What is NEPSE (Nepal Stock Exchange)?

NEPSE is the short name of the Nepal Stock Exchange Limited, the only organised stock exchange in Nepal and the country's sole secondary market for buying and selling listed securities. Headquartered at Singha Durbar in central Kathmandu, it provides the marketplace, rules and infrastructure through which shares, debentures, government bonds, mutual-fund units and other instruments of listed companies change hands between investors. In everyday Nepali usage the single word 'NEPSE' is used loosely to mean both the institution itself and its benchmark index, the NEPSE Index, so context matters: people say 'NEPSE rose today' meaning the index, but 'NEPSE listed a new company' meaning the exchange.

As a secondary market, NEPSE does not raise fresh capital for companies directly; that happens in the primary market, when firms issue shares to the public through an Initial Public Offering (IPO) or Further Public Offering (FPO). Once those securities are issued and listed, NEPSE is where they are traded thereafter, giving early investors a way to sell and new investors a way to buy. The exchange itself is a limited company owned mainly by public-sector institutions rather than by private brokers; its largest shareholder is the Government of Nepal (around 58.7%), followed by Rastriya Banijya Bank (about 11.2%), the Employees Provident Fund (10%), Nepal Rastra Bank, the central bank (about 9.5%), and others.

Trading on NEPSE is heavily weighted toward the financial sector. Commercial banks, development banks, finance companies, microfinance institutions and insurance companies together make up a large share of listed firms and of total market capitalisation, which is why the NEPSE Index is often described as bank-driven. Other listed sectors include hydropower, hotels, manufacturing, trading and investment companies, each of which also has its own sub-index.

Ordinary investors cannot trade on NEPSE directly. To buy or sell shares a person must first open a Demat (dematerialised) account, since all listed securities in Nepal are held electronically rather than as paper certificates, and must trade through a licensed stockbroker. The broker enters buy and sell orders into NEPSE's electronic Trading Management System (TMS), an automated order-matching platform that has also been made available to investors for online order entry, allowing many people to place trades from a computer or phone rather than visiting a broker's office in person.

The trading day follows a fixed schedule on business days (Sunday to Friday, with Saturdays and public holidays closed). A pre-open session, typically from 10:45 to 11:00 a.m., is used to discover an opening price, after which the regular continuous trading session runs from 11:00 a.m. to 3:00 p.m. To dampen extreme volatility, individual stocks are subject to daily price limits ('circuit') and the whole market is protected by index-wide circuit breakers introduced in April 2019: if the NEPSE Index moves up or down by 4%, 5% or 6% in a session, trading is halted for a set period or for the rest of the day, the threshold depending on the size and time of the move.

After a trade is agreed, settlement is handled through CDS and Clearing Limited, Nepal's central depository and clearing house. In broad terms the payment leg settles a couple of business days after the trade and the securities leg shortly after (commonly described as a T+2 / T+3 cycle), so the buyer receives the shares in their Demat account and the seller receives the money within a few days. A typical worked example: an investor instructs a broker to buy 100 shares of a commercial bank at the prevailing market price; the order is matched on the TMS, the buyer pays the trade amount plus broker commission, SEBON fee and applicable charges, and within the settlement window the 100 shares appear in the buyer's Demat account while the index and that bank's sub-index reflect the day's price change.

The NEPSE Index is the headline market barometer that the public follows daily. It is a capitalisation-weighted index, meaning each listed company's influence on the index is proportional to its market capitalisation (share price multiplied by listed shares), so large companies move the index more than small ones. Because banks and other financial institutions dominate the market by size, the index tends to track the fortunes of the financial sector closely.

The index uses a base value of 100, set to the market's total capitalisation on 12 February 1994 (30 Magh 2050 in the Bikram Sambat calendar). A reading of, say, 2,000 therefore means the aggregate market value of the index's constituents is roughly twenty times what it was on that base date, before adjustments. Alongside the all-share NEPSE Index, the exchange publishes a float-adjusted Sensitive Index (covering selected companies) and a set of sectoral sub-indices (such as banking, development banks, finance, microfinance, life and non-life insurance, hydropower, hotels and manufacturing), which let investors see how individual sectors are performing relative to the whole market.

The index has gone through pronounced boom-and-bust cycles. After years of relatively low and volatile readings, it climbed steeply during the COVID-era retail-investor surge of 2020-2021, reaching a record closing high of 3,198.60 points on 18 August 2021 (with an intraday peak above that), before retreating substantially in the following years as interest rates rose and liquidity tightened. These swings illustrate that the NEPSE Index, like any stock index, reflects investor sentiment, liquidity and the macro-economy as much as the underlying earnings of listed firms.

Organised share dealing in Nepal traces back to 1937, when Biratnagar Jute Mills and Nepal Bank Limited issued shares to the public, but for decades there was no formal marketplace to trade them. The institutional foundations came later: the Securities Exchange Center was established in 1976 to develop the capital market, and it dealt in both government and corporate securities. Under the Securities Exchange Act of 1983 (with later amendments), the Securities Exchange Center was converted into the Nepal Stock Exchange, which formally opened its trading floor on 13 January 1994 (29 Poush 2050 BS), inaugurating Nepal's first true secondary share market.

In its early years NEPSE operated as an open-outcry floor, with brokers calling out bids and offers; trading was manual and the number of listed companies and turnover were small. The exchange modernised over the following decades, moving to an automated electronic trading system in 2007, establishing CDS and Clearing Limited to handle central depository and settlement functions in 2010, and progressively dematerialising securities and introducing online trading through the TMS so that investors across the country could participate.

Oversight of the market rests with the Securities Board of Nepal (SEBON), the apex securities-market regulator, which was established on 7 June 1993. SEBON licenses and supervises market intermediaries such as brokers, merchant bankers and the exchange itself, approves public issues and works to protect investors and develop the market. The governing statute today is the Securities Act, 2006 (2063 BS), which superseded the earlier 1983 framework; NEPSE operates as a licensed stock exchange under SEBON's regulation within this legal structure.

The most frequent confusion is between NEPSE the exchange and the NEPSE Index the number. NEPSE is the company and marketplace; the NEPSE Index is just one of the statistics it publishes. A second confusion is between NEPSE and SEBON: NEPSE runs the market, while SEBON is the government regulator that supervises NEPSE, brokers and issuers, much as a stock exchange and a securities commission are distinct bodies in other countries.

Several supporting institutions are often mentioned together with NEPSE. CDS and Clearing Limited (CDSC) is the central depository that holds securities in Demat form and clears and settles trades; it is not the exchange but a separate piece of market infrastructure. Brokers are the licensed firms through which investors must route orders, and a Demat account (plus, for IPO applications, a connected account in the C-ASBA system) is the prerequisite for participating.

Other commonly paired terms include the primary versus secondary market distinction (IPO/FPO issuance versus on-exchange trading), market capitalisation (the total value of listed shares, used to weight the index), the Sensitive Index versus the broad NEPSE Index, and sectoral sub-indices for groups such as commercial banks, microfinance, insurance and hydropower. Understanding that NEPSE sits at the centre of this ecosystem, regulated by SEBON, supported by CDSC and accessed through brokers, clears up most of the everyday confusion around the term.