Nepal Proposes Intraday Share Trading With Rs 200 Million Broker Capital Requirement

Same day trading would come with compulsory closing and investor checks

Nepal's Securities Board has proposed allowing investors to buy and sell the same company's shares within a single trading day, with brokers required to close unfinished trades automatically and assess whether customers can afford the risks. Brokers seeking to provide the service would need at least Rs 200 million in paid up capital and net worth exceeding that amount.

The preliminary Intraday Securities Trading Regulations, 2083, would create a separate route for trading on daily price movements. Investors could buy shares and sell them later that day, or, under the permitted arrangements, sell first and buy back before the deadline. Any profit, loss, fee or other financial obligation arising from an automatic closing would belong to the investor.

The Securities Board of Nepal, known as SEBON, has invited comments by Mangsir 4 in Nepal's calendar. Government approval would be required before the regulations could be issued, and the board would set their effective date. No launch date has been announced.

Nepal's ordinary share trading arrangements generally require buyers to wait until purchased shares reach their demat account, the electronic account that records ownership, before selling them. The proposal would introduce a distinct facility for eligible investors, approved brokers and selected shares.

SEBON's stated aims are to increase trading activity, make buying and selling easier, and improve price discovery, the process through which buyers and sellers arrive at a market price. The draft pairs that ambition with checks on customers, advance financial security and monitoring while trading is taking place.

How a trade could produce a profit or a loss

An investor buying 100 shares at Rs 500 each would open a position worth Rs 50,000. If the investor sold all 100 shares later that day at Rs 520, the proceeds would be Rs 52,000. The difference would be a Rs 2,000 profit before fees and other applicable costs.

A fall to Rs 480 would reverse the result. Selling the same shares would bring in Rs 48,000, producing a Rs 2,000 loss before costs. Trading expenses would reduce a gain or increase a loss.

Selling first would reverse the order of the transactions. A sale of 100 shares at Rs 500, followed by a purchase of 100 shares at Rs 480, would leave a Rs 2,000 difference before costs. Buying them back at Rs 520 would instead cost Rs 2,000 more than the original sale brought in.

The final rules and operating arrangements would determine the conditions for selling first and which securities could be used. In either direction, the proposed intraday facility centres on completing both sides of the transaction during the same trading day.

Investors could not simply wait until tomorrow

The draft would require investors to close their open positions by the prescribed time. An open position is an unfinished trade: shares bought but not yet sold, or shares sold that must still be bought back. Completing the opposite transaction is commonly called squaring off.

A customer who bought shares for Rs 50,000 and watched their value fall to Rs 47,000 could not ordinarily keep an intraday position open overnight while waiting for a recovery. If the customer failed to close it on time, the broker's system would have to do so and notify the customer. The investor would bear the resulting financial outcome.

The draft also allows conversion into an ordinary share transaction in circumstances specified by SEBON. Investors would have to meet the necessary funding, margin and share delivery requirements. That option would depend on the permitted circumstances and the particular transaction.

The exchange could organise trading into opening, continuous trading, position closing and final trading sessions. It would publish the times and operating procedures, giving customers a defined period in which to finish their intraday transactions.

Margin would provide security, while increasing exposure

Every participating investor would have to maintain margin, meaning money or approved collateral held as security against trading risk. Brokers would be prohibited from allowing intraday transactions without sufficient margin.

The draft leaves SEBON to determine the types of margin, their rates, calculation methods and acceptable collateral. Relevant factors would include share price volatility, ease of trading, transaction volume, the investor's capacity to bear losses and market conditions.

A hypothetical 25 percent margin requirement illustrates how the arrangement could work. An investor opening a position worth Rs 100,000 would need Rs 25,000 in margin. If that position lost 5 percent of its value, the Rs 5,000 loss would equal 20 percent of the initial margin. The 25 percent rate is an example; the proposal does not prescribe it as a universal requirement.

Margin requirements could change as prices move. Brokers would have to tell customers promptly when their security became insufficient. If customers failed to provide more money or collateral, brokers could block new orders, reduce exposure or close positions.

An investor would therefore need to consider both the amount initially deposited and the size of the position it supports. A relatively small movement in the share price can consume a much larger share of the investor's deposited funds.

Who would qualify to trade?

Brokers would have to assess customers individually before granting access. The proposed suitability checks cover identity, financial capacity, market experience, trading objectives and ability to bear losses.

The assessment would examine annual income, sources of investment money, assets, trading history, transaction frequency and emergency funds. Customers would also disclose what share of their total assets they intended to commit to intraday trading.

