Securities Act, 2007 (2063)

Date of Authentication and Publication: January 14, 2007
Act No.: 33 of 2007/2008

An Act enacted to amend and consolidate existing laws relating to securities.

Preamble

Whereas, it is expedient to amend and consolidate securities laws to regulate and manage securities markets and related persons, ensure proper issuance, purchase, sale, and exchange of securities, protect investors’ interests, and develop the capital market to mobilize capital for national economic development;
Now, therefore, the House of Representatives enacts this Act in the First Year of the issuance of its Proclamation, 2006.

Chapter-1

Preliminary

Short Title and Commencement:
(1) This Act shall be called the “Securities Act, 2007“.
(2) It shall be deemed to have commenced on September 22, 2006.
Definitions: Unless the subject or the context otherwise requires, in this Act,-

(a) “Chairperson” means the chairperson of the Board appointed under Section 7.

(b) “License” means the license issued by the Board under this Act to operate the stock exchange or securities business.

(d) “Depository” means a bank or financial institution that makes agreement with the scheme manager and thereby undertakes the responsibility of providing custodial services such as safely holding and operating the assets of any collective investment scheme.

(e) “Prescribed” or “as prescribed” means prescribed or as prescribed in the Rules framed under this Act.

(f) “Securities” means any shares, stocks, bonds, debentures, debenture stocks or collective investment scheme certificate issued by a body corporate or treasury bonds, saving bonds or bonds issued by the Government of Nepal or by a body corporate against the guarantee of the Government of Nepal, and this term also includes such other securities as may be specified by the Board to be transacted or transferable through the stock exchange or the instrument to purchase, sell or exchange such securities.

(g) ” Securities transactions “means the issue, purchase, sale or exchange of securities and other acts pertaining thereto;

(h) “Registration of securities” means the registration of securities by a body corporate with the Board pursuant to Section 27.

(i) “Stock exchange” means a market, place or facility performing the purchase, sale or exchange of securities on regular basis by taking together the purchasers and sellers of securities.

(j) ” Securities business” means transactions in securities to be carried on by any company or body licensed to carry on the securities business under this Act.

(k) “Securities business person” means a company or body licensed under Section 58 to carry on securities business.

(l) “Issuance” means an offer made by a body corporate to raise capital and acts related thereto, and this term also includes the issuance of securities to promoters.

(m) “Private placement” means an act to make an offer by a letter, dispatch or any electronic communication media for the sale of securities to a maximum of fifty investors.

(n) “Board” means the Nepal Securities Board established under Section 3.

(o) “Exchange” means an act concerning purchase, sale or transfer of securities already issued pursuant to this Act.

(p) “Prospectus” means a prospectus required to be published by a body corporate pursuant to Section 30 prior to the public issue of securities.

(q) “Scheme manager” means a body corporate managing a collective investment scheme of participants with an object to provide an efficient investment service pursuant to this Act.

(r) “Investment fund” means a fund created out of amounts deposited by participants in a collective investment scheme in accordance with a contract as has been taken in its custody by a scheme manager with object to provide an efficient investment service or assets related with such a fund, and this term also includes a fund which the scheme manager has taken in its responsibility in accordance with this Act or additional assets created from management of investment of assets and amount accumulated by way of consideration.

(s) “Participant” means a person or body that makes investment in a collective investment scheme operated by a scheme manager pursuant to this Act.

(t) “Member” means a member of the Board, and this term also includes the chairperson.

(u) “Body corporate” means a body corporate established under the laws in force as to be competent to make public issue of securities. Provided that, it shall not include a private limited company or a corporation.

(v) “Public issue” means an offer made by a body corporate before the general public for the subscription of its securities by publishing a prospectus.

(w) “Collective investment scheme” means such an investment fund, unit trust or similar other participatory fund management program as specified by the Board, from time to time as may be operated by a scheme manager in accordance with this Act in order to distribute returns, to the participants of the concerned program proportionately, accrued from the efficient investment service on saving investment amount which has been undertaken in custody of the manager and so mobilized that various persons or bodies that have participation in it.

(x) “Enlisting” means the enlisting of securities on a stock exchange for the purposes of purchasing, selling or exchanging securities through the stock exchange;

(y) “Right issue” means an offer made to the existing shareholder or any person nominated by such shareholder for the subscription of any securities issued by a body corporate.

Chapter-2

Provisions Relating to Board

Establishment of Board:
(1) A Board named Nepal Securities Board shall be established to regulate and manage securities markets and related persons, oversee the issuance, purchase, sale, and exchange of securities, develop the capital market, and protect investors’ interests.

