Kathmandu: Securities brokers and stock dealers operating in Nepal’s share market have been accused of serious financial misconduct after allegedly bypassing mandatory paid-up capital requirements and channelling company funds back to shareholders and promoters, according to the latest report of the Office of the Auditor General.
Under the Securities Businessperson Regulations 2008, brokerage firms are required to maintain minimum paid-up capital ranging from Rs 200 million to Rs 600 million, while stock dealers must maintain at least Rs 1.5 billion in capital.
However, the Auditor General found that several brokerage companies increased their capital only on paper, while much of the money was later circulated back to directors and shareholders through advances and related-party transactions instead of being used for the company’s actual operations.
The report warns that the practice has weakened the financial foundation of these institutions and raised serious concerns about corporate governance within Nepal’s capital market.
According to the report, one stock house with paid-up capital of Rs 204 million had provided Rs 97.9 million — or 48.01 percent of its capital — as advances to shareholders.
Another securities exchange company that maintained Rs 200 million in paid-up capital had allegedly returned Rs 185 million, or 92.5 percent of that amount, to shareholders in the form of advances.
Similarly, one securities company was found to have routed Rs 161.2 million — equivalent to 80.61 percent of its Rs 200 million capital — back to directors and shareholders. Another securities firm reportedly provided Rs 134.7 million, or 67.39 percent of its capital, as advances.
The Auditor General stated that some firms had distributed between 48 percent and 92 percent of their paid-up capital to shareholders under headings such as “direct advances” and “advances for fixed capital.”
The report said such practices amount to a serious breach of institutional governance because company capital is not being mobilized for its intended business purpose. Instead, directors are allegedly using company resources for personal benefit while presenting the firms as financially strong on paper.
The report further warned that this trend encourages a dangerous culture in which companies appear well-capitalized in official records but remain financially hollow in practice.
The Auditor General also criticized the Nepal Stock Exchange for failing to fulfil its market oversight responsibilities.
Under NEPSE’s supervision regulations, the exchange is required to conduct daily monitoring and analysis of suspicious or abnormal stock price movements. However, the report noted that during the month of Shrawan in fiscal year 2081 BS, share prices of 19 listed companies surged between 61 percent and nearly 100 percent without any monitoring, review, or investigation from the exchange.
Although the Securities Trading Operations Regulations 2018 grant regulators the authority to suspend trading for up to 15 days in cases of abnormal market fluctuations, the report said the silence of regulatory bodies on such sensitive matters has effectively emboldened market manipulators.
Comment Here