June 4: Preparations are underway to bring the commodities exchange into operation soon. As the government has included it in the budget statement, the regulatory body Securities Board of Nepal (SEBON) has intensified preparations to operate it immediately from the upcoming fiscal year.

Prior to the budget speech, SEBON had made public the draft of the Directive on Policy and Procedure for Issuing Licenses to Operate Commodities Market, 2077 BS to collect suggestions from stakeholders. The board said it had collected more than a dozen suggestions.

Chairman of the board Bhishma Raj Dhungana informed that the draft of the directive will be finalized by the board meeting of SEBON after incorporating the suggestions received so far.

"More than a dozen suggestions have been collected. Most of them have asked us to reconsider the paid-up capital. The meeting of the Board of Directors will finalize the issue. The meeting was delayed as some members of the committee were infected by coronavirus. The meeting will be held after they recover,” he told New Business Age.

Deputy Executive Director of SEBON, Dr Nawaraj Adhikari said that the revised directive has increased the minimum paid-up capital limit from Rs 1 billion to Rs 2 billion.

As per the draft, the paid-up capital of the company dealing in agricultural related commodities should be Rs 1 billion.

“We had prepared the guideline by doing a lot of study and analysis on the global commodities  market, understanding all the international principles and good practices,” said Adhikari, adding, “We have prepared the guideline based on the overall study and the level of understanding of investors suitable for Nepal.”

An earlier study had suggested that only two exchanges should be approved. “The revised directive has allowed providing license to the companies that meet all the criteria, are experienced, competent, have done well in the past,” Adhikari said.

The revised directive has provided the limit of paid-up capital according to the nature of the companies, submission of plans, application process among others.

According to the board, six organizations that have recently proposed to run the company do not have to pay the fee when re-applying. However, as per the revised guidelines they have to procure additional documents by fulfilling the specified criteria. “We will continue to not charge the application fee for the proposed six organisations again. However, according to additional provisions, the criteria have to be met,” he said.

Earlier, Commodity Futures Exchange (CFX) Limited, Rizal Commodity Exchange (RCDX), Multi Derivative Exchange (MDX) Company, Nepal Derivatives Exchange (NDEX), National Derivatives Commodities (NCDX) and Nepal Mercentile (NEX) had applied for commodity trading.

The founders of the institution operating the commodity market will have to apply by proposing to invest at least 51 percent and at most 100 percent of the shares. The proposed institution must have a minimum of 5 percent to a maximum of 51 percent of the total paid-up capital for foreign strategic partners or technical assistance organizations. Founders may include individuals, Nepali organizations, and strategic partners or technical assistance organizations. Foreign strategic partners have been made mandatory.

The qualified ones will have to apply for pre-approval with a fee of Rs 25,000 to run a company. If the board of directors of SEBON feels the company suitable, it has to deposit up to 10 percent of the paid-up capital in the commercial bank before giving prior approval. Two copies of the business plan including the management letter and rules of the proposed institution, feasibility study report including minimum subjects and projected financial statements for the next 3 fiscal years should be submitted.

The guideline states that even if the board gives approval to manage the infrastructure, it will not be allowed to do any work including increasing or decreasing the number of founders until the final operating license is obtained. After receiving the prior approval, the company has to apply to the board to get the license to operate the commodity market. For this, the company will have to pay a fee of up to Rs 2.5 million to the board along with the application.