(2) The Board shall comprise the following members:

(a) A person appointed by the Government of Nepal – Chairperson
(b) Joint Secretary, Ministry of Finance – Member
(c) Joint Secretary, Ministry of Law, Justice and Parliamentary Affairs – Member
(d) Representative, Nepal Rastra Bank – Member

(e) Representative, Institute of Chartered Accountants of Nepal – Member
(f) Representative, Federation of Nepalese Chambers of Commerce and Industries – Member
(g) One expert nominated by the Government of Nepal with at least a master’s degree in economics, management, finance, commerce, or law from a recognized university, and a minimum of seven years’ experience in capital market, stock exchange, finance, or economic sector – Member

(3) Organizations nominating representatives under clauses (e) and (f) of sub-section (2) shall nominate individuals with at least a bachelor’s degree and a minimum of seven years’ experience in accounts, industry, commerce, finance, banking, economics, or law.

(4) The term of the member nominated under clause (g) shall be three years.

(5) A vacancy in the Board shall not affect its acts or proceedings.

(6) An officer or employee designated by the Board shall serve as its secretary.

(7) The Board may invite native or foreign experts or advisers to attend meetings as observers, if necessary.

(8) The Board’s central office shall be in Kathmandu Valley, with authority to open branches or contact offices within or outside Nepal as needed.

Board to be an Autonomous and Body Corporate:
(1) The Board shall be an autonomous corporate body with perpetual succession.
(2) It shall have its own official seal.
(3) It may acquire, use, sell, or deal with movable and immovable property like an individual.
(4) It may sue and be sued in its own name.
Functions, Duties, and Powers of the Board:
The Board shall have the following functions, duties, and powers:
(a) Advise the Government of Nepal on capital market development.
(b) Register securities of corporate bodies authorized for public issuance.
(c) Regulate the issue, transfer, sale, and exchange of registered securities.
(d) Grant permission to operate stock exchanges.
(e) Regulate and monitor stock exchange activities.
(f) Inspect stock exchanges for compliance and suspend or revoke licenses if necessary.
(g) License companies or institutions for securities business.
(h) Regulate and monitor securities business persons.
(i) Classify securities business persons and set standards based on functions and capacity.
Meeting and Decisions of the Board:
(1) The chairperson shall convene Board meetings as needed, at least once a month.
(2) Meetings shall be held at a time, date, and place specified by the chairperson.
(3) The chairperson shall preside; in their absence, a member chosen by the Board shall preside.
(4) If two members request in writing, the chairperson must call a meeting within seven days.
(5) The secretary shall provide the meeting agenda along with the notice.
(6) Quorum requires over 50% of total members.
(7) Decisions shall be made by majority vote; in case of a tie, the presiding member shall cast the deciding vote.
(8) A minute book shall record attendance, discussions, and decisions, signed by present members.
(9) Decisions shall be authenticated by the secretary and provided to all members.
(10) Other meeting procedures shall be set by the Board.
Appointment of Chairperson:
(1) The Government of Nepal shall appoint the chairperson, who acts as the administrative head of the Board.
(2) The chairperson shall be a qualified person with at least a master’s degree and seven years of experience in stock exchange management, capital market, economics, finance, commerce, management, or law.
(3) A recommendation committee—comprising a National Planning Commission member (convener), the Finance Ministry Secretary, and a securities expert—shall recommend names.
(4) The committee shall recommend at least three qualified candidates.
(5) The committee shall determine its own rules of procedure.
(6) The chairperson’s term shall be four years, renewable once for another four years.
(7) The Government may remove the chairperson for actions against the Board’s or capital market’s interests, upon recommendation of an inquiry committee and after giving the chairperson a chance to respond.
Functions, Duties, and Powers of the Chairperson:

(1) The chairperson shall have the following functions, duties, and powers:
(a) Protect investors’ interests and promote capital market development.
(b) Regulate and monitor, or ensure the regulation and monitoring of, stock exchanges and securities transactions to ensure effectiveness and reliability.
(c) Act as the executive chief of the Board.
(d) Propose long-term and short-term plans and policies to the Board for stock exchange management and capital market development.
(e) Call and preside over Board meetings.
(f) Prepare and submit the Board’s annual programs and budget for approval.
(g) Implement or ensure implementation of Board decisions.
(h) Oversee day-to-day operations in line with the Board’s objectives.
(i) Appoint advisers and employees as prescribed.
(j) Perform other functions as assigned by the Board.

(2) Additional functions, duties, and powers of the chairperson shall be as prescribed.

