Long wait of FIIs, NRNs end, can invest in secondary market

Arrangements will be made to allow Non Resident Nepalis (NRNs) and Foreign Institutional Investors (FIIs) to invest in the secondary securities market, as promised in last year's budget.
However, the finance ministry has not yet forwarded any regulation or modality on how to allow NRNs and organised foreign investors to invest in the sole secondary market.
"The draft Act for FIIs is ready but it has reached nowhere due to political instability," said a senior official at the finance ministry, adding that the ministry had also done homework on modalities of how to allow NRNs to invest in the secondary market, Nepal Stock Exchange Ltd (Nepse). "It is not only an economic but a political issue also. Political instability has pushed it back as it has to be passed by the parliament," he added.
Experts opine that investment by FIIs and NRNs will fuel the capital market as they will bring more capital to the market that has more than Rs 3 trillion market capitalisation. "It will also create institutional investors, something that our capital market lacks," they said.
Chairman of Securities Board of Nepal (Sebon) Dr Chiranjivi Nepal said Sebon had prepared a preliminary draft and submitted it to the finance ministry. "Nepal Rastra Bank (NRB) needs to change some of its regulations," he said adding that the basic infrastructure for NRNs and FIIs to allow invest in the secondary market is paperless trading, i.e. installation of central depository system (CDS). "The private sector is interested in helping Nepse instal CDS. Most probably, the installation of CDS will be mentioned as a priority item in the present budget," Dr Nepal said.
"We have suggested to the government to allow NRNs and FIIs to allow invest in the secondary market," Nepse general manager Rewat Bahadur Karki said adding that physical infrastructure like automation and wide area network (WAN) have been developed for the purpose.
"We need to develop Internet trading for them to invest," he said adding that Nepse was working on client support software and modalities of central depositary system (CDS). "Then, we can invite FIIs and NRNs to invest in the secondary market," he said.
Nepse has also prepared some preliminary modalities of how NRNs and FIIs can invest. These modalities are still under discussion. "According to that, NRNs have to open accounts in commercial banks before investing in the secondary market," he said.
Also, how NRNs and FIIs can take back their earnings with them is another burning issue that needs proper tackling.
Meanwhile, there is yet another Act waiting in the wings because it also needs parliament's approval. The Draft Regulation of Mutual Funds is in the pipeline. According to the draft, Mutual Funds can also invest 50 per cent of their capital in foreign countries. "It is delayed due to the lack of a Trustee Act that in its own turn needs parliament's approval," said the ministry source.