SEBON Flags Structural Gaps in Primary Securities Market

Nepal’s primary securities market has expanded in both investor participation and the size of public offerings, but its structural development has lagged, according to the Securities Board of Nepal (SEBON).

SEBON’s White Paper on the Development of Nepal’s Primary Capital Market, 2026 identifies weaknesses in pricing, share allocation, institutional participation, information disclosure and market supervision, and calls for broad reforms.

The primary market remains heavily dependent on fixed-price offerings, while market-based price discovery is limited. Participation by qualified institutional investors is also low, while the allocation system for public offerings needs improvement, the white paper says.

IPO demand outpaces supply

Demand for initial public offerings (IPOs) is exceptionally high, but the number of shares offered is small compared with demand. This has made the lottery system a common feature of IPO allocation.

SEBON says excessive oversubscription, the minimum 10-share allocation, limited price discovery and heavy reliance on individual investors are major structural constraints.

The regulator says these factors can prevent the primary market from accurately reflecting investor demand and valuations and could weaken its ability to mobilise capital efficiently.

SEBON Chairman Dr Gopal Prasad Bhatta has said the 10-share minimum allocation policy should be reconsidered.

He told New Business Age that the policy is not necessarily wrong, but small investors with limited funds and inadequate knowledge of investment risks may be better served through mutual funds than direct investment in shares.

Fixed pricing limits price discovery

Most public offerings in Nepal are issued at a fixed par value. While the system simplifies fundraising for small and early-stage companies, SEBON says it can make it difficult to determine the value of larger and more mature companies.

The white paper says fixed pricing may result in companies raising capital below their actual value or investors paying prices that do not reflect the shares’ intrinsic value.

SEBON has therefore called for a better balance between par-value pricing and market-based price discovery.

Book building remains limited

Book building was introduced to improve price discovery, but its use remains limited.

Only Sarbottam Cement and Reliance Spinning Mills have so far issued IPOs through the system, and both offerings faced controversy.

SEBON says the framework needs improvement in areas including institutional investor participation, bidding, price determination, allocation transparency, conflicts of interest and the accountability of issue managers.

The board plans to revise the allocation ratio between the general public and qualified institutional investors under the book-building system.

It is also considering a framework for anchor investors, valuation standards and a digital book-building platform.

Bhatta said further study is needed before determining the appropriate allocation ratio.

Institutional investors remain underrepresented

Individual investors dominate Nepal’s primary market, while participation by long-term institutional investors remains limited.

SEBON says greater participation by mutual funds, insurers, pension and retirement funds and the Citizen Investment Trust could improve price discovery, market discipline and company valuations.

But the demand and expertise of these investors are not being adequately utilised in the primary market, the white paper says.

IPO eligibility also needs review

SEBON also plans to review the criteria companies must meet to issue IPOs.

The regulator says existing rules need to reflect the emergence of new business models, startups and large infrastructure and hydropower projects.

It has proposed risk-based eligibility criteria tailored to the nature of each business. The aim is to reduce risks from poorly prepared companies while allowing stronger companies easier access to the capital market.

Disclosure and oversight gaps

SEBON says investors rely heavily on prospectuses and other disclosures when making primary-market investment decisions, making accurate, timely and understandable information essential.

But the white paper identifies weaknesses in due diligence and accountability involving issue managers, auditors, legal advisers and company management.

The regulator says their responsibilities need to be defined more clearly.

Digital systems remain fragmented

Digital services such as ASBA, MeroShare and online IPO applications have expanded access to the primary market. But SEBON says the IPO process has yet to become a fully integrated digital system.

It has proposed an integrated IPO portal, electronic KYC, digital prospectuses, API integration, real-time supervisory dashboards and stronger cybersecurity as part of the next phase of digital reform.