Securities Businessperson (Stock Broker, Securities Dealer and Market Maker) (Third Amendment) Regulations, 2020

Public Disclosure Authorized Whereas, it is expedient to amend the Securities Businessperson (Stock Broker, Securities Dealer and Market Maker) (Third Amendment) Regulations, 2008; In exercise of the powers conferred by Section 116 of the Securities Act, 2007, the Securities Board of Nepal has, upon approval of Government of Nepal, has made the following Regulations.

1. Short Title and Commencement: These Regulations may be cited as the “Securities Businessperson (Stock Broker, Securities Dealer and Market Maker) (Third Amendment) Regulations, 2020.”

Public Disclosure Authorized (2) These Regulations shall commence on such a date as may be appointed by the Board.

2. Amendment in Regulation 1 of Securities Businessperson (Stock Broker, Securities Dealer and Market Maker) Regulations, 2008: The words “Stock Broker, Securities Dealers and Market Maker” in Sub-regulation (1) of Regulation 1 of Securities Businessperson (Stock Broker, Securities Dealer and Market Maker) Regulations (hereinafter referred to as the “Principal Regulations”) have been substituted by the words ”Stock Broker and Securities Dealer”.

Public Disclosure Authorized 3. Amendment in Regulation 3 of the Principal Regulations: Of Regulation 3 of the Principal Regulations,-

(1) Part (c) of Sub-regulation (2) has been substituted by the following Part (c):

“(c) While making selection pursuant to Part (b), those persons confirmed according to Part (a) shall be recommended to the Board as per seniority order.” (2) Part (d) of Sub-regulation (2) has been deleted.

(3) The following Part (d) has been inserted after Part (c) of Sub-regulation (3): Public Disclosure Authorized “(d) Particulars and documents stated in Schedule-16 related to source of investment of person taking ownership of Stock Broker.”

4. Amendment in Regulation 7 of the Principal Regulations: Of Rule 7 of the Principal Regulations,-

(1) Sub-regulation (1) has been substituted by the following Sub-regulation (1):

“(1) Notwithstanding anything contained elsewhere in these Regulations, subsidiary company having at least 51% ownership of ”A” class bank established under the prevailing law or financial institution established as defined in the special Act may conduct business as Stock Broker or Securities Dealer after obtaining license from the Board.

Provided that, such a company shall not be entitled to purchase or sell the securities of its holding company and other subsidiary companies of the holding company.”

(2) The following Sub-regulation (3) has been inserted after Sub-regulation (2):

“(3) Promoter Shareholder, Substantial Shareholder, Director, Executive Chief and Employee of the holding company and his/her member of the same family may not take the ownership of shares of the subsidiary company.”

5. Insertion of Regulation 7a in the Principal Regulations: The following Regulation 7a has been inserted after Regulation 7 of the Principal Regulations:

“7a. Provisions Relating to Acquisition or Merger: (1) A Stock Broker or Securities Dealer may be merged with another Stock Broker or Securities Dealer or acquire another Stock Broker or Securities Dealer upon obtaining approval of the Board.

(2) All assets and liabilities of the previous institutions shall ipso facto be transferred to be created after the merger pursuant to Sub-regulation (1).

(3) The Board may develop and put in place necessary Guidelines as to merger of a Stock Broker or Securities Dealer with another Stock Broker or Securities Dealer or acquisition of another Stock Broker or Securities Dealer.

(4) If the holding companies of Stock Broker or Securities Dealer are merged with each other, such Stock Broker or Securities Dealer shall also be merged with each other.”

6. Insertion of Regulation 8a in the Principal Regulations: The following Regulation 8a has been inserted after Regulation 8 of the Principal Regulations:

“8a. Copy of License: (1) If the license of licensed Stock Broker or Securities Dealer is has been lost or destroyed or become useless because of being rag, such a Stock Broker or Securities Dealer shall submit an application, accompanied by necessary documents, to the Board for a copy of the license.

