Securities Board of Nepal (Sebon) is working to introduce a code of conduct for stock market participants to curb insider trading.

Sebon officials admit listed companies are leaking their inside information through stockbrokers, benefiting selected influential market players and putting small investors at risk.

“We are currently working to devise strict codes which will be implemented effectively to eradicate insider trading,” said Sebon Spokesperson Niraj Giri. “Those securities businesses which are found to be breaching the rules of engagement will be punished as per the law.”

The Securities Act of 2007 states a person who commits an insider trading upon being convicted of the offense of insider trading will be liable to the punishment with a fine equal to the amount in controversy or with imprisonment for a term not exceeding one year or with both punishments. 

According to the Act, if a person deals in securities or causes any other person to deal in securities on the basis of any insider information or notice that are unpublished or communicates any information or notice known to such a person in the course of the discharge of his or her duties in manner likely to affect the price of securities such a person shall be deemed to have been committed an insider trading in securities.

Sebon Chairman Rewat Bahadur Karki said listed companies, brokers and influential investors are working in cohort to meet their vested interests. “The companies have been leaking their inside information through brokers which is a breach of the code of conduct,” said Karki at a press meet here on Wednesday. “Sebon is committed to protecting small investors.”

Moreover, according to Sebon officials, many of the shares are overpriced and the fundamentals of the respective companies do not justify the share prices. Some stock analysts are of the view that the stock market is largely based on speculation and investors are running behind rumours rather than adopting rational approaches.

Meanwhile, the Sebon has warned some companies to work as per the guidelines. Three merchant bankers and 19 stock brokers were warned after they were found disseminating information of beneficiary account through different websites rather than their own. It also sent a letter to the CDS and Clearing to draw its attention towards the unethical practices carried out by the companies.

The Securities’ Central De- pository Services Regulation of 2010 bar the CDS from assigning or delegating to any other person its functions of the depository service, without the prior approval of the Board. And, to disclose confidentiality relating to beneficiary account except otherwise prescribed by the law.