NEPSE rises amid volatility, greenlight for Margin Trading framework for investors

The stock market ended Thursday’s session on a positive note, with the NEPSE index rising 14.21 points to close at 2,950.16. Despite intraday fluctuations, the market finished in the green.

Total turnover reached NRs 13.16 billion, down from NRs 15.09 billion the previous day, with over 30.4 million shares traded across 343 listed companies.

The week ended with the NEPSE index gaining 73.13 points compared to the previous week, while weekly turnover totaled NRs 82.47 billion.

Of the traded companies on Thursday, 178 saw their share prices increase, 80 declined, and 8 remained unchanged. Five companies, Reliance Spinning Mills, Super Khudi Hydropower, Hotel Forest Inn, Solu Hydropower, and Bhujung Hydropower, hit the positive circuit limit. Panchakanya Mai Hydropower recorded the largest decline at 7.78%.

Sector-wise, 10 out of 13 sub-indices posted gains, led by the hydropower sector with a 1.56% increase. Development banks, life insurance, and trading sectors closed lower.

NRN Infrastructure topped turnover charts with trades worth NRs 942.9 million, followed by SY Panel at NRs 719.2 million.

Margin trading framework rolled out

NEPSE and brokerage firms are now fully prepared to implement margin trading, which is expected to boost liquidity and provide investors with new trading opportunities.

In a major development, NEPSE has approved the margin trading framework under SEBON’s framework. SEBON had approved a new Margin Trading Facility Directive that formally allows investors to borrow money from brokers to purchase shares in the second week of February.

On Thursday, NEPSE approved a framework to operationalise the same. Investors can now borrow funds directly from brokers to trade shares, a facility previously available primarily through banks. Brokers can provide loans using their own funds, bank borrowings, or unsecured shareholder loans within prescribed limits.

Read here, what’s in the directive: SEBON’s another attempt at changing how stocks are traded in Nepal

Key features of the framework

• Regulatory backing: The framework follows the Margin Trading Facility Directive 2082, covering investor verification, margin calls, settlement, and share liquidation procedures.
• Broker approval: Firms must submit board resolutions and documentation to NEPSE to provide margin services. NEPSE reviews applications, issues licenses if criteria are met, and notifies SEBON. Licenses are renewable annually.
• Investor accounts: Investors must open dedicated margin trading accounts with brokers. Brokers can set separate maintenance margins in special cases such as rights share issuance.

Eligibility and risk management

Margin trading is limited to listed companies meeting strict criteria: at least 2.5 million publicly floated shares, net worth equal to or exceeding paid-up capital, profitability in two of the last three years, and a minimum of two years post-IPO listing.

If maintenance margins are not met, brokers may issue a margin call giving investors seven trading days to restore the required margin. Failure to comply allows brokers to liquidate securities from the account starting the eighth trading day.

For corporate actions like mergers or share suspensions, brokers may demand additional collateral. Conversely, investors may withdraw excess funds or shares if market values exceed initial margin requirements.

Settlement and compliance

• Brokers must maintain margin settlement accounts with CDS and Clearing Limited (CDSC).
• All margin transactions must be clearly identified during trading, settlement, and clearing.
• Brokers are required to maintain detailed records and submit audited reports annually to NEPSE and SEBON within three months of the fiscal year-end.
• NEPSE will monitor and inspect brokers to ensure compliance.
• Fees apply for transferring shares from regular accounts to margin accounts.