(2) The Board shall, if it deems reasonable after examining the application and attached documents received pursuant to Sub-regulation (1), issue a copy of the license upon charging fees as set forth in Schedule-2.”

7. Amendment in Regulation 11 of the Principal Regulations: The following Proviso has been inserted in Sub-regulation (2) of Regulation 11 of the Principal Regulations:

“Provided that, this Regulation shall not be applicable in the case of ”A” class bank or financial institution established under the special Act wishing to incorporate a subsidiary company for carrying out securities business.”

8. Amendment in Regulation 12 of the Principal Regulations: Of Regulation 12 of the Principal Regulations,-

(1) Sub-regulation (4) has been substituted by the following Sub-regulation (4):

“(4) The shareholder of the Securities Dealer who is willing to sell the shares owned by him/her shall submit an application along with the evidence that the person intending to purchase the shares fulfill the qualifications and do not have the disqualifications as referred to in these Regulations to the Board through the concerned Securities Business Institution.

(2) The following Sub-regulation (4a) has been inserted after Sub-regulation (4):

“(4a) The amount to be set at the rate of 0.25% of the selling price of the shares which are to be sold or transferred shall be attached to the application pursuant to Sub- regulation (4) as fees.

Provided that, the shares of Securities Dealer shall have to be sold or transferred at a price no less than net worth.”

(3) Sub-regulation (5) has been substituted by the following Sub-regulation (5):

“(5) The person willing to purchase or transfer the shares in his/her name shall submit the particulars and documents as specified in Schedule-3 and Schedule-16 along with the application to be submitted pursuant to Sub-regulation (4).”

(4) The following Sub-regulation (7a) has been inserted after Sub-regulation 7:

“(7a) While selling or transferring the shares pursuant to Sub-regulation (7), account shall be cleared and settled through banking system and the particulars and documents relating thereto shall be submitted to the Board within seven working days of completion of such act.”

9. Amendment in Regulation 27 of the Principal Regulations: Regulation 27 of the Principal Regulations has been substituted by the following Regulation 27:

“27. Functions that may be carried out by Stock Broker and Securities Dealer: (1) The Stock Broker shall, while purchasing or selling the securities as per the client's order, do so in the name of client only.

(2) The Securities Dealer may carry out the following additional functions:

(a) To reach an agreement with the client, provide margin trading facility by giving prior information to the Board in regard to securities margin trading facility.

(3) Securities Dealer may carry out the following functions:

(a) To purchase or sell the securities in his/her own name, (b) To perform the functions of Stock Broker after obtaining license from the Board, (c) To function as a qualified institutional investor as prescribed by the Board, (d) To function as an underwriter after obtaining license from the Board.

(4) A Securities Dealer obtaining also the license of Stock Broker shall purchase or sell the securities by according first priority to the client's order. Such a Dealer shall not purchase or sell the securities in his/her own name as far as the order the client's order is received in regard to thereof.

(5) Details of securities purchased or sold by Securities Dealer in his/her own name shall be provided to the Board within seven working days of completion of each quarterly period.

(6) Notwithstanding anything contained elsewhere in these Regulations, a Stock Broker may not provide securities brokering service to his/her shareholder, Executive Chief, employee and their members from the same family.”

10. Amendment in Regulation 28 of the Principal Regulations: Regulation 28 of the Principal Regulations has been deleted.

11. Insertion of Regulation (1a) in Regulation 32 of the Principal Regulations: The following Sub-regulation (1a) has been inserted after Sub-regulation (1) of Regulation 32 of the Principal Regulations:

“(1a) A Stock Broker shall submit the securities transaction fees as referred to in Schedule-14 to the Stock Market.”

12. Insertion of Regulation 34a of the Principal Regulations: The following Regulation 34a has been inserted after Regulation 34 of the Principal Regulations:

“34a. Reserve Fund: Reserve Fund: (1) The Stock Broker or Securities Dealer shall set up a reserve fund and allocate 10% of annual profit of the institution for institutional risk management and maintenance of financial robustness.

(2) The amount deposited in the reserve fund pursuant to Sub-regulation (1) may not be distributed as cash dividends.”

