Kathmandu, July 31: The CDS and Clearing Limited (CDSC) is preparing to implement a new policy that classifies dematerialized (electronic) securities of listed companies into two categories: promoter shares and public shares.
To enforce this classification, CDSC has drafted the Securities Dematerialization Operating Directive 2082 and submitted it to the Securities Board of Nepal (SEBON) for approval.
Under this new directive, all sectors—not just banks, financial institutions, and insurance companies—will be required to assign separate International Securities Identification Numbers (ISINs) to promoter and public shares. ISIN is a unique identifier used to manage electronic securities.
This proposal has sparked mixed reactions. While groups representing independent power producers and large promoter shareholders have opposed the move, retail investors have welcomed it, saying it will enhance market transparency and investor protection.
What will change?
If approved, the directive will mandate that companies assign separate ISINs for promoter and public shares as stated in their memorandum and articles of association. Currently, this system applies only to banks, financial institutions, and insurance companies, where promoter and public shares are separately listed and cannot be traded interchangeably.
For other sectors, both types of shares are currently issued under a single ISIN, even though founder shares are locked in for three years and cannot be traded during that time. After the lock-in period ends, founder shares are automatically converted into public shares and become freely tradable, often without any regulatory process. The new directive aims to eliminate this automatic conversion and require formal approval before such shares can be traded.
Impact and controversy
According to the Independent Power Producers’ Association of Nepal (IPPAN), this policy could negatively affect Rs 87 billion worth of shares across 58 companies, including 47 hydropower projects. They argue that this policy may jeopardize Nepal’s goal of producing 28,500 Megawatt of electricity within a decade.
Key features of the directive
- Separate ISINs: All companies must maintain distinct ISINs for founder and public shares.
- Mandatory approval: Founder shares cannot be converted into public shares without regulator approval after the lock-in period.
- Transparency and tracking: The system will enable better data recording and traceability.
- Market stability: Prevents mass dumping of founder shares into the market, which often causes share prices to crash.
Meanwhile, CDSC officials have said the directive is crucial for strengthening investor confidence and market discipline. She emphasized that CDSC has the legal authority to implement operational rules as per the Securities Central Depository Services Regulations 2076 BS.
CDSC has historically issued two ISINs to a handful of non-bank companies like Kalinchowk Cable Car, Emerging Nepal, and Citizen Investment Trust. With the proposed directive, CDSC aims to standardize ISIN issuance for all sectors and eliminate inconsistencies. #nepal #cdsc #sharemarket #promoter
