How ‘influencers’ are manipulating the Nepal share market? What efforts are being made to correct this?
Despite the lockdown and the country’s dwindling economy, Nepal’s stock market has been on a roll. Non-financial sector companies such as hydropower and hotels, which haven’t been in operation for long, are seeing their stock prices rise, while bank stock prices have remained flat.
To help regulate the market, the Securities Board of Nepal (SEBON) published a list of 51 companies on June 15 that it deemed to be risky to invest in. The regulator stated that it wanted to put an end to stock market manipulations and irregularities. The stock market has dropped since that move, as SEBON believes that the irregularities have significantly decreased.
But, what exactly are these anomalies?
Several modi operandi
The board believes that a small group of individuals have been spreading false information and manipulating the market by claiming to be experts in the field. Prospective investors have been promised high dividends by these “experts.” According to board sources, they even warned these “experts” not to spread false information and threatened them with punishment if they did.
Aside from that, false orders have caused the market to boom in an unnatural way. The board believes that a few investors even used the false order provision on NEPSE’s Trade Management System to rank up the prices of a few shares using the all or none (AON) provision (TMS).
After discovering that AON was being used to manipulate a large number of share prices, the board asked the Nepal Stock Exchange (NEPSE) to remove the provision from the TMS. The provision has been removed from the TMS, according to NEPSE spokesperson Murahari Prajuli.
What is AON?
All or none (AON) is a buy or sell order condition that instructs the broker to fill the order entirely or not at all. AON can only be purchased in quantities of 100 shares or more. The order will not be filled if all shares are not available at the same time and at your limit price or better.
The board’s chairman, Bhisma Raj Dhungana, says that this practice is being discontinued because the board believes that many share prices have been inflated as a result of it.
The market has taken a hit as a result of SEBON’s two decisions. Despite investor claims that the board lacks such authority and is acting on behalf of larger market players, Dhungana claims that this decision was made to benefit all levels of investors.
Despite this, the board does not believe that the recent decision will result in a reduction in irregularities. Dhungaan believes that the market is still not functioning normally.
“The stock prices of successful companies are falling, while the stock prices of risky companies, which could go bankrupt at any time, are rising. “Stock trading has devolved into a game of chance,” says Dhungana.
He goes on to say that the board is looking into the matter to ensure that such cheap tricks do not harm Nepal’s stock market.
“We have no way of knowing who is behind this. But we’re keeping a close eye on things,” he says.
New game to get rich
Most of the companies on SEBON’s “dangerous” list saw their stock prices plummet. However, the stock prices of a few companies such as Synergy Power, Mahila Lagubitta, and Union Hydro rose by Rs 4, Rs 5, and Rs 26 respectively. The stock price of Nepal Reinsurance increased on Thursday last week as well. However, five days after SEBON’s announcement, most of the company’s prices fell on Sunday.
Now, SEBON is looking into why the prices of companies that are doing well aren’t rising while companies that are at risk continue to profit from the game. A meeting was held to discuss this, according to a high-ranking official on the board.
“We expected share prices of good companies to rise after the statement was released. But that hasn’t happened,” he says, requesting anonymity. “Our prediction was that these people would sell their bad company shares and invest in good companies in a panic. This hasn’t turned out the way we expected.”
Dhungana believes that this is because a few big players are using a different scheme to inflate stock prices.
According to NEPSE spokesperson Parajuli, psychology plays a significant role in the market.
“We see people imitating one another. A lot of money is invested in the stock that is trending. That is why, during this bullish run, some bad companies’ stocks have risen to new highs. Stocks of good companies would fall if there was a bearish trend, says Parajuli.
Need to take action
According to Prakash Tiwari, a stock market analyst, playing games to cause market turbulence is not a new phenomenon. Many people criticized SEBON after it released the list of 51 companies, believing it had overstepped its authority.
However, Tiwari believes that this was the right decision and that it will benefit the market.
“This was the first time SEBON did something like this. They aren’t perfect, and they’ve made mistakes before. However, this is not a bad step because it will undoubtedly aid in the improvement of the stock market. “The market has devolved into a gambling den, and all it has done is try to stabilize it,” he says.
Insider trading and cornering, however, remain common and important factors in the rise and fall of stock prices, according to Tiwari. SEBON is aware of the situation, but he claims that it has been unable to take action that is harming the market.
“Conmen and people who artificially increase the market should be punished. The market will not change until that happens,” he claims.