13. Amendment in Regulation 40 of the Principal Regulations: The following Sub-regulation (3) has been inserted after Sub-regulation (2) of Regulation 40 of the Principal Regulations:

“(3) The Stock Broker shall, prior to establishing a branch office, frame an operating and management procedures of such office and submit it to the Board.”

14. The words “Market Maker” appearing elsewhere in the Principal Regulations have been deleted.

15. Amendment in Schedule-2 of the Principal Regulations: Schedule-2 of the Principal Regulations has been substituted by the following Schedule-2:

“Schedule-2

[Related to Sub-regulation (1) of Regulation 3, Sub-regulation (2) and (2a) of Regulation 4, Sub-regulation (1) of Regulation 6 and Sub-regulation (1) of Regulation 8)]

Fees

Application Fee License Fee Annual Fee

1. Stock Broker Rs. 10,000 Rs. 1,00,000 Rs. 50,000 2. Securities Dealer Rs. 25,000 Rs. 2,00,000 Rs. 1,00,000 3. Copy Fee Rs. 5,000”

16. Amendment in Schedule-7 of the Principal Regulations: The following Point No. 3 has been inserted after Point No. 2 of the Principal Regulations:

“3. Minimum infrastructures to be developed in branch office of Stock Broker:

(a) Land area of branch office required to be no less than 500 sq. ft., (b) The branch office required to have minimum three employees including the Chief having gained educational qualification of at least Bachelor's degree in commerce, economics, management, law or Chartered Accountancy, compliance officer and information technology officer, (c) Required to have provision of carrying out transactions to be made from branch officer through the head office, (d) Required to have at least two computers and power backup for them, (e) Required to have transaction desk and display desk separately, (f) Required to have arrangements of infrastructures like telephone, fax, internet and CCTV, (g) Required to have proper arrangements of furniture, fixtures and other logistics necessary for office.”

17. Amendment in Schedule-9 of the Principal Regulations: Point No. 2 of Schedule-9 of the Principal Regulations has been substituted by the following Point No. 2:

“2. Securities Dealer- Rs. 20 crore”

18. Amendment in Schedule-14 of the Principal Regulations: The following Point No. 7 has been inserted after Point No. 6 of Schedule-14 of the Principal Regulations:

“7. The Securities Dealer shall submit 0.03% of transaction amount to the Stock Market in respect of securities transaction.”

19. Insertion of Schedule 16 of the Principal Regulations: The following Schedule-16 has been inserted after Schedule-15 of the Principal Regulations:

“Schedule-16 [Related to Sub-regulation (3) Part (d) of Regulation 3, Sub-regulation (5) and Sub-regulation (7a) of Regulation 12]

Particulars and documents to be submitted in regard to source of investment amount and qualification

I/we will be investing an amount of Rs………….. (In words…………………………………….) in………………………Institution. That amount is…………% of total issued capital of that Institution. I/we will carry out transactions with Tax Office …………………Similarly, I/We hereby present the details of income source of the proposed investment amount as stated below.

1. Details of income source of investment amount

S. N. Area of Income Source Amount Remarks

Total

Attachment:

I/We have attached the following particulars and documents regarding the amount proposed for investment from various sources mentioned above.

(a) If the amount was earned from industry, trade and business, documents and tax clearance certificate that clearly mention such industry, trade and business from which the amount was earned.

(b) If investment is being made in shares from paternal or family property, copy of partition bond or other documents relating thereto. In a case where partition has not been executed, particulars and documents pertaining to transfer of moveable/immovable property.

(c) In the case of income received from the sale of house and land, photocopy of registration paper clearly indicating the amount; in the case of dividends, detailed description about the company from which such dividends were obtained, year, amount etc.

(d) In the case of house rent income, copy of agreement relating thereto and income statement along with tax clearance certificate; in the case of remuneration income, income statement certified by the concerned employer.

(e) In the case of agricultural income, documents and copy of land ownership certificates that clearly set out the location and area of land, date of ownership and agricultural earning.

