The framework governing the registration and issuance of securities in Nepal, as established by Chapter 3 of the Securities Act 2007, is a crucial pillar of the country’s capital market system. This Act not only dictates the procedural requirements for how companies must prepare, register, and issue securities, but also reflects the legislature’s broader intention to safeguard investors, ensure transparency, and support legitimate capital raising through regulated market channels. This emphasis on investor protection should instil a sense of security and confidence in the audience.
This chapter outlines the responsibilities of the Securities Board of Nepal (SEBON), the regulator tasked with overseeing public offerings and ensuring that issuers comply with mandatory disclosure, reporting, and procedural standards. For companies planning to raise capital from the public and for professionals advising them, a clear understanding of Chapter 3 is both essential and legally required.
Legal Basis for Securities Registration in Nepal
Under Chapter 3 of the Securities Act 2007, no entity may issue securities to the public unless it secures prior approval from SEBON.
This central requirement protects investors by ensuring that only well-documented, rigorously evaluated, and legally compliant securities are allowed to enter the market.
The registration process begins when an issuer submits a formal application for approval. This application must be accompanied by several mandatory documents, including audited financial statements, detailed information about the company’s operations, and a prospectus prepared in accordance with legal standards.
The Act requires these materials to be comprehensive so that SEBON can effectively examine the issuing entity’s financial condition, business viability, and transparency. SEBON has full authority to review the application, request clarifications, and seek additional information.
Issuers must respond promptly to avoid unnecessary delays. Timelines for SEBON’s decision-making are outlined in the legislation, ensuring that the approval process is predictable and that companies are not held in prolonged regulatory uncertainty.
However, extensions may occur where applications are incomplete or where additional scrutiny is necessary due to complexity or deficient disclosure.
Prospectus Standards and Mandatory Disclosures
The prospectus forms the core of the entire registration and issuance framework. Chapter 3 requires that every prospectus provide complete, accurate, and clear information, enabling investors to make well-informed decisions.
- A legally compliant prospectus must disclose
- The company’s organisational structure and governance
- Details of the management team
- A clear description of the business model
- Multi-year financial statements with explanatory notes
- The intended use of funds
- Material risks associated with the company or industry
- Any ongoing litigation
- Details of related-party transactions
- Any material contracts affecting the business
The requirement for clarity is equally important. While companies must be thorough and technically accurate, they must also ensure the prospectus is written in simple, understandable language, particularly because retail investors make up a large portion of Nepal’s investing population. This balance between simplicity and precision is often challenging but essential to legal compliance.
SEBON’s Approval Process and Regulatory Decisions
SEBON’s approval process is both technical and substantive. When an application is submitted, the Board examines whether:
- All required documents are included
- The prospectus meets legal and disclosure standards.
- The issuer satisfies minimum financial and operational requirements.
- There is no misleading, incomplete, or false statements
- Regulatory risk, investor risk, and market risk have been adequately disclosed.
SEBON may approve the offering, reject it, or approve it subject to specific conditions being met. Conditional approval is common and may require corrections, additional disclosures, modifications of terms, or improvements in governance. If the application is rejected, SEBON must provide written reasons that identify the deficiencies. This transparency allows issuers to correct issues and reapply.
Common reasons for rejection include inadequate disclosure, questionable financial statements, non-compliance with minimum capital requirements, or concerns about management integrity. Issuers also retain the right to appeal adverse decisions under existing administrative review procedures.
Post-Approval and Ongoing Compliance Requirements
Obtaining SEBON’s approval is just the beginning of the issuer’s obligations. Companies that have issued securities to the public are required to comply with ongoing reporting and disclosure responsibilities. This emphasis on continuous compliance should always underscore the importance of adhering to regulations.
These include:
- Periodic financial reporting
- Disclosure of any material events affecting business value
- Maintenance of proper corporate governance standards
- Timely updates to SEBON and the public on significant developments
Failure to meet these obligations can result in enforcement action, including fines, suspension of securities trading, or even delisting from the stock exchange. These consequences underscore the importance of strict adherence to the Securities Act and highlight the potential risks associated with non-compliance.
Practical Difficulties in Nepal’s Securities Registration Process
Despite the structured nature of Chapter 3, companies often face practical challenges when navigating the registration and issuance process. These challenges arise from a combination of regulatory, administrative, and market-based issues. These issues include regulatory capacity limitations, excessive compliance costs, documentation requirements, administrative demands, and market conditions that affect offerings.
SEBON, like many regulators in emerging markets, occasionally faces capacity constraints. During periods of high market activity, this can lead to slower review times and extended waiting periods. Although the Act provides clear deadlines, complex applications may still result in delays.
Complying with disclosure requirements requires significant investment in legal, accounting, and consulting services. Smaller companies may find the cost of preparing audited financial statements, hiring merchant bankers, and managing documentation burdensome.
Issuers are required to prepare detailed reports and gather extensive historical financial information, which may not always be readily available, particularly for family-owned or rapidly growing businesses.
Even after securing approval, companies may face difficulties if market conditions are unfavourable. Investor risk aversion, sector downturns, or broader economic instability can result in undersubscribed offerings.
These issues highlight that transparent and compliant registration alone does not guarantee successful capital raising. Market readiness, investor perception, and timing are equally crucial factors. A company may have all the necessary approvals and a well-prepared prospectus, but if the market conditions are unfavourable, the offering may not be successful.
Comparative Context and Opportunities for Reform
Nepal’s securities registration and issuance framework is broadly aligned with international standards that emphasise disclosure over restrictive merit-based regulation. This approach provides investors with the freedom to make informed decisions while ensuring that issuers maintain transparency.
However, refinements are still needed. Areas for potential improvement include:
- Digitalising filing and review systems
- Streamlining approvals for repeat issues with strong compliance histories
- Adjusting processes to encourage more small and medium enterprises (SMEs)
- Strengthening enforcement for non-compliant issuers and intermediaries
Continuous reform, as evidenced by ongoing efforts to improve efficiency and accessibility, ensures the capital market remains competitive, transparent, and trusted. This emphasis on constant improvement should instil optimism in the audience about the future of the securities market in Nepal.
Conclusion
Chapter 3 of the Securities Act 2063 provides a clear and comprehensive framework governing the registration and issuance of securities in Nepal.
It establishes mandatory disclosure standards, empowers SEBON to protect investors, and ensures that companies issuing securities do so responsibly and transparently.
Compliance with these provisions forms the legal foundation for any company seeking to raise capital through public offerings.
As Nepal’s capital market continues to grow, the responsibility lies with issuers, advisers, intermediaries, and regulators to uphold transparency, accuracy, and integrity throughout the process. A strong securities market depends on collective adherence to these principles.
If your organisation is considering a public offering or plans to issue securities in Nepal, begin by developing a clear compliance roadmap.
Engage qualified legal and financial advisers early, prepare accurate disclosures, and ensure your internal governance practices align with SEBON’s expectations.
