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Broker license to bank subsidiary draws mixed reaction

2018-07-15

The recent announcement of the Nepal Rastra Bank (NRB) in its monetary policy for the upcoming fiscal year to allow commercial banks to work as brokerage firms has prompted mixed reactions from stakeholders. 

While those supporting the decision say that the growing reach of banks can help expand the capital market beyond the Kathmandu Valley, critics argue that allowing brokerage business to the banks in a market dominated by bank and financial institutions (BFIs) will give rise to conflict of interest. 

Unveiling the monetary policy on Wednesday, NRB Governor Chiranjibi Nepal said that arrangement will be made to allow commercial banks to provide securities brokerage firms if they seek permission from the central bank. However, any commercial bank that wants to provide brokerage services should open a separate subsidiary for the license. 

The central bank’s move to pave way for commercial banks to open subsidiaries to work as brokerage firms comes in line with the demands of bankers and the request of the Securities Board of Nepal (Sebon)—the capital market regulatory authority. 

Bankers have welcomed the move. “The share market that was largely limited inside the Ring Road of Kathmandu will get expanded to other parts of the country,” said Anil Keshary Shah, former president of Nepal Bankers’ Association. 

The stock market has been confined to the Kathmandu Valley mainly due to lack of presence of brokerage firms in other parts of the country. While some brokerage firms have opened their office in few major cities outside Kathmandu, their share of transactions to the total transactions is still negligible. 

However, brokerage firms who have been opposing the plan say that coverage is not going to be an issue anymore as online trading system is being implemented by Nepal Stock Exchange Company (Nepse) soon. Instead, they say that the banks coming into the market as brokerage firms could have unintended impact. 
“Our stock market is still in infancy. Bank and financial institutions account for nearly two-third of listed companies in the market. If you give the license to banks for brokerage service, it may not be fair from the governance and regulation point of view,” said a CEO of a brokerage firm, requesting anonymity. 

Earlier when the Sebon had announced that it was open to allow banks to work as brokerage firms, Stock Brokers Association of Nepal (SBAN) had suggested the capital market regulator to not issue such license to banks. 

However, Niraj Giri, the spokesperson of Sebon, said that there could not be any conflict of interest in allowing a bank’s subsidiary to work as brokerage firm because such subsidiary would only execute order and buy orders on behalf of its clients, not work as dealer itself. 

It may take a few months for any bank’s subsidiary to start service as a brokerage firm. Interested bank will have to set up a subsidiary company and register it with the Office of Company Registrar before getting license of brokerage firm from Sebon to start providing brokerage services, according to officials at the Sebon.

Source: My Republica