Merchant Banking and Market Intermediaries
Nepal splits merchant banking into four separate licences, caps what each may charge an issuer, and sets a minimum capital for every one of them.
An issuer in Kathmandu does not hire “a merchant bank”. It hires up to four licences, which may or may not sit inside the same company. Getting that wrong is the most common procurement error in a Nepali equity issue, and it usually surfaces late, when the registrar work turns out to be with a firm the issuer has never met.
The four licences
The Securities Businessperson (Merchant Banker) Regulation 2064 divides merchant banking into four activities, each licensed separately.
An issue manager handles the issue and sale management of securities, including drafting the prospectus and offer documents. A securities underwriter enters into an agreement to purchase the unsubscribed portion of an issue. A share registrar maintains the register of ownership and provides share registration services. A portfolio manager manages client portfolios under agreement.
Capital scales with the risk each activity carries.
| Licence | Minimum paid-up capital | Licence fee | Annual renewal |
|---|---|---|---|
| Issue management | NPR 30,000,000 | NPR 150,000 | NPR 75,000 |
| Securities underwriting | NPR 40,000,000 | NPR 150,000 | NPR 75,000 |
| Share registrar | NPR 10,000,000 | NPR 50,000 | NPR 25,000 |
| Portfolio management | NPR 10,000,000 | NPR 50,000 | NPR 25,000 |
| All four together | NPR 70,000,000 | NPR 350,000 | NPR 150,000 |
Underwriting carries the highest capital charge because it is the only one of the four where the firm can end up owning the paper. The bundled figure of NPR 70 million is less than the NPR 90 million the four separate requirements would sum to, a deliberate nudge towards full-service firms.
Fee caps
Schedule 10 caps what an issuer can be charged, which is unusual and worth knowing before a negotiation. Issue management may be charged at a maximum of two percent of the issue amount. Underwriting may be charged at a maximum of four percent of the amount underwritten. Share transfer execution attracts NPR 10 per transfer plus an annual fee agreed with the issuer. Portfolio management fees are left to the agreement between the merchant banker and the client.
Two percent of the issue is the number to hold on to. On the fifteen IPOs and FPOs that raised about NPR 3.93 billion in FY 2081/82, the entire national issue management fee pool was capped at something under NPR 79 million across every firm in the market. That is the economic reality behind a sector dominated by subsidiaries of banks. Standalone issue management does not support a business.
The merchant banker must then remit five percent of its total service fee income from merchant banking to SEBON within one month of the fiscal year end. The regulator takes a slice of the capped fee.
Who may hold a licence
Two-thirds of the directors, including the chair and the chief executive, must hold at least a bachelor’s degree in economics, commerce, finance, accounts, management or commercial law, with at least three years of experience. Directors must generally be Nepali citizens, with foreign citizens permitted subject to government approval.
Promoters are disqualified if convicted of an offence involving moral turpitude, convicted of corruption or fraud within the preceding five years, declared insolvent within five years, listed by the Credit Information Centre, or if they have been directors of a company whose public issue failed. Corporate promoters are disqualified if insolvent, if they have failed to publish audited financial statements for three consecutive years, or if blacklisted.
Directors and chief executives may not hold positions of benefit at SEBON, the stock exchange or another merchant banker. That is the principal structural conflict rule in the regime.
Shareholders other than public-issue holders cannot sell their shares for one year from the date the licence is obtained.
The exclusivity rule
Regulation 16(2) provides that a licensed merchant banker shall not carry out functions other than merchant banking business. Then comes the proviso: the restriction does not apply to banks and financial institutions.
That single proviso shapes the sector. A commercial bank can run merchant banking alongside deposit-taking and lending, while an independent firm cannot diversify. Combined with a two percent fee cap on issue management and a market producing fifteen public offerings a year, the result is predictable. Most Nepali merchant bankers are bank subsidiaries, and most bank subsidiaries hold several of the four licences at once.
For an issuer, that creates a conflict worth naming out loud. The issue manager drafting the prospectus, the underwriter agreeing to take the unsold shares, the registrar holding the register, and the lender to the issuer may all belong to the same banking group. Banks and financial institutions must prepare separate income and expenditure schedules for merchant banking transactions, which addresses the accounting, and the conflict rule above addresses the individuals. Neither addresses the group-level problem.
In March 2025 SEBON issued a directive on merger and acquisition among securities businesspersons, which points at consolidation as a supervisory preference rather than at separation.
Other intermediaries
Stock brokers and securities dealers are licensed under their own regulation of 2064, amended to a sixth amendment registered in July 2025. We could not read a current text, and no capital or commission figure is stated here.
