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Nepal's Securities Chairman, Stock Exchange CEO Under Investigation For Insider Trading

Confirming the developments to The Kathmandu Post newspaper, CIAA Chief Commissioner Prem Kumar Rai said relevant documents have been sought from the finance ministry.

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The Chairman of Securities Board of Nepal and the Chief Executive Officer of its stock exchange are under investigation for alleged insider trading using unpublished price sensitive information, according to media reports on Monday.

Securities Board, Nepal (SEBON) Chairman Bhisma Raj Dhungana and Nepal Stock Exchange Chief Executive Officer Chandra Singh Saud are accused of buying shares for their family members of Sarbottam Cement at lower prices than what was to be listed at its initial public offer (IPO), the Nepali Times newspaper reported.

The alleged scandal came to light last week after the vernacular newspaper, Himal Khabar published its investigative report.

Taking cognisance of the news report, the Finance Ministry demanded an explanation from Dhungana and Saud. However, the clarifications seem to be inadequate and the government has now tasked the Commission for Investigation of Abuse of Authority (CIAA) to carry out its probe, the report said.

Confirming the developments to The Kathmandu Post newspaper, CIAA Chief Commissioner Prem Kumar Rai said relevant documents have been sought from the finance ministry.

The alleged irregularities are believed to have taken place when the board of Sarbottam Cement sought SEBON's assistance in launching the company's IPO.

Sarbottam Cement has stated that its shares were to be priced at Rs 750 per unit at the IPO, even though it has been valued at Rs 100.

Dhungana and Saud are accused of buying the shares for their kin at around Rs 250 per share. Global IME Capital, an investment bank, is also accused of profiting from similar dealings with Sarbottam Cement, though more clarity awaits on the probe's focus on their actions.

Netizens in Nepal have taken to social media to vent their ire over the alleged insider trading accusations.

Some said the public's faith in the stock exchange has been eroded, some drew comparisons between insider trading and plain fraud.

'Are board members allowing suspicious companies to release shares under the temptation of illicit rewards?' wrote a social media user. Another similar post read: 'Have finance bosses, chiefs and sales executives rigged the process (buying stocks) to earn favourable shares for themselves?' Speaking to Nepali Times, stock market expert Rabindra Bhattarai said: “This is a clear case of an attempt by insiders to unethically influence the market price of a company offering premium shares.” The Employees Union of Securities Board of Nepal on Sunday called for legal action against Dhungana.

The union said Dhungana's actions amount to 'utmost moral hazard'.

Meanwhile, both Saud and Dhungana have defended themselves in the media, denying any foul play.

While admitting to buying the shares at Rs 250 before they were released to the public, Saud told Himal Khabar newspaper that he did no wrong as the purchase had been ordered after the company’s book building process had started.

Book building is the process by which a stock's price is determined before it is listed in the share market.

Similarly, Dhungana has argued that the shares were purchased in his daughter's name, which is her independent choice.

'As my daughter is married and no longer belongs to my own family, her decision to buy shares does not fall under the category of insider trading,” Dhungana told The Kathmandu Post.