Nepal’s securities market has expanded rapidly in recent years, with millions of investors now trading through the Nepal Stock Exchange (NEPSE). This swift growth highlights the need for a dispute-resolution system that makes investors feel protected and confident, ensuring sustainable development amid increasing activity.
Nepal’s dispute resolution process involves the Securities Dispute Resolution Tribunal (SDRT), but its slow, opaque procedures can make stakeholders feel their concerns are overlooked, risking trust. Improving transparency and efficiency can help stakeholders feel their input matters and rebuild confidence, both of which are vital for market growth.
A clear, efficient, and investor-friendly dispute settlement system is crucial for maintaining confidence, ensuring fairness, and supporting the sustainable growth of Nepal’s securities market. Actively involving stakeholders can make them feel their voices influence reforms that will strengthen market stability and investor trust.
What Does the Current Dispute Settlement Framework Look Like?
Nepal’s primary legislation, the Securities Act 2063, defines the regulator’s powers but provides no complete mechanism for individual investors to pursue remedies when harmed.
SEBON receives complaints and has a grievance unit, but its powers are limited mainly to administrative actions.
Despite over five million BO (Beneficiary Owner) accounts registered with the central depository, many investors remain unaware of available remedies or fear delays, creating significant barriers to filing complaints. This discourages grievances from being addressed, undermines market trust, and highlights the need for clearer, more accessible dispute mechanisms.
This gap leaves countless investor grievances unresolved, undermining market trust and creating a sense of neglect. Addressing this is essential to restoring fairness and demonstrating a genuine commitment to resolving disputes, thereby reassuring investors and encouraging their participation.
What Types of Disputes Commonly Arise in Nepal’s Securities Market?
In Nepal’s dynamic securities markets, a range of disputes frequently arises, highlighting the complexities of trading and investment.
Issues can include insider trading, market manipulation, and conflicts over share ownership and financial disclosures.
Tensions often arise between investors and brokerage firms over trade execution, account management, and regulatory compliance.
This lack of transparency can lead to misunderstandings among stakeholders, emphasising the need for effective resolution mechanisms in this evolving landscape.
One of the most frequent categories involves digital trading systems, such as:
- Trade Management System (TMS)
- Mero Share (EDIS)
Glitches can block investors from placing orders, delay trade execution, or cause failed settlements, often resulting in financial losses that investors struggle to recover.
Mistakes in EDIS submissions or problems with settlements can lead to close-out penalties of up to 20%, even if the failures are due to technical issues outside the investor’s control.
When it comes to disputes, there are various aspects to consider:
- Unauthorised trading
- Misleading advice
- Poor record-keeping
- Fraudulent activities
Despite SEBON’s enforcement actions, affected investors rarely recover compensation.
These are the most damaging violations, yet proving them requires advanced surveillance, which Nepal currently lacks, making enforcement extremely difficult and highlighting the urgent need for technological enhancements in market oversight.
Why Is the Existing Legal Framework Insufficient?
Nepal’s dispute-resolution framework is fragmented, with rules scattered across regulations, bylaws, and guidelines.
This piecemeal structure creates confusion, making it difficult for investors and stakeholders to clearly understand their rights, procedures, and remedies. Clarifying these can foster a sense of support and reassurance among market participants.
State-Controlled Prosecution
Under current law, many securities offences qualify as state cases, meaning that:
- Only the government can prosecute
- Their ability to seek compensation becomes extremely limited
Weak Penalties
Fines (up to NPR 300,000) and imprisonment (up to 2 years) are inadequate for offences that often involve millions of rupees, reducing deterrence.
Missing Compensation Fund
Although the Securities Act provides for such a fund, neither SEBON nor NEPSE has operationalised it, leaving investors without financial protection.
Lack of Specialised Courts
General courts are responsible for handling securities disputes; however, judges often face challenges due to their limited expertise in several key areas. These include:
- Knowledge of capital markets
- Technical understanding of trading systems
- Insights into complex securities transactions
These knowledge gaps can lead to delays in proceedings, inconsistencies in decisions, and challenges in effectively enforcing rulings.
How Do International Standards Address Securities Disputes?
The International Organisation of Securities Commissions (IOSCO) recommends establishing independent dispute-resolution bodies, ombudsman-led systems, and accessible mediation or arbitration options, along with compensation schemes for affected investors.
These global standards are designed to ensure fair, timely, and expert-driven resolution processes that strengthen investor protection and market integrity.
Globally, many countries use specialised mechanisms such as securities tribunals, mediation centres, and dedicated arbitration panels to resolve market disputes efficiently.
Although Nepal has been an IOSCO associate member since 2016, it has yet to fully align its dispute-resolution system with international best practices such as independent tribunals and mediation centres. Implementing these standards can serve as practical reform pathways that strengthen market integrity and investor protection.
What Do Recent Enforcement Cases Reveal?
SEBON has dealt with various cases that demonstrate both its strengths and limitations. For example, in a case involving a forged share certificate, the offender received a six-month prison sentence and was fined NPR 100,000, with nearly NPR 5 million in recoveries authorised.
Brokerage firms have also faced fines ranging from NPR 50,000 to NPR 1 million for regulatory violations.
However, cases involving fictitious transactions have revealed challenges in gathering evidence and tracing manipulations.
Additionally, many enforcement actions are delayed by lengthy appeals, reducing their immediate effectiveness and weakening the overall deterrent impact.
Strengthen Securities Dispute Resolution in Nepal
To enhance the effectiveness of securities dispute resolution in Nepal, it is crucial to implement several strategic reforms.
Establish a Securities Dispute Settlement Committee (SDSC)
This body should function as a quasi-judicial forum staffed by experts in securities law, capital markets, and information technology.
It must be capable of delivering timely decisions and awarding compensation where justified, ensuring that disputes are resolved efficiently and fairly.
Creating an Independent Securities Market Dispute Tribunal
The tribunal should oversee appeals arising from SDSC decisions and hear criminal securities offences prosecuted by SEBON.
A three-member structure is recommended, comprising a chairperson qualified to serve as a High Court judge, a capital markets expert, and an IT specialist, ensuring balanced and informed decision-making.
Consolidate Scattered Dispute Resolution Rules
A unified regulation would simplify processes, enhance public awareness, and make dispute-resolution mechanisms more accessible to investors and market participants.
Introduce Modern Technical Infrastructure
Nepal urgently needs real-time market surveillance, stronger cybersecurity measures, and more stable trading systems.
These technological upgrades would help prevent many disputes before they occur, ensuring a more secure and reliable capital market environment.
Activate the Investor Compensation Fund
This fund must be fully operational to provide guaranteed relief, protect small investors, and strengthen overall market trust.
What Are the Key Challenges Moving Forward?
Nepal encounters a variety of significant challenges:
- Limited regulatory resources
- Slow judicial process
- High retail investor participation with low financial literacy
- Outdated trading infrastructure
If we don’t embrace substantial reform, we’ll see disputes rise and trust continually erode.
Conclusion
A robust dispute-resolution system is essential for a healthy, functioning securities market. Nepal’s current approach, fragmented rules, limited investor remedies, weak penalties, and lack of specialised forums, fail to protect investors and undermine the credibility of the market. With millions of Nepalis now participating in securities trading, reform is not optional; it is urgent.
Creating specialised institutions, improving technological capacity, and establishing compensation mechanisms will significantly enhance investor protection and market integrity. These reforms would bring Nepal in line with global standards and support sustainable market growth.
A fair, transparent, and efficient dispute settlement system is the foundation of a trustworthy securities market. Now is the time for Nepal to build it.