Remuneration and Allowances:
The remuneration, meeting allowance, and travel allowances for the chairperson and members, whether traveling inside or outside Nepal, shall be as prescribed.
Qualifications of Chairperson and Members:
To be appointed, a person must:
(a) Be a citizen of Nepal;
(b) Have high moral character;
(c) Have at least seven years’ professional experience in stock exchange management, capital market development, economics, finance, commerce, management, or law;
(d) Not be disqualified under Section 11.
Disqualifications:
A person shall not be eligible if they:
(a) Are an office-bearer of a political party;
(b) Are involved in securities business;
(c) Are adjudged insolvent;
(d) Are insane;
(e) Have been convicted of an offense involving moral turpitude.
Removal from Office:
(1) The Government of Nepal may remove the chairperson or member on valid grounds after giving a reasonable opportunity to defend.
(2) Grounds for removal include:
(a) Being disqualified under Section 11;
(b) Acting against investor interests or causing harm to capital market development;
(c) Lacking competence to perform Board functions effectively;
(d) Being disqualified or restricted from business due to misconduct;
(e) Absence from three consecutive Board meetings without notice.
Resignation:
The chairperson or any member may resign by submitting a written resignation to the Government of Nepal.
Fulfillment of Vacancy:
If the chairperson’s or a member’s office becomes vacant before term completion, the Government shall appoint a replacement for the remaining term following the Act’s procedures.
Validity of Proceedings:
No act or proceeding of the Board shall be invalid due to defects in appointment, Board formation, or vacancies.
Power to Form Committees:
(1) The Board may form committees or sub-committees as needed, with a member designated as coordinator.
(2) The Board shall prescribe their functions, duties, powers, terms, allowances, and procedures.
Delegation of Powers:
(1) The Board may delegate its powers to the chairperson, any member, or committees/sub-committees.
(2) The chairperson may further delegate powers to members, committees/sub-committees, or Board employees.
Conflict of Interest Disclosure:
Any member with a direct or indirect personal interest in a matter to be discussed must disclose it before discussion begins. Such member shall not participate in discussion or voting on that matter unless the Board permits. Their presence still counts for quorum.
Accounts Experts, Advisors, and Employees:
(1) The Board shall appoint necessary experts, advisors, and employees for efficient operation.
(2) Their appointment, remuneration, facilities, and service conditions shall be as prescribed.
Oath:
Chairperson, members, advisors, and employees appointed for the first time must take a prescribed oath of secrecy and honesty before assuming office.
Secrecy:
(1) No chairperson, member, advisor, employee, auditor, agent, or representative shall:
(a) Disclose confidential information obtained in office,
(b) Use such information for personal gain.
(2) Exceptions for disclosure include:
(a) Public duty performance,
(b) Assisting law enforcement or complying with court orders,
(c) Supplying information to the Board’s external auditor,
(d) Disclosure in legal proceedings in the Board’s interest.
Fund of the Board:
(1) The Board shall maintain a separate fund.
(2) The fund shall consist of:
(a) Amounts received from the Government of Nepal;
(b) Grants, assistance, or loans from domestic or international sources, subject to prior government approval;
(c) License fees;
(d) Fees for securities registration;
(e) Charges and dues from securities transactions;
(f) Fines imposed by the Board;
(g) Other sources.
(3) All amounts shall be deposited in a commercial bank within Nepal.
(4) All Board expenditures shall be charged to this fund.
(5) Expenditures shall follow the Board-approved annual budget.
(6) Other related provisions shall be as prescribed.
Revolving Fund:
(1) The Board may establish a revolving fund, crediting specified annual amounts.
(2) The fund may be invested in government securities or deposited in periodic accounts as prescribed.
(3) Only income earned from the fund may generally be expended.
(4) Its operation shall be as prescribed.
Accounts of the Board:
(1) The Board shall maintain updated records of its activities.
(2) It shall prepare annual accounts, balance sheet, and financial details per international standards within six months of fiscal year-end.
Auditor and Audit:
(1) The Auditor General or a designated auditor shall audit the Board’s accounts.
(2) The audit report shall include:
(a) Whether income and expenditure statements reflect actual transactions;
(b) Whether the balance sheet represents the true financial position of the Board.
Annual Report:
(1) The chairperson shall submit the Board’s annual report within four months of fiscal year-end and provide a copy to the Government.
(2) The report shall be made public annually.

Chapter-3

Registration and Issuance of Securities

Registration of Securities:
(1) A body corporate must register its securities with the Board before issuance.
(2) It must apply in the prescribed format with required documents and fees.
(3) Upon inquiry, the Board may register the securities and issue a registration certificate.
(4) Securities issued before this Act must be registered within one year of its commencement.
Sale and Transfer of Securities:
(1) After allotment or sale of registered securities, the body corporate must notify the Board within seven days.
(2) The Board may issue directives to ensure transparency and fairness, which must be followed.
Public Issue of Securities:
(1) Sale to more than fifty persons requires a public issue.
(2) Application period shall be as prescribed.
(3) Provisions on value and allotment of such securities shall be as prescribed.
(4) Unsold securities may be re-issued within one year with Board approval and updated prospectus.
Prospectus Requirement:
(1) For public issues, a Board-approved prospectus must be published, mentioning where it can be accessed.
(2) Prospectus is not required for:

