SEBON draft would push institutions into shares, but cap any one bet

The Securities Board of Nepal (SEBON) wants banks, pension funds, insurers and other institutions to hold listed shares as a fixed part of their portfolios. A draft policy published on Thursday sets a band of 15% to 30% of investment assets for listed securities. It also caps any single issuer at 5% at most, so new institutional money would be spread across many stocks rather than piled into a few large names.

Why it matters: individual investors dominate Nepal's market, and SEBON wants long-term institutional money to play a bigger part in setting prices, which it says would add depth and liquidity.

The draft makes strategic asset allocation mandatory. Each institution would match its holdings to its own liabilities and risk profile, within a band for each asset class. SEBON would not set the final limits. Each institution's own regulator would set them, based on that institution's obligations, solvency, liquidity and systemic risk.

Five classes, seven bands

The draft sorts institutions into five classes:

• commercial banks, development banks and finance companies
• long-term savings pools such as the Employees Provident Fund, Citizen Investment Trust, Social Security Fund and other pension funds
• life, non-life, reinsurance and microinsurance companies
• collective schemes, including investment companies, exchange-traded funds, index funds and real estate funds
• other eligible investors such as sovereign and strategic funds, development finance institutions and foreign institutional and pension investors

Alongside the listed-share band, the draft proposes 20% to 30% for government securities. It sets 10% to 20% each for bank fixed deposits and for corporate bonds and debentures, and 5% to 10% each for mutual funds and ETFs and for infrastructure or project securities. Small and medium enterprises get up to 5%.

The concentration limits reach into the equity book too. Each institution's regulator would set a single-issuer ceiling somewhere between 3% and 5% of total investment assets. No one sector could take more than 20% to 25% of equity holdings, a limit that would bind hardest on portfolios heavy in a single industry.

The draft also covers registration, governance, risk management, market conduct, disclosure, regulatory monitoring and phased implementation, along with legal reforms and coordination between agencies. SEBON said the policy follows its capital market policy for FY 2083/84 and the 21-point capital market strengthening and revival action plan that the Ministry of Finance announced in mid-September (Bhadra).

How the market traded it

In the first session after publication, on Friday, the NEPSE index rose 0.31% to 2,634.17, still below its 52-week high of 2,969.50. That move is too small to count as the market's verdict on a draft that has no start date.

SEBON has invited comments from stakeholders and has not given a deadline. The final text will show whether listed shares stay a mandatory band or become an optional ceiling. After that, the test is how tightly the regulators of banks, insurers and pension funds set their own limits.