Investor Bankers In Nepal

Primary market is the first issue market since shares are floated for the first time by inviting the investing public to buy the shares. In the historical context, the growth of the primary market is encouraging as public investors are interested to buy the shares with greater confidence on the performance of the companies. But companies have risk in issuing the shares for not getting fully subscribed. So, they take the help of the investment bankers that play a very signifincant role in primary market to provide guarantee of funds in case of shares not fully sold. The investment bankers is that they not only provide funds but also help in advising them to sell, how to sell and where to sell for getting the success of share floation. In order to support wtih evidence regarding the role of investment banker and its relationship with regulating authority, the following information prove that validity.

Investment bankers, who assist individuals needing funds by locating individuals wanting to invest funds, usually handle security issued in the primary market. It should be noted that investment banker sometimes offer for sale large blocks of already outstanding stock in what is known as secondary distribution. Investment bankers may act either as agents or as principals in any given transactions. If an investment banker actually purchases the issue, form the firm and attempts to resell it. In this instance, the investment banker guarantees that the selling firm will receive the proceed of the sale after the investment banker's fee and expenses. The investor banker in this principal transaction is often called an underwriter.
When an investment banker acts only as an agent, the transaction is calle a 'best efforts' offering. The investment banker doesn't take title to the issue as occurs in the standard form of underwriting, but only agrees with the firms issuing the securities to give the best possible effort in marketing the securities. The investment bankers invest efforts offering doesn't stand to lose any risk capital. He can act merely as agent of the transactions without taking any risk of handing the loses that may araise from such transactions. Thus, in an agent transaction, the investment banker plays the role of a third party to facilitate the transactions between two parties. There is no capital at risks since investment banker doesn't promise to sell securities with guarantee but simply assures his best efforts to sell as much as possible. At other side of the coin, the ability to serve as a principal implies the responsibility accepted by the investment bankers to sell securities with guarantee. Viewed thus, in principal transaction the investment banker involves his capital and taking the risk associated with such transactions. Failure to sell securities puts financial burden on investment banker to takeover all unsold securities by himself.

Primary market in Nepal can be analyzed with the context of legal provisions regarding the procedure of new securities and the institutional framework. The current securities legislation are the Securities Exchange Act, 1983; Securities Exchange Regulation, 1993; Membership Of Capital Stock Exchange and Transaction by E-laws, 1998; Securities Listing by E-laws,1996; Issue Management Guidelines, 1997; Securities Allotment Guidelines, 1994 and Securities Registration and Issue Approval Guidelines, 2000. The other related Acts are the Company Act, 1997; Insurance Act, 1992; Commercial Bank Act, 1974; Finance Companies Act, 1986; Foreign Exchange (Regulation) Act, 1962; and Foreign Investment and Technology Transfer Act, 1992.

Compliance of the primary market issues
Primary issue of the securities in the market is regulated by the two acts; One is the Company Act, 2062 with amendments and other is the New Securities Exchange Ordinance Act, 2063 with amendments. Both of these Acts provide necessary compliance requirements for the primary issues to get approval for selling the new issues to the public. The issue manager has to take Due Diligence Certificate to be eligible for the issue of new securities in the market.

Operating Practice of Primary market
The primary market is operated by the issue managers in which the issuing company has to consider all the necessary legal requirements for the issue. So, in Nepalese capital market also, there are network to operate primary market with the help of 8-issue managers and 2-primary market dealers totaling 10-issue managers.
The issued approval by SEBON recorded 5 companies that include 2 commercial banks and 3 financial banks that include the issues of securities worth of Rs.390.5 million in 2056. However, the prospects approvals after registration of securities consist of 15 companies that include the total value of 915.92 million but the right shares issues consist of 14 companies having the total value of Rs.1241.45 million. This is how the primary market has grown remarkably in 2005/06 due to investor's optimistic confidence in the performance of the stock market. Moreover, discontinuity of the investors' confidence has boosted the primary market to constable extent with success of flotation of the shares by number of companies in the primary market. During this period, the SEBON has registered capital mobilization of Rs.4.05 billion from 20 different companies and there is, however, major right shares of the companies.
Moreover, the issue managers engaged in the primary market has to fulfill the norms lay down by securities board of Nepal. Every new issue managers is required to submit annual report including profit and loss amount cash flow statement and securities trading report within 4 months of the expiry fiscal year. According to SEBON report of 2006/07, out of 9-issue managers 8 have submitted financial report and amount of issued managed very from Rs.1184.40 million from Citizen Investment Trust then followed by NIDC Capital market managing Rs.729.3 million and Nepal Merchant Banking and Finance Ltd. managing Rs.338.5 million and that of Ace Development Bank comes to Rs.530 million. But the minimun issue managed is Rs.72.5 million in case of EFINSCO. NIDC Capital Market is able to manage 11 issues, and Nepal Merchant Banking manages 10 issues.
In additional to these developments of issue managers, SEBON is institutionally strengthened through the corporate and financial governance project. The Aries Group Ltd. a consulting frim first selected for implement of that project as well as drafting regulations on securities registration and dethrone along with the development of various forms:

Form A Annual report of corporate body

Form B Quality report of corporate body

Form C Report of special event or circumstances

Form D Prospectus on corporate body

Moreover, SEBON has taken regulatory measures timely to govern the capital market. As a result, 3 new regulations have been issued that consists of Securities Business Regulation Act of 2007, Securities Regulation Act of 2007 and Stock Exchange Licensing Act of 2007. All these prucial to pave the way for opening the new stock exchange, increase the number of brokers and reduce the brokerage commission to make capital market competitive and efficient.