Securities of Nepal Rastra Bank
Government-guaranteed securities
Sales to up to fifty persons
Employee-issued securities
Board-exempted cases

Approval of Prospectus:
The Board shall approve only those prospectuses that sufficiently disclose the issuer’s financial position, risks, and future expectations for investor evaluation.
Content of Prospectus:
A prospectus must include: general required disclosures, capital and business details of the issuer, legal actions, financial condition, management structure, information about the expert preparing the prospectus, economic statements, and other prescribed matters.
Liability for Prospectus Content:
(1) The issuing body corporate, its signing directors, and the expert preparing the prospectus are jointly and severally liable for the accuracy of its contents.
(2) If any investor suffers loss due to false or intentionally misleading information in the prospectus, they are entitled to compensation from those responsible. A director may be exempted if they resigned or were unaware of the falsehood.
(3) An investor may file a claim for compensation in the District Court within 35 days of discovering the loss and within one year of investment.
Notification by Issuing Body Corporate:
(1) Issuers must promptly inform the Board and shareholders of:

Economic data necessary for evaluating the company’s financial status.
Information that may affect stock transactions or security values.
(2) Additional prescribed notices and information must also be provided.

Compensation for Delisting:
If securities are delisted by a stock exchange due to the issuer’s failure to comply with the Act or its rules, and shareholders incur losses, the directors of the issuer shall be personally or jointly liable to compensate those shareholders.

Chapter-4

Provisions Relating to Stock Exchange

Stock Exchange License Requirement:
(1) A person must obtain a license from the Board to operate a stock exchange.
(2) No one may operate or deal in securities or use the name “stock exchange” without a license.
(3) Nepal Securities Exchange Market, active at the time of the Act’s commencement, must apply for a license within one year.
(4) If it fails to apply within that time, it cannot continue operations.
(5) New stock exchanges must be registered under company law with the Board’s recommendation.
Application for Stock Exchange License:
Only a body corporate may apply to the Board for a stock exchange license, using the prescribed format, details, documents, and fees.
Issuing a Stock Exchange License:
(1) Upon application, the Board may grant a license if it serves investor and public interest and if the applicant meets requirements.
(2) Requirements include:

The objective to operate a stock exchange stated in its legal documents.
Minimum paid-up capital of fifty million rupees.
Sufficient infrastructure and facilities.
Provisions for security listings and investor protection.
Systems for trade settlement, record publication, complaint handling, and enforcement against members for non-compliance.

Terms of License:
(1) The Board may impose terms for investor protection and healthy market operations, which must be followed.
(2) The Board may later amend these terms as needed.
Power to Refuse License:
(1) The Board may deny a license if:

A new exchange is unnecessary based on market development.
It would not protect investor interests.
(2) In case of refusal, the Board must notify the applicant with reasons.

Minimum Capital & Financial Source:
A stock exchange must maintain paid-up capital of at least fifty million rupees and adequate financial resources as prescribed by the Board.
License Term & Renewal:
(1) A stock exchange license is valid until the end of the fiscal year.
(2) It must be renewed within three months of fiscal year-end by paying the prescribed fee.
(3) Late renewal within another three months is allowed with a 25% fine.
(4) Failure to renew within this extended period results in license termination.
Recognized Securities Transactions:
(1) A stock exchange may trade only securities enlisted in its by-laws or otherwise recognized.
(2) Transactions in unlisted securities must follow prescribed rules.
Managerial Responsibility:
The board of directors of a stock exchange is responsible for managing securities transactions.
Functions, Duties & Powers of Stock Exchange:

Conduct securities trading fairly, transparently, and regularly.
Safeguard investor interests.
Ensure member compliance with laws and by-laws.
Maintain proper trading facilities and employ capable staff.
Ensure systems for emergency response and security.
Frame by-laws (with Board approval) for listings, trading, and membership.
Perform other necessary stock exchange operations.

Mandatory Disclosures to the Board:
A stock exchange must immediately inform the Board upon learning that:

A member has committed financial irregularities or appears financially unstable.
A member fails legal obligations or is unable to perform them.
A member breaches financial rules or is unable to comply.
Any other prescribed matter arises.