(f) In the case of pension and retirement amount, pension book or other official documents of similar kind that establish the amount to be received in respect thereof; in the case of amount to be received as remittance, documents that establish the relationship between remittance sender and receiver and from where and how such remittance was received.

(g) In the case of loan, particulars that indicate the purpose of taking ownership of individual or securities dealer.

(h) If the amount has been received from the sale of shares, particulars and documents relating thereto.

(i) If investment is to be made from the sources other than aforesaid ones, supporting documents of such sources.

Note: If the investment is to be made from the amount received as personal loan, the above-mentioned particulars or details of the person providing such loan shall be submitted.

2. Self-declaration Related to Income Source

(a) I have cleared the entire tax/revenue amount to be cleared or paid to Government of Nepal or other concerned agencies in the case of requirement to clear or pay thereof in accordance with the prevailing law for the earnings or income stated in the above Table.

(b) I am not going to invest in the proposed institution from the amounts accumulated through money laundering.

(c) I agree with punishment to be handed down in accordance with the prevailing law if the income source of the proposed investment amount is found illegitimate during investigation by the concerned agency.

(d) I have submitted all documents related to income.

(e) If the authorized agencies solicit the submitted particulars, I will furnish them accordingly. In addition, if any authorized agency requires further documents relating to income details, I will furnish certified papers thereof.

(f) I, from ...... Institution, agree to hold ...... % shares of issued capital of...... Institution.

3. Answer the following question in Yes/No:

(a) Have you been accused of any criminal offence? Yes/No

(b) Is income registration/clearance certificate of the period until fiscal year...... attached? Yes/No

(d) Have you been punished for breaching the law? Yes/No

(e) Has any institution you are engaged in gone bankrupt? Yes/No

(f) Has any institution in which you are engaged or where you are a Director or where you are a substantial shareholder been blacklisted for failure to repay loans? Yes/No

(g) Have you faced action under the prevailing law related to securities? Yes/No

(h) Has the institution you are engaged in ever been involved in criminal activities? Yes/No

(i) Has any bank or financial institution maintained your record for defaulting loans of a bank or financial institution? Yes/No

(j) Have you been included in black list of Credit Information Bureau? Yes/No If yes, has a period of at least three years elapsed from the date of removal from that list? Yes/No

(k) Are you currently working as an employee, director, auditor, legal or any other advisor of Stock Market or other securities institution? Yes/No

(l) Are you currently working as an employee or advisors in any institution that has committed any civil offense, breached the law or dissolved under the prevailing law? Yes/No

(m) Have you been gone into insolvency under the prevailing law? Yes/No

(n) Are you working as an elected or nominated representative in any political position? Yes/No

(o) Have you been barred from pursuing any profession or business under the prevailing law? Yes/No

(p) Is any other firm/company/body corporate with your investment agreed for inspection and supervision to be conducted by Securities Board of Nepal as may be deemed necessary? Yes/No

(q) Is there any of your close relatives working as Board of Director and employee in Securities Board of Nepal? Yes/No If yes, provide further details. For this purpose, ”close relative” means a partition shareholder in joint family or husband, wife, father, mother, mother-in-law, father-in-law, elder brother, younger brother, elder sister, younger sister, sister-in-law, (elder or younger brother’s wife), brother-in– law , sister–in–law, brother-in- law, (husband of elder sister), uncle, aunt, maternal uncle, maternal aunt, son, daughter, daughter-in-law, grandson,

granddaughter, granddaughter-in-law or son-in-law as stated in Section 2 of the Companies Act, 2006.

(r) Have you transferred or taken ownership of any institution licensed from the Board except this? Yes/No If yes, provided further details.

(s) Have you worked as a stock broker or market maker? Yes/No

4. The above-mentioned particulars and documents are correct and true. I agree with investigation/inquiry into and disclosure of any matter that I have mentioned above. There will be no objection from my side if license is not granted to me for incorporation of...... on the ground of submission of false particulars and documents.

Signature: Name: Date: Address: ”