In September 2025, Nepal’s capital market faced a significant upheaval driven by youth-led protests, government instability, and unresolved corruption issues. Recognising the impact on investors, authorities suspended trading on the Nepal Stock Exchange (NEPSE), underscoring the importance of financial stability for all stakeholders.
The article explores the complex events leading to the suspension, emphasising that political stability is crucial for Nepal’s securities market to recover and grow, and encouraging policymakers and investors to consider it a key factor for future market confidence.
What Led to the Crisis in Nepal’s Securities Market?
The crisis originated on 8 September 2025, when violent confrontations between police and protesters, mainly led by Generation Z, underscored how political unrest directly destabilised the market. The anti-corruption protests escalated rapidly, leading to Prime Minister KP Sharma Oli’s resignation.
The Nepal Stock Exchange (NEPSE), already under pressure from prior market corrections, suspended trading on 9 September, just one day after the violent clashes. This ongoing decline in the days leading up to the suspension reflected growing concerns about political instability, underscoring the need for investors and policymakers to understand the crisis’s roots.
How Did the Market Perform Before the Suspension?
Before the political turmoil, NEPSE had seen significant growth, reaching a four-year high of 3,002.07 points on [29 July 2025], marking a peak in investor optimism and market performance, which set the stage for the subsequent decline.
However, as political tensions escalated in late July, the market entered a correction. By the time the suspension was enforced, the NEPSE index had fallen by 329.82 points from its July peak.
This reflected broader market concerns, particularly in sectors such as banking and insurance, which make up a large share of the index. The market capitalisation was also eroded by over 530 billion rupees, a significant loss over a short period. The market correction was aggravated by deepening political instability, creating market uncertainty.
How Did SEBON and NEPSE Respond to the Crisis?
Under Section 90, sub-section 1, clause D of the Securities Act 2063, the Securities Board of Nepal (SEBON) authorised the trading suspension, providing a clear legal foundation for the decision and reinforcing its authority during the crisis. The provision allows NEPSE to halt trading if market conditions threaten stability or investor protection, demonstrating SEBON’s authority to act during crises.
The suspension initially lasted until 17 September 2025 but was later extended until 21 September due to continued instability and ongoing concerns from market participants. This extension raised questions about the limits of SEBON’s regulatory powers, particularly given the legal time limits on trading suspensions.
What Were the Investor Reactions and Demands During the Suspension?
The article discusses how investor associations called for a trading halt and the pressure on SEBON to extend the suspension, emphasising their deep concern for market stability and investor protection during this crisis, which aims to make investors feel understood and reassured.
Before SEBON officially announced the suspension, several investor groups, including the Share Investors Association Nepal and the Nepal Capital Market Investors Association, called for a halt to trading.
These associations argued that continuing trading under such uncertain conditions would lead to panic selling, further eroding market value and potentially causing a collapse. Their call for a suspension was not typical. Normally, investors resist trading halts, fearing a lack of liquidity.
However, in this case, the demand for suspension reflected the severity of the crisis and a desire to prevent further market damage.
Even after the suspension was extended, investor associations continued to voice concerns. Representatives from these groups met with NEPSE and other stakeholders, urging caution before the market resumed trading. Despite their ongoing concerns, market sentiment remained highly negative, and many questioned whether the market was truly ready to reopen.
How Did the Market React When Trading Finally Resumed?
When trading resumed on 18 September 2025, the market reacted swiftly and severely, with the NEPSE index dropping 160.33 points, or 6%, within hours, indicating heightened investor anxiety and the difficulty of restoring confidence after the suspension. The circuit breaker mechanisms, designed to halt trading during extreme volatility, were triggered three times during the session.
These mechanisms automatically halted trading when the index fluctuated by more than 4% within the first hour and by 5% within the second, giving the market a chance to stabilise. By the end of the day, the market had closed after reaching the 6% drop threshold, highlighting the intensity of investor panic and the challenges in restoring confidence.
What Impact Did the Political Crisis Have Beyond the Stock Market?
The protests and market suspension had a domino effect on various sectors of the economy. The tourism sector was particularly hard hit, with an 18.3% year-on-year decline in visitors, showing how political instability can deter foreign visitors. The real estate market also experienced a downturn, with land deed registrations falling by over 20%.
Similarly, banking sector activity slowed as both banks and borrowers took a more cautious approach amid uncertainty.
What Were the Economic Implications of the Crisis?
The political crisis caused significant disruptions, leading to a major downward revision in economic growth forecasts. The government had originally projected 5.5% growth for the year, but international organisations such as the World Bank and the IMF revised this down to 2.1%, attributing much of the slowdown to political unrest and its impact on investor sentiment.
This sharp contrast between the government’s optimistic projections and revised international forecasts highlighted the severity of the crisis and its long-term economic impact on sectors such as employment, poverty reduction, and government revenues.
What Are the Legal Constraints on Market Suspension in Nepal?
The trading suspension raised important questions about the legal framework governing market halts. Under the Securities Act, NEPSE may suspend trading for up to 5 trading days unless extraordinary circumstances dictate otherwise.
The extended suspension, which exceeded the usual limit, posed challenges for SEBON, as it had to comply with legal mandates while responding to market instability. The tension between maintaining market stability and adhering to legal time limits prompted debate over whether Nepal’s regulatory framework needs reforms to allow greater flexibility in extreme cases.
How Did This Crisis Compare to the COVID-19 Trading Suspension?
The COVID-19 lockdown in 2020 led to a 50-day market closure, raising concerns among investors who felt trading could continue on online platforms. The 2025 crisis was different, as the issue was not about technical capability but about market conditions.
Despite the availability of online platforms, the extreme volatility during the reopening suggested that market confidence was more important than technical infrastructure. This comparison showed that regulatory bodies had evolved in their approach, prioritising market stability over constant access, a shift that would influence future decision-making.
What Are the Key Lessons for Nepal’s Securities Market?
The September 2025 crisis provided valuable lessons for the regulation of securities markets in emerging economies:
- Technical capacity to maintain trading does not necessarily equate to market readiness.
- Investor protection sometimes requires limiting access to prevent panic selling and stabilise the market.
- Clear authority for extended suspension in extraordinary circumstances is necessary for effective crisis management.
- Circuit breakers must be carefully calibrated to prevent excessive volatility, but regulators should be prepared to act quickly if conditions do not improve.
- Consulting investors and stakeholders is crucial during times of crisis to ensure that regulatory decisions align with the market’s needs.
What Is the Path Forward for Nepal’s Capital Market?
Nepal’s capital market’s recovery will depend on restoring political stability and building a stronger economic foundation. Reforms should focus on increasing market depth, enhancing institutional investment, and improving investor education.
Additionally, further capacity building for SEBON and NEPSE will be essential to manage future challenges. Capital market reforms are necessary to ensure a more robust and resilient market capable of weathering political instability and economic shocks.
Conclusion
The suspension of trading in Nepal’s securities market in September 2025 was an extraordinary event triggered by political instability. While necessary to prevent a market collapse, it also highlighted the fragility of Nepal’s capital market and the need for reform. As the market recovers, it will be crucial to address regulatory gaps, enhance market resilience, and restore investor confidence to ensure sustainable growth.
For regulators, investors, and market participants alike, it is time to focus on strengthening Nepal’s capital market. By upgrading the legal framework, enhancing investor education, and building stronger institutions, Nepal can create a more stable, resilient market that can better withstand future challenges. Investors should stay informed and continue engaging with market reforms to safeguard their interests amid uncertainty.
