As Nepal’s securities market grows rapidly with more middle-class investors and companies issuing shares, emphasising transparency can help the audience feel confident and valued in understanding how fairness and investor protection support a trustworthy market. Awareness of insider trading risks helps maintain market integrity and reassures investors about their safety.
In Nepal, where regulation is still developing, understanding how insider trading laws specifically apply to local market practices is crucial for retail investors. Recognising what constitutes insider or price-sensitive information, understanding the associated risks, and learning to manage these issues effectively are vital steps to protecting investors and promoting market transparency. This knowledge empowers you to participate confidently and responsibly in the market.
What is Insider or Price-Sensitive Information?
Broadly speaking, price‐sensitive information refers to any unpublished information about a company’s internal affairs that could reasonably be expected to have a material effect on the value of its securities.
In other words, if knowing the information before it is publicly released would give someone an unfair trading advantage, then it is price sensitive.
Likewise, an insider is someone who, by virtue of their position (e.g., director, senior employee, advisor, or major shareholder), has access to such internal information.
In many jurisdictions, including Nepal, the key tests are:
- Has the information been published or made public?
- Is the Information material (i.e., would a reasonable investor consider it important in deciding whether to buy or sell the security)?
If the answer is yes to both, then the company must disclose it, and those insiders should refrain from trading on that basis.
Regulatory Landscape in Nepal
In Nepal, the Securities Board of Nepal (SEBON) is the regulator of the securities market and has issued several regulations and guidelines to address insider trading and the disclosure of sensitive information.
For instance, SEBON is empowered to draft rules under the Securities Act, 2063 and related regulations.
In Nepal, the Securities Board of Nepal (SEBON) is the regulator of the securities market and has issued several regulations and guidelines to address insider trading and the disclosure of sensitive information.
For instance, SEBON is empowered to draft rules under the Securities Act, 2063 and related regulations.
Historically, SEBON has recognised the problem of insider trading and the misuse of price-sensitive information in the Nepali market and has begun drafting specific rules.
Thus, companies listed on the Nepal Stock Exchange (NEPSE) and other market participants are expected to adopt policies to identify, manage, and disclose such information, and to ensure that insiders are prevented from gaining an unjust advantage. Your awareness and vigilance help safeguard market fairness and integrity.
Risks for Investors and the Market
When insider or price‐sensitive information is not handled properly, several risks occur. Here is a breakdown:
- Fair market pricing is undermined if certain players have access to material information and act on it. Ordinary retail investors (who do not have the benefit of that extra knowledge) are at a disadvantage.
- Investor trust is eroded. When middle-class Nepali investors witness or suspect that insiders or connected persons gain unfair advantages, they may withdraw from the market, thereby reducing liquidity, robustness, and growth in the capital market.
- Regulatory risk rises, companies may face investigations, fines, suspension, reputational damage, and the market may become less attractive to international investors.
Problems in Nepal’s Handling of Insider/Price-Sensitive Information
Despite the regulatory framework, the Nepali market faces several practical issues in dealing with insider information and disclosure of price‐sensitive events:
Inadequate or delayed disclosure
Some companies delay disclosing material information, which can lead to insider trading ahead of the public and undermine market integrity. Emphasising the importance of stricter enforcement can strengthen the call for regulatory action.
Because Nepal has many companies with low float or thin volumes, even small trades based on non-public information can significantly distort prices, emphasising the need for effective oversight.
Weak enforcement/Low Penalties
While the law prohibits insider trading, its deterrent effect has been weak in practice.
Only recently has the government proposed harsher penalties (a fine of up to NPR 30 million and 3 years in jail) for insider trading. Reinforcing that stronger penalties are essential can motivate more effective detection and enforcement efforts.
Low Investor Awareness & Transparency Culture
Many retail investors in Nepal are relatively new to the stock market and may not fully understand the concept of insider or price‐sensitive information. Improving investor awareness can empower them and foster a more transparent market environment.
Moreover, some companies may not have strong internal governance or disclosure frameworks.
Some insider trading allegations have emerged in small companies, such as hydropower firms or microfinance institutions, where control is concentrated, and transparency is weak.
Vulnerability of Low-Float Stocks
Stocks with fewer circulating shares are particularly susceptible to manipulation because a few trades based on non-public information can cause big price movements.
The Nepali market has several such companies, making them vulnerable to such attacks.
Information Fragmentation & Timing Issues
In Nepal, the timing of disclosure and the uniformity with which it is made public are sometimes questionable.
Companies may inform select parties or leak information before official disclosure, giving insiders a head start. The regulation expects broad and simultaneous disclosure, but practical gaps exist.
What Nepali Companies and Regulators Should Do?
To foster robust market integrity and safeguard the interests of investors, we recommend implementing the following comprehensive initiatives:
Every listed company and public issuer in Nepal should establish a formal policy, such as an insider trading code or a policy regarding the disclosure of price-sensitive information.
This should include identification of insiders, restricted trading windows, pre-clearance of insider trades, confidentiality obligations, and procedures for simultaneous announcements.
Companies should ensure that, once material information arises, it is promptly disclosed to NEPSE, SEBON, and the public, rather than only to selected parties.
The disclosure should happen before an insider’s trade. Clear communication, press releases, website announcements, and uniform dissemination are necessary.
SEBON’s new proposed framework (via the first amendment bill) that grants power to investigate banking transactions and impose heavier penalties is a positive step.
But effective enforcement is crucial. Regulators must conduct timely investigations, provide transparent outcomes, and consistently enforce punishment for abuses.
Given the increasing participation of retail investors in Nepal, awareness campaigns explaining insider trading, price-sensitive information, market manipulation and investor rights are critical.
The culture of asking questions and verifying disclosures must be strengthened.
Case Studies & Recent Developments in Nepal
Recent years have highlighted several high-profile insider trading cases in Nepal, underscoring the growing importance of regulatory oversight.
For instance, investigations by SEBON revealed that low-float stocks, or companies undergoing rights issues or restructuring, experienced sharp price movements in the lead-up to disclosure.
The government’s proposal, via the amendment bill, to raise penalties to up to NPR 30 million and 3 years’ imprisonment, aims to reinforce the seriousness of enforcement and reassure stakeholders of ongoing reform efforts.
These reforms also suggest giving SEBON stronger investigatory tools, such as access to bank transaction records through the central bank, which should enhance confidence in regulatory effectiveness.
Why Addressing This Issue Is a Priority for Nepal?
For Nepal’s capital markets to mature, the environment must be fair, transparent, and trusted. If insiders are perceived to have unfair advantages:
- General investors will be discouraged
- Initiatives like IPOs and SME listings may suffer
- Foreign participation may decline
- The broader objective of mobilising domestic capital may be undermined
Addressing the misuse of price‐sensitive information and insider trading is therefore not just a regulatory matter, it is central to building a sustainable, inclusive, and investor-friendly market in Nepal.
Conclusion
Addressing insider trading and the misuse of price-sensitive information is crucial for ensuring a fair and transparent securities market in Nepal.
Stronger regulations, timely disclosures, and investor education are needed to safeguard market integrity and build trust. As Nepal’s capital markets continue to grow, both companies and investors must understand and adhere to these regulations to foster a more robust investment ecosystem.
If you’re a company listed on NEPSE, ensure your policies on insider trading and disclosures are in place and transparent. Investors should always verify the timing and authenticity of information before making decisions.