The proposed screening includes assessing financial and psychological capacity to withstand a potential loss of up to 20 percent. Customers could be classified into low, medium and high risk groups. Their permitted trading exposure would then reflect their circumstances rather than simply their wish to place a larger order.

Investors would need to provide customer identification details, acknowledge the risks, sign a trading agreement and accept the margin conditions. An existing brokerage account would therefore be only the starting point for access to the proposed service.

Each order would face further checks before execution. Brokers would examine the customer's instruction, available margin, risk limits and other required conditions. These checks would continue after the initial decision to admit a customer.

Only selected shares would be eligible

The Nepal Stock Exchange, known as NEPSE, would publish a list of securities approved for intraday trading. Selection would depend on criteria including market capitalisation, daily trading volume, liquidity, shares available for public trading, price volatility, financial condition and corporate governance.

Liquidity describes how readily a share can be bought or sold. It matters especially when a trade must be completed before a deadline: an investor needs another buyer or seller at the time the position has to close.

The exchange could add securities, remove them or suspend their eligibility as circumstances changed, with SEBON informed of the changes. Customers would need to check the current approved list rather than assume that every listed company qualified.

Trading limits could apply at four levels: the individual customer, the broker or securities business, the security itself, and the market as a whole. Customer limits could take account of financial capacity, available margin, liquidity, market risk and the number of shares available for trading.

Brokers would need capital and systems that work together

Brokers or securities dealers seeking to operate the facility would need separate SEBON approval. The proposed minimum paid up capital is Rs 200 million, equivalent to 20 crore rupees, and net worth would have to exceed paid up capital.

Paid up capital is money shareholders have contributed to the business. Net worth is the value of assets remaining after liabilities are deducted. The draft would require firms to satisfy both financial conditions.

Approved firms would also need an appointed risk management officer, internal controls, secure technology and systems connected to the trading platform. They would need to detect and respond to changing exposure while transactions were taking place.

Business continuity and disaster recovery plans would form part of the requirements. These plans address how a firm keeps essential services running during disruption and restores systems after a serious failure, an important operational issue when positions face a closing deadline.

Brokers would have to keep client money and shares separate from their own assets and prevent unauthorised use of customer property. A complaints mechanism would also be required, giving investors a formal route to raise problems involving the service.

NEPSE would monitor trading as it happens

The stock exchange would need SEBON approval and the necessary technical infrastructure before introducing intraday trading. Its responsibilities would include order entry, matching buy and sell instructions, confirming trades and monitoring risk in real time.

Surveillance would look for unusual price movements, suspicious activity and market abuse. If risk increased, the proposed controls would allow higher margin requirements, lower trading limits or a temporary halt to intraday trading in particular securities.

SEBON, the exchange and brokers would also be expected to provide investor education. Customers would need to understand the financial commitments created by margin and the requirement to complete trades within the permitted session.

The potential market benefit is more opportunities to match buyers with sellers. A participant could trade several times during a day, increasing activity and potentially making transactions easier to complete. For the customer, however, each new trade also creates another decision about price, timing and cost.

Longer term investors can focus on a company's finances and prospects over months or years. Intraday participants would be trying to judge movements within hours, with less time to respond and a deadline that could require them to accept a loss.

Consultation comes before approval and a possible phased launch

SEBON developed the preliminary regulations from an earlier concept paper. The proposed sequence leaves room for changes after consultation and for a limited introduction before wider access.

• Asoj 8: SEBON issued its concept paper on implementing intraday trading.
• Kartik 19: The preliminary regulations were reported as public for consultation.
• Mangsir 4: Stakeholders face the deadline for submitting comments.
• After consultation: The draft may be revised, government approval would be required, and SEBON would set the effective date.

The board could initially restrict the facility to specified securities, selected brokers and eligible groups of investors. The draft gives it the option of introducing the system in stages rather than opening access across the market at once.

For prospective customers, the practical terms would depend on several connected decisions: which brokers receive approval, which shares qualify, how much margin is required, what limits apply and when positions must close. Those details would shape both access to the service and the amount of money an investor could put at risk.

Key Points

• SEBON has proposed intraday share trading, with comments invited by Mangsir 4.
• Investors would have to close positions the same day, with brokers required to close unfinished trades automatically.
• Participating brokers would need at least Rs 200 million in paid up capital and net worth above that amount.
• Customers would face suitability checks, margin requirements and trading limits.
• Only approved securities would qualify, and NEPSE would monitor activity in real time.
• Government approval and a SEBON effective date are required before the regulations take effect.