Annual Report Submission:
The stock exchange must submit a report of its annual activities to the Board within three months of fiscal year-end.
Power to Issue Directions:
(1) The stock exchange may direct any corporate body violating agreements or needing guidance to ensure fair and regular trading or protect investors.
(2) Such bodies must comply with the directions issued.
Ceiling on Securities Transactions:
(1) The Board may set limits on the volume of securities that can be transacted or held by any individual at a time.
(2) Different ceilings may apply based on the type of securities or transactions.
(3) The Board may prescribe the maximum quantity of any security that one person may own at a time.
Transaction Charge by Stock Exchange:
(1) A stock exchange must collect a prescribed transaction charge (not exceeding 0.03% of total turnover) and pay it to the Board.
(2) Payment must be made monthly by the end of each month for the preceding year. Non-compliance constitutes an offense.
(3) The Board may recover unpaid charges with 10% interest.
Stock Exchange to Assist Board:
The stock exchange must assist the Board in performing its duties, including providing any requested information or advice on securities or related matters.
Notice of Disciplinary Action:
If the stock exchange takes disciplinary action against any member (e.g., explanation sought, suspension, cancellation, fine), it must inform the Board with full details within seven days.
Compensation Fund:
(1) The stock exchange must establish and operate a compensation fund as prescribed by the Board to protect investors from losses.
(2) This fund shall be used to pay compensation as determined by the Board.
Operation of Compensation Fund:
Rules for operating the compensation fund (under Sections 53 or 55) shall include:
(a) Fund deposit procedures,
(b) Maximum compensation payable,
(c) Fund accounting and audit provisions,
(d) Conditions and procedures for filing compensation claims,
(e) Circumstances under which claims are not allowed,
(f) Decision-making process for claims,
(g) Maximum compensation per claimant,
(h) Procedures for examining claims,
(i) Provisions if a stock exchange license is revoked,
(j) Other necessary matters relating to compensation.
Board’s Role in Compensation:
If a stock exchange fails to establish or operate the compensation fund or does not pay compensation as required, the Board may itself set up and manage the fund or arrange for compensation payment as prescribed.

Chapter-5

Provisions Relation to License to Carry on Securities Business

License Required for Securities Business:
(1) Any company or body intending to conduct securities business must obtain a license from the Board under this Act.
(2) No one may operate securities business without such a license.
Application for Securities Business License:
(1) An application must be submitted to the Board in the prescribed form, with required documents, information, and fees.
(2) The application must include:
(a) Type of business and services,
(b) Details of agents or collaborators (if any),
(c) Recommendation from stock exchange (if applicable),
(d) Proof of capability to operate the business.
Issuance of License:
(1) Upon review, the Board may issue a license if the applicant meets the legal and regulatory requirements, and the agent is qualified.
(2) The Board will consider the financial, educational, professional, and social background of executives and agents.
(3) Licenses (except brokerage and consultancy) may only be issued to public companies or legal entities.
(4) The Board may restrict certain types of securities business in the license, as necessary.
Terms and Conditions of License:
(1) The Board may impose conditions for market stability and investor protection.
(2) Licensed entities must comply with these conditions.
(3) The Board may revise conditions as needed.
Grounds for Refusal:
The Board may deny a license if:
(a) The applicant is insolvent,
(b) Required documents are missing,
(c) Criteria under Section 58(2) are not met.
Term and Renewal of License:
(1) Licenses are valid until the end of the issuing fiscal year.
(2) Renewal must occur within 3 months of fiscal year-end by paying the prescribed fee.
(3) If delayed, renewal is possible within an additional 3 months with a 25% penalty.
(4) Failure to renew within this extended period results in revocation, with public notice.
Securities Business Through Subsidiary:
The Government of Nepal, on the Board’s recommendation, may require banks or financial institutions to conduct securities business only through a subsidiary company. Such subsidiaries may only engage in securities dealing.
Types of Securities Business:
(1) Securities business includes:
(a) Brokerage
(b) Trading
(c) Issue and sales management
(d) Investment management
(e) Investment consultancy
(f) Collective investment fund management
(g) Securities registration/central deposit/custody
(h) Settlement services
(i) Market making
(j) Other Board-specified activities
(2) The scope and provisions for each type shall be as prescribed.
Agent Requirement for License:
(1) A brokerage license requires at least one designated agent.
(2) A trading license requires at least one designated agent.
(3) Collective investment or fund management licenses also require an agent.
(4) Procedures, qualifications, and related provisions for agents shall be as prescribed.
Formal Agent Registration:
(1) A person becomes a formal agent only after being registered with the Board.
(2) Both the securities business person and the agent must notify the Board of the appointment and consent.
(3) The Board shall register and issue a certificate within 15 days.
(4) On termination of the agreement, both parties must inform the Board, and the agent must return the certificate within 7 days.
(5) The appointing business person is liable for the agent’s actions.
Rights of Securities Business Person:
(1) No license suspension or revocation shall occur without giving a reasonable opportunity for a hearing.
(2) Written notice with reasons, effective date, and suspension period (if applicable) must be provided.
(3) An appeal may be filed with the Appellate Court within 35 days of the decision.
Minimum Capital and Financial Source:
(1) Securities business persons must maintain the prescribed minimum capital and financial sources.
(2) Any failure to do so must be reported to the Board immediately.
(3) Upon such notice, the Board may direct the business person to rectify the deficiency or issue other necessary instructions.
Register of Securities Business Persons:
(1) The Board shall maintain and update a register of licensed securities business persons.
(2) The register shall include:

