G

H
H

F
C

B
D

E
Ans 1: Though NEPSE’s history doesn’t hail long back, but still there has been substantial numbers of
market ups and downs in these years . Some of the major bubbles and crash are explained below:

A) The rise in the stock prices after 2005 was caused by financial transactions made by banks especially
in the real estate sector. Much of the increase in the prices can be attributed to some serious
speculation made by some market participants. The entire market is influenced by baseless hearsays
and rumors floating around. There seems to be unreasonable amount of speculation which causes
movement in the stock market.

B) Many investors thought US market crisis will always bring down Nepalese stock market. Such
misconceptions actually can be self-fulfilling as stock markets work on public confidence and behavioral
aspects of investors. Thus, the economic crisis in 2007-08 in US banking sector led the crash in the
Nepalese stock market as well.

C) The stock market boomed in the year 2008 when NEPSE Index jumped over 300 points from the last
year. This could be related to the fact there was introduction of marginal lending. Margin lending is a
new concept in stock market history of Nepal. Margin lending involves loans extended to shareholders
against share certificate as collateral. When the stock market peaked, margin lending reached historic
high at 5 percent of the total loan portfolio and 30 percent of the stock market.

D & E) As credit growth slowed and real estate market started cooling down, banks struggled because of
their investments in real estate sector. The share prices also came crashing down after a steep climb.
The overvalued stocks fell to their real value.

F) The bullish market post 2015 is related to investors' expectation of stock dividends as bank and
financial institutions (BFIs) as well as insurance companies are planning to raise paid-up capital, cheaper
financing facility at low interest rates, and market reforms initiated by Sebon. In between these the
market crashed few times due to devastating earthquakes on April and Indian Blockade during
September.

G) The crash of 2016-17 was huge. Though there was coalition between UML and Maoist for the coming
election, people had presumed that their government will reform the economic condition in the
country. However the remarks from Finance Minister regarding ‘not to encourage banking institutions’
to lend money for investment in stock market dampened these hopes. Then the market crash was so
huge that NEPSE had to put circuit breakers to stop the trading for that day. Millions of investors money
was evaporated with in such small time frame.

H) Introduction of ASBA system and online trading system spread positive vibe amongst the investors
about reform in the stock market by attracting more investors and NRNs in the stock market. Brokers
also reacted positively to decentralize the secondary market and open branch offices throughout the
nation.

I) Unfavourable competition in providing higher interest rates , failure of online trading system,
ineffective regulatory performance has led to the overall decline of market in the latest time.
2. Insider Trading, according to Securities Act 2007, refers to dealing in securities on the basis of any
insider information or notice that are unpublished, capable of affecting the price of such securities if
such information or notice is disclosed. SEBON with an aim to curb insider trading in developing
Nepalese capital market has introduced provision relating to insider trading.

The Section 9 of the Securities Act, 2007 makes various provisions inorder to define all aspects that are
considered as insider trading. First of all it defines who can be called as insiders, who can have the
information not published. Further it explains the conditions under which the informations are deemed
to have been made public. Moreover it explains the nature of transactions and information that are void
by the Act and are a punishable offence.

The Act further explains the punishment to the convicts which are summarized below:

 Person commiting insider trading will be liable to a punishment with a fine equal to the
amount in controversy or with imprisonment for a term not exceeding one year or with both
punishments
 Any person involved in False trading, fluctuation in price or activities to affect stock exchange,
such person will be liable to the punishment with a fine of Rs 50,000 to Rs 100,000 or with
imprisonment for a term not exceeding one year or with both punishments, and where any
one has suffered any loss or damage from such an act, such loss or damage has also to be
recovered.
 If a person supplies misleading information, is involved in fraudulent transactions or
encourages others to do or destroys the document and records will be liable to the
punishment with a fine of one Rs 100,000 to Rs 300,000 or with imprisonment for a term not
exceeding two years or with both punishments, and where any one has suffered any loss or
damage from such transactions, such loss or damage shall also be recovered.

As the Nepalese market is still in it’s growing phase and all the mechanism and regulations haven’t been
established to its full potential, the participants of the market, i.e. investors, brokers or the board
members of the listed companies, are at times involved in activities that affect the stock trading. Some
of the incidents of insider trading from Nepalese stock trading are:

 The Securities Board of Nepal (Sebon) had barred Pragyan Securities from stock trading, after
the brokerage was found leaking confidential information to its clients that was yet to be
made public by the listed company, Civil Bank, regarding the issuance of rights shares of to
investors.
 Kalika Laghubitta (KMCDB) has been suspected of insider trading recently. The BOD of KMCDB
conducted meeting regarding issuance of 75% right share to it shareholders on 2nd of Jan,
2019. However, the information was provided to NEPSE and made public only on 3rd of Jan.
But in contrary it seems that the information/hint was already provided to some investors in
the market. The price of KMCBD share increased by almost 10% for two continuous days, i.e.
1st and 2nd of Jan for the final trading price of Rs 1104 from Rs 907.
 These are mere few cases of insider trading that are known to general public. There are so
many other instances where big players in the market, brokers and other insiders are
constantly influencing the market by leaking the information via personal groups in FB, Viber
or other instant messaging apps to disseminate such information. NEPSE and SEBON are trying
to curb such activities through the implementation of the act, but seems very poor in the
execution.

3.

The list of price sensitive information that needs to be disseminated by the companies to the investors
are as follows:

 A corporate have to get a prospectus approved by the Board for making public issue of securities
which contains such general matters as required to be set down in the prospectus, capital and
other information of the issuer, main functions to be done by the issuer, information pertaining
to legal action, economic condition, general administration, management of the issuer,
information relating to the expert preparing the prospectus and the economic statements
contained in the prospectus
 Audited annual reports/ financial statements within 5months of an end of financial year
 Publication of performance indicators like EPS, ROA, ROE, liquidity ratio and so on every quarter
or within 30 days of end of that period
 Book Close date before 7 days of such date
 Any information critical to stock price should be disseminated on same day or before trading
hour on next day
 Decisions on dividend (cash or stock), bonus shares, right shares or additional shares should be
provided immediately along with the time of such decision
 Details on above decisions like price, number, ratio and book close date should also be provided
 Immediate information on assets purchased above Rs 10 crores
 Information regarding change in BOD, Auditor, CEO, CS and other important members
 Any liabilities above Rs 10 crores likely to be payable after court decisions.

Inclusion of such provisions are in the interest of protecting the shareholders’ right to get timely
information. In most of the cases we can see that the information are provided on timely nature by the
listed companies. However, there are instances where companies are not complying with the
regulations and byelaws under the act. For recent instance, Kalika Laghubitta Bittiya Sanstha Limited (
KMCDB ) decided on issuing 75% right share to its shareholders and thus provided information to
NEPSE. However, NEPSE suspended trading of its share and has asked for clarifications on timing of its
BOD meeting and on delay of information sharing to the public. Thus, the role of NEPSE as a regulatory
body is to be very watchful on these aspect of information dissemination.
In Nepalese market, I think almost all of the information listed above causes over reaction from
investors side. Any announcements on dividend, right share, or share capital increment causes investors
to hurry onto buying the shares of such companies. Also appointment of CEO also impacts share price to
some extent. Further, we also see volatility in share prices when the company publish their annual
reports. People look into the fundamental parameters and make judgment on what should be share
price for that company. As many investors trade in hearsay and rumors, we can expect that none of such
information causes under reaction in our market.