Credit rating agencies are licensed under the Credit Rating Regulation 2068. Their commercial significance comes from elsewhere. The Securities Registration and Issue Regulation makes a rating of average grade or better a condition of a public issue and of a further public offering, so a rating agency’s grade is a gate on market access rather than merely an opinion for investors.
Depository participants are licensed under the Central Depository Service Regulation 2067 with a minimum net worth of NPR 1 million, and there were 124 of them by August 2026. Many are also brokers. Registration costs NPR 50,000 with a NPR 25,000 annual fee, and five percent of the fees collected goes to SEBON.
Fund managers sit outside the merchant banker regulation entirely. Mutual fund managers are licensed under the Mutual Fund Regulation 2067 and specialised investment fund managers under the Specialised Investment Fund Regulation 2075, each with its own capital and governance requirements. Those are dealt with in Mutual Funds and Collective Investment Schemes and Specialised Investment Funds.
Continuing obligations
A licensed merchant banker files audited financial statements with SEBON within three months of the fiscal year end, and a semi-annual report on its merchant banking business within sixty days. The Securities Act separately requires a securities businessperson to file audited accounts with both the Board and the stock exchange within three months. Service agreements with clients must be filed with SEBON within fifteen days of conclusion. Audits must be performed by an auditor drawn from SEBON’s registered list. Branch openings must be notified seven days in advance and closures within seven days.
Renewal is annual, and applications must be filed within three months of the expiry of each fiscal year. As with the stock exchange licence itself, the operating permission in Nepal’s securities market runs on the fiscal year rather than in perpetuity.
Questions before appointing
Ask which of the four licences the firm actually holds, and ask for the licence numbers. Ask whether the underwriter is a group company of the issue manager. Ask what the registrar arrangement is, because that relationship outlives the issue by decades. Ask what the fee is as a percentage of the issue, then check it against the two percent cap. And ask what the firm’s current net capital position is relative to whatever SEBON has most recently prescribed, because the regulation leaves net capital to the Board’s discretion rather than fixing it.
Sources
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Securities Businessperson (Merchant Banker) Regulation, 2064 — English text
Securities Board of Nepal · 2064 (2008) · Tier 1 — Primary legal instrument
Supports: The four licence categories and their scope (regulation 16), minimum paid-up capital by category (Schedule 9), application, licence and renewal fees (Schedule 2), maximum charges to issuers and clients (Schedule 10), director qualification requirements (regulation 13), promoter and director disqualifications (regulations 11 and 14), the one-year share transfer restriction (regulation 10(4)), the exclusivity rule and its bank carve-out (regulation 16(2)), the five percent fee remittance to SEBON (regulation 24(2)), reporting deadlines (regulation 26), the fifteen-day filing of service agreements (regulation 17(2)), auditor selection from SEBON's list (regulation 27), branch notification (regulation 28) and the Board's power to set net capital (regulation 30).
Accessed 26 August 2026
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Securities Act, 2063 (2007) — English text
Securities Board of Nepal · Authenticated 14 January 2007 · Tier 1 — Primary legal instrument
Supports: That carrying on a securities business requires a licence from the Board (Chapter 5), and that a securities businessperson must file audited accounts with the Board and the stock exchange within three months of the fiscal year end (section 82).
Accessed 26 August 2026
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Securities Board of Nepal · Index checked 26 August 2026 · Tier 2 — Official publication
Supports: The current set of intermediary regulations and their amendment status: Merchant Banker Regulation 2064 second amendment (registration 36/082), Stock Broker and Securities Dealer Regulation 2064 sixth amendment (registration 38/082), Securities Market Operation Rules 2079 second amendment, Credit Rating Regulation 2068 first amendment, Central Depository Service Regulation 2067 first amendment, and the Small and Medium Organized Institution Securities Issuance and Trading Rules 2081.
Accessed 26 August 2026
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Central Depository Service Regulation, 2067 — English text
Securities Board of Nepal · 2067 (2010/11) · Tier 1 — Primary legal instrument
Supports: Depository participant eligibility and the NPR 1 million net worth requirement (regulation 20), participant registration and annual fees (Schedule 12), and the five percent remittance of depository fees to SEBON (regulation 33).
Accessed 26 August 2026
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Securities Board of Nepal · Posted 28 March 2025, registration no. 74/082 · Tier 1 — Primary legal instrument
Supports: That SEBON has issued a dedicated framework for mergers and acquisitions among licensed securities businesspersons, indicating consolidation as a supervisory objective.
Accessed 26 August 2026
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