Trading Mechanism of Securities in Nepal 2019

Trading Mechanism of Securities in Nepal 

          Trading Mechanism is the procedures of buying and selling securities in the financial markets. Generally, securities are traded in an organized exchange centre like Nepal Stock Exchange. An investor can trade the securities either in primary market or secondary market. Primary market is the area or mechanism in which newly issued (first hand) securities are traded. Secondary market is the area/mechanism in which previously issued and traded (second hand) securities are traded. Nepal Stock Exchange (NEPSE) is playing the role of secondary market in the context on Nepal. Brokerage firms facilitate to transact the listed securities in NEPSE and they charge commission for their service. 

a.Trading in Primary Market 

an investor can trade the financial securities in the primary market through the following important procedures: 

1.Collection of information: 

At first, investors should collect various information of the firms through newspapers, radios, televisions, etc which firms are going to issue new shares. An investor should analyze the various aspects of the firm based on collected information and has to make decision either to invest or not in the securities which re newly issued by the firms. 

2.Applying: 

investors have their own objectives to invest in to the financial securities. Hence, investors are attracted toward those firms' securities to investfrom which they can fulfill their objectives. Investors should apply for the suitable securities which are issued by the various firms. Investors submit their application form by depositing minimum required amount in the bank to purchase their desired number of securities from the primary market. 

3.Share Allotment: 

Number of applications to purchase the securities may be equal or more or less than the number of securities offered by the firms in the market. All applicates can purchase the securities according to application if the number of application is equal or less than the number of shares is going to be issued. If application is over subscription than the number of issue of securities then allocation of shares are based on present acts, rules and regulations. Generally, shares are allocated on pro-rata basis. At the time of share allotment, investors to whom shares are allocated they receiving the shares certificates and applicants who are not allocating shares are refunding their application money. 

b.Trading in Secondary Market 

generally trading security represents to the process of buying and selling of securities in the secondary market. NEPSE is the secondary market of Nepal. Trading of securities on secondary market can be explained as follows: 

1.Selection of broker and order: 

At first, investor has to select broker or brokerage firm for the transaction of securities in the secondary market. Broker provides the customer identity card to the investors. An investor can place the order to the broker fulfilling the legal formalities with company's name, order size, timing, types of order, etc. for the execution of buy order or sell order of securities after selecting broker and receiving the customer identity card. 

2.Trading: 

Brokerage firms or brokers receive the buy orders or sell orders of variousinvestors to execute their orders.they contact on trading floor of NEPSE and proposed their price for trading of the securities. There is the execution of buy order or sell order if there is the matching of the price of sell order and buy order. If orders are executed buyers make the payment and sellers receive the payment, securities are transferred and transaction is completed with the payment of service and brokerage fees. 

3.Lot Size: 

Lot is defined as minimum number of securities that can be traded at a single time. Trading lots of securities listed in the NEPSE are categorized as board lot and odd lot which is based on the face value of the securities. If the face values of the securities are Rs.10, Rs.100 and Rs.1000 the minimum number of securities that is to be traded are 100, 10, and 1 respectively. The above stated lots are board lot and the securities other than stated lots are odd lots. 

4.Order and Order Registration: 

Order is an expression of interest to either nuy or sell a specified number of securities either at a specified price or at the current market price. Clients give orders to licensed brokers by filling the buy order or sell order forms. The brokers matched the best buy order with the best sell order. Buy order is given by potential buyer to broker to purchase securities by mentioning his/her name and address, the name of the desired company, the number of securities, the price of the securities, etc. that s/he wants to pay with specific time limit in the buy order form. Sell order is given by potential buyers, to broker to sell his/her securities mentioning the name of the company, number of securities, price of the securities at which s/he want to sell etc. with specific time limit in the sell order form. If the buy order or sell order time limit is not specified, it should be executed with in 15 days otherwise it will be automatically cancelled. 

5.Blank Transfer: 

Blank transfer facilitates to sell the securities prior the permanent ownership transfer. It is often called temporary ownership transfer. Under this mechanism, an opportunities to derive the market benefit is provided. But presently, the buying brokers must complete the blank transfer process within T+5. The investor should fill the blank transfer form to receive such facilities. The transactions that are executed can be recorded in different ways and NEPSE has considered all possible retention. If s/he register total purchase in blank transfer and can put for sale and if only the part of the shares are subscribed then s/he can handover the part and the part can be forwarded for name transfer to the concerned company. In order to do this s/he has to cancel the blank transfer for that portion. 

6.Circuit Breakers: 

Circuit breaker is a mechanism which stops to cross the limit of the NEPSE index or price of individual security in a single day. NEPSE has implemented index based circuit breakers with effect from September 21, 2007. The index based circuit breaker system applies at three stages of the NEPSE index movement of 3 percent, 4 percent,and 5 percent. These circuit breakers when triggered bring about a trading halt in all equity. In case of 3 percent movement either way there would be market halt for 15 minutes if the movement takes place during first hour of trading i.e. 13:00 hours. In casethis movement takes after 13:00 hours there will be no trading halt at this level and market shall continue trading. In case of 4 percent movement either way there would be a market halt for half an hour if the movement takes place before 14:00 hours. In case this movement takes after 14:00 hours there will be not trading halt at this level and market shall continue trading. In case of 5 percent movement in either way, trading shall be halted for the remainder of the day. 

7.Price Range: 

It is applicable on individual securities. The trading of the individual securities are not halted but allowed to trade within the price range. The price range band is 10 percent of previous close on either way. At the opening session the range is 5 percent on either way of previous close price. After the band is 2 percent on either way of the last traded price till it reaches to 10 precent of the previous close price. 

8.Market Timing: 

Trading of equity shares on NEPSE takes place on all days of week (except Saturday and holidats declared by exchange in advance). On Friday only odd lot trading is done. Market timings for regular lot and odd lot are as below. 

Regular trading is 5 days Sunday to Thursday 12 noon to 3 PM, odd lot trading only on Friday 12 noon to 1 PM whereas government securities are traded Sunday to Friday 10:30 to 11:30. 

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