Nepal’s financial regulators have followed a pattern where they first issue many licenses for similar businesses and later force mergers when the market becomes overcrowded. This happened in the insurance sector before, and now it is happening with stock brokerage firms.
New Brokerage Licenses and Challenges
The Securities Board of Nepal (SEBON) recently issued 40 new brokerage licenses after criticism about a 50-firm syndicate controlling the capital market. However, the new firms are struggling because:
- Weak business performance despite meeting the NPR 200 million capital requirements
- 38 out of 90 brokers have not met the new capital rules.
- Digital trading has reduced the need for traditional brokers.
New Merger Guidelines Implemented
SEBON has finalized merger directives requiring brokers to:
- Submit merger plans by Poush end (mid-January)
- Increase capital by Ashad end (mid-July 2024)
- Get approval from shareholders for mergers.
SEBON spokesperson Niranjan Ghimire confirmed that some brokers have agreed to merge as part of their capital increase plans.
Brokers Oppose Tight Deadlines
Brokers argue the deadlines are unrealistic:
- Sagar Dhakal, President of the Stock Brokers Association, notes that the required 200% capital increase is much faster than the four years given to banks for similar changes.
- Digitalization has reduced the traditional brokerage business by 30-40%.
- New brokers have capital but no customers.
Revenue Challenges
Brokers are facing income challenges:
- Commission rates range from 0.24%-0.36% on trades
- 20% of commissions go to NEPSE
- Average daily brokerage revenue per firm has fallen to NPR 150,000 from NPR 300,000 due to digitalization.
Market Situation
- 90 brokers are competing for a shrinking market.
- 38 firms risk losing their licenses due to low capital.
- Mergers seem necessary but take 3-6 months to complete.
Source: Securities Board of Nepal, Stock Brokers Association