Bullish Market and Amazing Changes
By Rabindra Bhattarai
These days one can easily observe not only a bullish trend in the stock market but also aggressive changes in the Nepse systems. Over the last one year period, Nepse index jumped by more than 80 percent, similarly the activities which are carried out to increase the efficiency of the Nepali capital market are also running at a bullish speed. The bullish trend of Nepse is not new one, but some changes already effected and others which are under consideration are really difficult to believe to be true.
Probably very few individuals might have imagined that modernization of the trading mechanism in the Nepse would come so fast. However, age old open-out-cry system has finally put into the vault. Not only this, there are many other amazing changes which are already effected and under consideration by NEPSE. Most of the changes were introduced after the end of the King's direct rule period - i.e. after loktantra was established. So, lokatantra became the carrier of change in the Nepali secondary market system.
Change 1: Listing and trading of government bond in the Nepse: It was a result of significant effort made by the Nepse. Before this, listing and trading of these securities in the Nepse was limited only in the government's budget speeches for two-three years. Since December 2006, when the government securities started to trade in Nepse, it has been a reality and it has expanded the scope of Nepali capital market and brought the government securities to the access of the individuals. It is a better investment alternative to those investors who do not want to take the risk associated with corporate securities, desire a risk-free fixed return or want to minimize risk through developing a debt-equity portfolio.
Change 2: One of the major source of manipulation and malpractices by the brokerage firms was the matching transaction. It has now been controlled through restrictions introduced since August 2, 2006. Under matching transaction, the same broker could match the buying and selling order received for the same company's shares. In these transactions broker could be biased in favour or against one of the clients. He/she could provide benefit to the client he preferred or cause loss to the one he did not like. Brokers can match transactions even under the computerised trading system, but it is not as easy as it used to be earlier.
Change 3: Nepse has adopted circuit breaker system to control the unexpected rise and fall in the stock price. If the price of a share changes more than 10 percent of the previous day's closing, Nepse stops trading on that particular share for the day. This too is new to the Nepali capital market to control manipulation by vested interest group or individual. Nepse started the circuit breaker system since July 1, 2006.
Change 4: Nepse started to calculate sensitive index for the 'A' category companies since January 1, 2007. This indicator is a benefit to the investors as they have one more index to compare with the stock they want to buy or sell. This helps also those who lack the skills to analyze the company's performance by reading the financial statements. Companies that are making regular profit for the last three years, hold AGM in time and have at least 1000 shareholders are placed under 'A' category.
Change 5: A technological breakthrough in the Nepse: Nepse has ended the open-out-cry trading system adopted since the trading started in 1994. Nepse has now adopted a computerised trading system since August 24, 2007 and that was unexpected till a few months ago even to those who knew Nepse very closely. This breakthrough is expected to increase the efficiency of the stock market. This adoption of modern technology has helped the Nepse to grow up to an international standard. It will help to identify the exact number of investors investing through secondary market and to identify investor trying to corner certain stocks. The new system is also beneficial to identify the exact depth of the market. The depth helps to predict the future movement of stock price.