Name and address
License issue date
Type of business
License terms and conditions
Names of formal agents, managers, officers
Record location
Names of directors, secretaries, shareholders and their shareholdings
Any other relevant details as determined by the Board

Register of Formal Agents:
(1) The Board shall maintain and update a register of formal agents.
(2) The register shall include:

Name and address of agent
Registration date
Name and address of the appointing securities business person
Other necessary information as deemed appropriate by the Board

Information to Be Given to the Board:
Securities business persons must notify the Board in writing within seven days in any of the following cases:
(a) Ceasing to operate the licensed securities business
(b) Termination of any formal agent
(c) Changes in any details recorded under Section 68

Chapter-6

Collective Investment Scheme

Permission Required for Collective Investment Schemes:
No one shall operate or promote a collective investment scheme, including advertising or advising participation, without Board permission. Violations constitute an offense under this Act.
Board’s Permission to Operate Scheme:
(1) Scheme managers must apply to the Board with prescribed details and fees before operating a collective investment scheme.
(2) The Board shall register and grant permission within 90 days if the application is appropriate.
(3) The Board may require additional information before granting permission.
(4) Permission may include issuance of participation certificates.
(5) The Board may set and modify terms and conditions for scheme operation.
Operation of Collective Investment Schemes:
(1) Scheme managers may operate one or more schemes as prescribed, considering participants’ interests.
(2) An agreement with a depository must be made before operation.
Revocation of Permission:
(1) The Board may revoke permission if:

Terms and conditions are not met satisfactorily,
It is in participants’ interests to discontinue,
The Act, rules, or bye-laws are violated or false information is provided.
(2) The Board may hold inquiries before revocation.
(3) Upon revocation, the Board may appoint a new manager or settle accounts by refunding investors.
(4) Procedures for scheme closure and account settlement shall be prescribed.

Other Provisions on Scheme Operation:
(1) Operational provisions to protect participants’ interests shall be prescribed.
(2) Regulations shall cover:

Registration and permission procedures,
Scheme statute, duties of manager and depository, participant rights,
Promotion, market management, distribution,
Unit issuance and discounting,
Depository services,
Regulation of loans and advances,
Record-keeping and inspections,
Periodic reporting to participants and Board,
Fees and charges for services,
Investment and loan management of scheme funds.

Different provisions may apply for different types of schemes.

Chapter-7

Operation of Securities business

Business Standards:
Securities business persons must:

Maintain fair, high-standard operations.
Conduct business with proper skill, care, and diligence.
Uphold high standards of stock exchanges.
Obtain and consider customers’ investment objectives before providing services.
Provide necessary information and advice for customers’ investment decisions.
Avoid conflicts of interest; disclose any existing conflicts and prioritize customers’ interests.
Fulfill all commitments related to securities business.
Maintain accurate business records.
Provide employee training to ensure skilled human resources.
Observe any other prescribed principles for securities business operations.

Investor Identification, Orders, Contract Notes, and Payments:
(1) Procedures for investor identification, account opening, transaction agreements, and money handling must follow prescribed rules.
(2) Upon purchase, sale, or exchange contracts, a contract note must be prepared before the next market closing. For agency contracts, the original note is delivered to the customer; if acting as principal, the business person retains the note with a declaration.
(3) Contract notes must include:

Type and place of securities business,
Details if the business person acted as principal,
Name and address of the recipient,
Dates of contract and note preparation,
Description and quantity of securities,
Per unit price,
Consideration payable,
Commission amount or rate,
Any fees charged and their description,
Settlement date,
Other prescribed details.

Accounts Maintenance:
Securities business persons must keep accurate accounts and records clearly reflecting securities transactions and financial status. Records must separately show customer funds and securities accounts and be maintained for easy inspection by the Board, its inspectors, auditors, or stock exchanges.
Insurance:
Every securities business person (except agents) must procure business insurance as prescribed by the Board.
Auditor Appointment:
Securities business persons must appoint auditors enlisted by the Board. Directors, shareholders, officers, employees, or partners of the company cannot be appointed auditors. Auditor appointments and removals must be reported to the Board within seven days. Stock exchange employees are ineligible as auditors.
Auditor Roster:
The Board will maintain a roster of qualified auditors. Auditors wishing to be enlisted must apply and provide required information.
Submission of Accounts:
Securities business persons must submit audited financial statements (profit and loss, balance sheet, cash flow) to the Board and stock exchange within three months of fiscal year-end. Extensions up to three months may be granted for reasonable causes. Failure to submit timely can result in fines between NPR 5,000 and 25,000. Un-audited accounts may be submitted temporarily if audit is pending.
Auditor Reporting:
If an enlisted auditor discovers violations of financial rules during audit, they must report separately to the Board.

