBO conducted a survey on corporate governance practices by collecting

3.2 Promoter domination, separation of chairman and CEO in most of the

3.4 The respondents are in favour of upgrading accounting standards. They

3.5 The responsibilities of the board regarding social, ethical and

While appreciating the above-mentioned views of corporate directors and

The Board of Directors

4.2 It is important to ensure that financial disclosures and statements are

pollution and labour problems. The board is expected to be effective when

4.5 Directors' report should have Management Discussion and Analysis

4.7 Publication of mandatory financial disclosures such as annual and half-

Reporting and compliance Arrangements

The shortcomings of accounting earnings have motivated a number of recent

(1994) observed positive relationship between profitability and dividends.

The general conclusion of the above-mentioned empirical studies is that stock

 What are the relationships of stock returns with fundamental variables?

The remainder of this paper is organized as follows. Section 2 describes research

Nature and sources of data

S.N. Name of the Companies Study period Observations

The study, among others, attempts to estimate various econometric models to

R = f(E/P, LS, B/M, C/P) …(I)

The equation to be estimated has, therefore, been specified as under:

R = a + b1(E/P) + b2(LS) + b3(B/M) + b4(C/P) + Ui …(II)

The independent variables are specified as under:

In panel A of Table 2, the portfolios sorted by earnings yield have been

Furthermore, size variable is negatively related with earnings yield, whereas,

Panel A: Sorted by Earnings to Price (E/P) Ratio

C/P (percent) 22.86 14.33 14.02 10.22

Models Intercept Regression Coefficients of R2 SEE F

Models Intercept Regression Coefficients of R2 SEE F

Models Intercept Regression Coefficients of R2 SEE F

Models Intercept Regression Coefficients of R2 SEE F

This study addressed fundamentals of stock returns in the context of Nepal. It

- Dr. Bijay K.C.

A country’s financial system may be bank-dominated or market-oriented. Each

Growth of Financial Sector in Nepal

securities. However, visible impact on the development of financial sector was

Stock Market Development and Long-term Growth

Although the role of financial sector in the economic development of a nation

By encouraging acquisition and dissemination of information, stock markets

Stock markets help expansion of economic activity by providing liquidity to

Indicators of Stock Market Development in Nepal

1. Stock market size

Literature in finance examines the relationship between various attributes of

Stock Market Size