Kathmandu— Nepal’s capital market regulator, the Securities Board of Nepal (SEBON), issued a 19-point directive to the Nepal Stock Exchange (NEPSE) on Tuesday addressing concerns about automated trading technologies and ongoing technical issues within the country's stock exchange system. The directives include an immediate halt to orders placed using Artificial Intelligence (AI)-based technologies, alongside a mandate to study the feasibility of integrating such technologies in the future. SEBON also addressed investor complaints regarding the Trade Management System (TMS) and requested improvements to online trading platforms, security measures, and information dissemination.

AI Trading Under Scrutiny

SEBON has directed NEPSE to identify and prevent orders placed using AI-based technologies within the Trade Management System (TMS), requesting a public notice be issued to inform investors of this measure. Simultaneously, SEBON is asking NEPSE to conduct a comprehensive study exploring international practices, Nepal’s specific needs, existing infrastructure, and necessary legal frameworks for potentially enabling trading through AI in the future.

System Modernization And Security

The regulator emphasized the need to address recurring technical issues within the NEPSE Online Trading System (NOTS), calling for enhancements and modernization to facilitate new instrument trading and ensure a secure environment. In response to investor complaints regarding the TMS, SEBON has mandated an IT Audit – including vulnerability assessment and penetration testing – of approved systems, with results to be submitted as a report.

Enhanced Investor Services

SEBON is pushing for increased accessibility and convenience for investors by directing NEPSE to enable secondary market securities trading through a mobile application. The board also requested arrangements for Centralized Know Your Customer (C-KYC) data, currently managed by CDS and Clearing Limited, to be usable when opening TMS accounts for securities trading. Furthermore, SEBON has asked NEPSE to develop the data.nepalstock.com portal to improve the dissemination of official information from listed companies.

Brokerage And Merchant Banker Oversight

The directives extend beyond NEPSE itself, with SEBON instructing brokerage firms to maintain separate bank accounts for securities business operations and client funds. Inspections revealed some firms were consolidating all funds into a single account, violating existing provisions. Merchant bankers are also required to conduct thorough objective studies of issuing companies – assessing financial health, management, and potential conflicts of interest – before submitting applications for security issuance.

Market Rule Review

SEBON has asked NEPSE to review the current circuit breaker rule, which allows a 15 percent daily fluctuation in secondary market trading. The board wants recommendations on whether this limit requires adjustment. Additionally, NEPSE has one week to submit a study regarding the potential resumption of calculating the NEPSE Index based on trading during the final 15 minutes of each session – a practice previously implemented and then suspended.

The directives signal SEBON’s commitment to modernizing Nepal's stock exchange while prioritizing investor protection and market stability. Further developments are expected as NEPSE conducts the requested studies and implements the necessary changes.

(With inputs from RN)

Originally published on abcnews.com.np.