Chapter-8

Regulation, Monitoring, Inspection and Inquiry

Regulation and Monitoring:
The Board has full authority to regulate and monitor securities-related activities to develop the capital market and protect investors. It may exercise or delegate this power over stock exchanges, securities businesses, their agents, and listed companies.
Inspection and Inquiry:
The Board or its authorized representatives may inspect or inquire into compliance by stock exchanges, securities businesses, agents, and listed companies with this Act, related rules, bye-laws, and directives. They can examine documents, data, and question persons involved. Reports of inspections must be prepared and submitted as prescribed.
Demand for Information:
During inspections or investigations, the Board or authorized persons can demand necessary information, data, or documents from concerned entities, including stock exchanges, securities businesses, agents, listed companies, clearing bodies, and depositories. These entities must comply and may have their materials taken into custody if necessary.
Issuing Orders or Directions:
The Board may issue orders or directions to ensure compliance with the Act, government policies, and investor protection, including directives to do or refrain from acts related to securities transactions. Based on inspection reports, it may suspend or revoke registrations, licenses, or direct corrective actions. All concerned must comply.
License Suspension:
If a stock exchange or securities business violates the Act, rules, bye-laws, or disobeys Board orders, the Board may suspend its license for a specified period, protecting investor interests. Suspension does not affect liabilities arising before suspension.
License Revocation:
The Board may revoke a license under circumstances including: cessation of operations, acting against investor interests, violating license terms or the Act, disobeying Board orders, insolvency, company winding up, voluntary license revocation requests, failure to appoint replacement agents, failure to submit required statements, or failure to pay fees. Revocation does not affect liabilities incurred before cancellation.
Special Powers of the Board:

(1) The Board may exercise the following powers to regulate and manage securities transactions, promote capital market development, and protect investors:

(a) Direct a body corporate to convene its general meeting if it fails to do so within the legal timeframe.

(b) Order refund of funds if securities are not allotted on time after a public issue.

(c) Instruct a body corporate to list or halt the trading of its securities.

(d) Order closure of a stock exchange for up to five days, in consultation with it.

(e) Require amendment or replacement of stock exchange bye-laws within a specified time.

(f) Have financial statements of listed companies or securities businesses reviewed by financial experts.

(g) Direct listed companies to correct management or financial practices.

(h) Order restructuring of a stock exchange’s board of directors.

(i) Take or recommend action against stock exchange members in violation of laws or directives.

(j) Direct necessary action against violators of securities laws within stock exchanges, securities businesses, or listed companies.

(k) Appoint auditors to examine financials if required audits are not conducted in time.

(2) All parties must comply with such orders and directions.
(3) The audited entity must bear the auditor’s remuneration under clause (k).
(4) The Board shall publicly disclose its regulatory activities and compliance status of relevant entities as prescribed.

Chapter-9

Offenses Relating to Insider Trading in Securities and Transactions of Securities and Punishment

Insider Trading

Any person who trades or causes others to trade securities based on unpublished insider information, or shares such information gained through their official duties, shall be deemed to have committed insider trading.
Explanation: Insider information refers to unpublished material likely to influence securities prices.

Note: Past transactions are not invalidated solely because insider trading occurred.

Persons Considered Insiders

The following individuals are deemed to have access to insider information:

(a) Directors, employees, or shareholders of the issuer.

(b) Professional service providers to the issuer.

When Information is Considered Public

Information is considered public when:

(a) Disclosed per stock exchange rules for investor awareness.

(b) Available for public viewing by law.

(d) Obtainable by request or fee.

(e) Shared with a specific public class.

(f) Published outside Nepal.

False Trading

Trading is false if:

(a) Ownership doesn’t actually change despite a trade.

(b) A trade is placed knowing the counteroffer at the same price exists.

Price Manipulation

Artificially stabilizing, increasing, decreasing, or frequently changing securities prices through false trading is deemed manipulation.

Acts Affecting the Stock Exchange

A person is deemed to affect the stock exchange if they manipulate prices to:

(a) Encourage or discourage buying/selling by increasing the price.

(b) Do the same by decreasing the price.

Misleading Statements

A person is deemed misleading if they:

(a) Knowingly make or publish false/misleading statements.

(b) Conceal material facts with bad intent.

Fraudulent Transactions

Any person who:

(a) Uses any scheme or act to defraud others, or

(b) Misleads someone into participating in securities transactions
is deemed to have engaged in fraudulent transactions.

