New Stock Exchange: Pros and Cons

New Stock Exchange: Pros and Cons

By Republica

February 24, 2025 at 7:10 AM

The Securities Board of Nepal (SEBON) has expedited groundwork for creating a second stock exchange following a green light by the Cabinet in December. A task force commissioned by the then government in 2015 had advised the government to privatize NEPSE to enhance market efficiency, five years after the government announced expediting NEPSE's privatization through the budget speech. The government decision to create an alternative secondary market was challenged in the Supreme Court through a writ petition, which the country's Apex court dismissed in April 2023. The parliamentary finance committee has also approved the new stock exchange.

The new stock exchange is expected to function alongside the NEPSE, in business since 1994. NEPSE as the sole stock trading platform in Nepal, has faced criticism mainly for slow growth and the outdated technology that it uses. The lack of competition has perceivably  rendered NEPSE cumbersome and less efficient. A new stock exchange is intended to promote market competition. In principle, the entry of a new player will not only push NEPSE to upgrade its systems, reduce inefficiencies and improve investor services, but will also benefit the investors in a variety of ways.  Currently, NEPSE is dominated by the banking and hydropower sectors. The real-sector industries such as manufacturing, agriculture, and technology are under-represented. The idea of a new stock exchange has met with resistance right from the beginning. Stockbrokers, government bodies, political parties and investors have been divided on the issue. Worse still is the fact that the line of arguments coming from all sides seems to defy sound logic and reasoning, making many wonder –  or doubt –  whether it is meant to serve the purpose of vested interest groups only. The hypothesis that inducting a new player could trigger market fragmentation is not invalid. Any failure to manage the new player properly may split liquidity, making it even more difficult for investors to trade stocks efficiently.