Securities Board of Nepal (Sebon) has barred merchant bankers from working as issue manager if their companies are the subsidiary of the parent companies that are intending to float shares.

 Similarly, merchant bankers cannot perform the task if their companies hold a major stake in their client companies for which they are mandated to issue shares. Likewise, a single merchant banker cannot perform the work of both issue manager and underwriting while handling shares of their client companies.

The provision was introduced via a circular issued by Sebon on Sunday. As per the stock market regulator, it has come up with the provision to regulate the stock market and to prevent the possibility that merchant bankers could manipulate the market

while working as the issue managers.

“If one merchant banker is allowed to conduct multiple jobs, there is a possibility that the banker could allot the shares to their near and dear or could purchase large number of stake in the name of unsold shares of the client companies,” Sebon’s Deputy Spokesperson Niranjaya Ghimire said.

Ghimire however declined to disclose the cases of manipulation as of now.

Merchant banker is a financial institution that issues shares of their client companies and provides consultancy services to help in financial matters among others. At present, there are 24 such institutions that have been performing the job of merchant bankers.

According to Sebon, the regulator could take action against these merchant bankers as per Securities Act if these companies are found violating the regulator’s

directives. “The non complying companies could face a fine and even jail term,” Ghimire said.

Currently, these merchant bankers are permitted to work as issue manager, share registrar, underwriting and portfolio management. “Recently, Sebon also allowed these merchant bankers to work as institutional advisor that includes providing consultancy services,” Ghimire said.

Under the category of consultancy services, merchant bankers are permitted to provide counsel on merger, asset valuation and business plan of corporate bodies, capital restructuring, loan syndication and working capital financing. Likewise, consultancy related to venture capital and wealth management of companies can be provided by a merchant banker. So far, none of the companies have taken the licence for the consultancy services.

At present, merchant bankers with paid up capital of Rs70 million can operate their business. The merchant bankers that are willing to perform the consultancy services should have paid up capital of Rs200 million.