The Nepal Stock Exchange (NEPSE) has initiated preparations to establish a separate trading platform for small and medium-sized enterprises (SMEs).

Following the implementation of the Securities Issuance and Transaction Regulations of Small and Medium Enterprises, 2024, introduced by the Securities Board of Nepal (SEBON) on January 16, SMEs can now raise capital through Initial Public Offerings (IPOs).

To facilitate SME securities trading in the secondary market, NEPSE is drafting regulations for a dedicated platform. NEPSE’s Information Officer Murahari Parajuli stated that the NEPSE Board of Directors formed a five-member committee on February 7 to prepare these regulations. The committee is led by Roshan Kumar Sigdel, the Nepal Rastra Bank (NRB) representative on the NEPSE Board.

Parajuli noted that the committee is working on the regulatory framework while also exploring technical enhancements. He added that NEPSE plans to introduce a separate index for SME securities within the existing trading system.

"Just as mutual funds and bonds are traded through NEPSE, we are creating a distinct category for SME securities trading," Parajuli explained. He clarified that while transactions of regular companies contribute to the NEPSE Index, SME transactions will be excluded. NEPSE aims to align its regulations with SEBON’s guidelines and will develop the required infrastructure once the framework is finalized.

Currently, NEPSE trades companies of all capital sizes on a single platform, causing significant fluctuations in the NEPSE Index due to price changes in large-cap stocks. Investor Tilak Koirala emphasized the need for a dedicated SME platform, stating that grouping companies by capital size would reduce market manipulation and ensure fair pricing. He also suggested adopting an SME trading model based on international best practices.

Under the new regulations, companies listed on the SME platform must have a paid-up capital of no more than Rs 250 million after their IPO. SEBON, however, may revise this limit based on market conditions. The regulations require SMEs to offer at least 30% but no more than 49% of their issued capital in a public offering.

The minimum application for SME IPOs is 500 units, with the maximum determined by the prospectus. If demand exceeds supply, allotment will be decided by lottery, ensuring all applicants receive at least 500 units. This 500-unit minimum also applies to SME secondary market trading.

The Securities Market Operator will implement an automated electronic trading system for the SME platform. Currently, the minimum IPO application requirement is 50 units for securities issued through the book-building method and 10 units for other issuance methods.

Companies listed on the SME platform will be allowed to issue IPOs at a premium price. Those opting to issue at face value may do so without a credit rating, unless SEBON mandates otherwise.