Abhishek kushwaha

The Securities Board of Nepal (SEBON) has introduced a 'Guidelines relating to merger/ merger or acquisition of securities traders, 2081', allowing stock brokerage firms to merge, providing an alternative for those struggling to meet the increased minimum capital requirements. The directive was approved in a recent board meeting which held at March 26, 2025. Which aims to consolidate the sector and ensure financial stability among brokerage firms.

Increased Capital Requirements and Compliance Challenges

In September 2022 (Bhadra 2079), SEBON raised the minimum paid-up capital requirement for brokerage firms from NPR 20 million to NPR 200 million for brokers with limited operations and NPR 600 million for those conducting full operations. While all 40 newly licensed brokerage firms have met this requirement, many older firms continue to struggle.

Of the 50 brokerage firms operating before the capital hike, only 22 have met the NPR 200 million threshold, leaving 28 firms non-compliant. SEBON previously directed 38 older brokers to submit capital plans by mid-December 2024, outlining strategies such as mergers, issuing rights shares, or distributing bonus shares. A dozen brokers have committed to reaching the required capital by the end of the fiscal year 2081/82 (mid-July 2025), while others have opted for mergers to comply with the regulations.

Broker Merger Guidelines and Industry Response

To facilitate mergers, SEBON has prepared and approved a separate merger directive, which outlines procedural requirements such as submitting applications and obtaining approval from the general assemblies of the merging firms. The directive is expected to reduce the total number of brokerage firms operating in the market.

Despite the regulatory push, industry leaders have expressed concerns over the tight timeline. Stock Brokers Association of Nepal (SBAN) President Sagar Dhakal criticized the deadline, arguing that a tenfold capital increase within such a short period is unrealistic. He suggested extending the deadline to mid-July 2027, similar to the four-year window provided to banks for capital increases.

Market Impact and Future Uncertainty

Nepal’s stock brokerage industry now faces a paradox: newly established firms meet the capital requirements but lack substantial business, while older, experienced firms struggle to raise capital. Some industry experts argue that mergers could be beneficial, combining financial strength with operational expertise. However, concerns remain about the long-term sustainability of the sector, particularly as digitalization reduces the need for physical brokerage operations.

Brokerages generate revenue primarily through commissions on share transactions, typically ranging from 0.24% to 0.36%, with 20% of this amount allocated to the Nepal Stock Exchange (NEPSE). As more trading activities shift online, brokers face additional financial pressure, making compliance with capital requirements even more challenging.

Conclusion

With SEBON balancing regulatory enforcement with industry concerns, the next few months will be critical in determining the future of Nepal’s brokerage sector. The success of the merger directive will depend on how efficiently firms can navigate the process while ensuring market stability. Whether this consolidation strengthens the sector or exposes deeper regulatory inefficiencies remains to be seen.