Fraud or Misrepresentation in Securities Transactions

Inducing others to buy/sell securities or influence prices based on knowingly false, misleading, or incomplete statements constitutes fraud or misrepresentation.

Destruction or Concealment of Records

It is prohibited to destroy, forge, or hide documents/statements required during inspections or investigations, or aid in such acts, as mandated under this Act.

Punishments

Insider trading (Sec. 91):
Fine equal to the disputed amount or imprisonment up to 1 year, or both.
False trading, price manipulation, affecting stock exchange (Secs. 94–96):
Fine of Rs. 50,000–100,000 or imprisonment up to 1 year, or both. Losses caused must be compensated.
Misleading statements, fraud, record tampering (Secs. 97–100):
Fine of Rs. 100,000–300,000 or imprisonment up to 2 years, or both. Compensation required for losses.
Failure to maintain/submit accurate records:
Fine of Rs. 50,000–200,000.
Violation of Act/rules/orders causing damage:
Fine of Rs. 50,000–200,000. Compensation for losses may be ordered.
Unlicensed securities/business operations:
Fine of Rs. 50,000–150,000.
General violations of the Act/rules/orders:
Fine of Rs. 25,000–75,000.

Government as Plaintiff

Offenses under Sections 91, 94–100 shall be prosecuted by the Government of Nepal as state cases.

Investigation and Prosecution

Upon complaint or information of offenses (Secs. 91, 94–100), the Board may appoint an investigation officer.
The officer must complete the investigation and file the case in District Court within 35 days.
During the investigation, the officer may summon persons, collect statements, and demand documents.
The investigation must be carried out with consultation from the Government Attorney.

Investigation with Detention, Suspension, or Bail

If there’s reasonable belief that an accused may abscond, damage assets, or disrupt investigation, the Board may:
- Demand bail or asset guarantee.
- Detain the person if they fail to comply.
If evidence may be tampered with, or investigation obstructed by a person in office, the Board can recommend their suspension.

Compensation for Losses

If someone suffers loss due to price manipulation or other offenses under this Act, the offender must compensate for the damage caused.

Right to Appeal

Parties dissatisfied with penalties under Section 101(4–7) can appeal to the Appellate Court within 35 days of the decision.
Appeals can also be filed against orders or directions issued by the Board under Chapter 8, within 35 days of notification.

Action Against Pre-convicted Misconduct

If a listed company is found acting against its members’ interests, the Board may:

(a) Order to stop such transactions.

(b) Require procedures ensuring fair conduct.

(d) Issue any necessary regulatory directives.

Disqualification of Directors or Managers

A person convicted and punished under Section 101 is disqualified from becoming a director, general manager, or equivalent officer in any public company or body for up to 10 years from the date of conviction.

Chapter-10

Miscellaneous

Takeover and Control of a Body Corporate

Any individual, group, or body corporate aiming to acquire full ownership or management control of another body corporate through share purchases must do so transparently.
Acquiring over 50% of shares (or a percentage specified by the Board) constitutes control.
The process and procedures for such share offers and transactions shall be as prescribed.

Registration of Transferred Shares

Once a stock exchange certifies a share or debenture transfer, the issuing body corporate must register the transfer in its records under the transferee’s name.

Transfer of Listed Securities

Ownership and transfer of listed securities shall be governed by rules prescribed under this Act, even if inconsistent with existing company laws.

Government Liaison

The Board shall liaise with the Government of Nepal through the Ministry of Finance.

Government Directions

The Government of Nepal may issue policy-related directions (e.g., capital market development, investor protection) to the Board, which must comply.

Obligation to Assist the Board

All concerned parties are required to assist the Board in regulating and managing securities transactions.

Protection for Good Faith Acts

The Board or its employees are not liable for any act done in good faith under this Act or its rules.

Rule-Making Powers

The Board may frame rules, with government approval, to implement the Act’s objectives.
These may cover:
- Securities registration and issuance.
- Licensing for exchanges and brokers.
- Investment schemes and employee terms.
- Financial operations, compensation funds.
- Listing, delisting, transfer of securities.
- Regulation of market conduct and takeovers.

Power to Frame Bye-laws

Stock exchanges may, with Board approval, frame bye-laws on:
- Listing and trading of securities.
- Membership, fees, ethics.
- Employee conduct, monitoring, and transparency.

Directives by the Board

The Board may issue directives on:
- Securities registration, issuance, sale, and allotment.
- Professional ethics.
- Other securities transaction matters.
All concerned must comply with these directives.

Effect of the Inoperativeness of Securities Ordinance, 2005

The Ordinance’s expiry shall not:
- Revive past laws.
- Affect actions, rights, penalties, or remedies under it.
- Legal proceedings and obligations under the Ordinance can continue as if it were still in force.

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