Short selling, share lending and intraday trading are coming to NEPSE: what actually changes

A friend has held 400 kitta of a commercial bank since 2079. He does not trade it, does not watch it, and checks Mero Share about twice a year. When I mentioned that SEBON is drafting rules to let people borrow shares like his, his first question was the right one: borrow them to do what, exactly?

To sell them. That is the part worth sitting with. Nepal's securities regulator published a consultation paper in Shrawan proposing three things NEPSE has never had, and one of them lets a stranger borrow your bank shares and sell them, betting the price falls. The same paper is what would pay you a fee for the loan.

What SEBON actually published

The chain of announcements runs back to Jestha. Finance Minister Swarnim Wagle used the FY 2083/84 budget on 29 May 2026 to announce a restructuring of NEPSE with phased introduction of intraday trading, short selling and derivatives. SEBON's own capital market policy for the fiscal year followed, then the concept paper itself. Dated 14 Shrawan 2083 (30 July 2026) and signed by SEBON chairman Gopal Prasad Bhatta, it runs to 168 pages and is published in full on SEBON's own site.

That paper does not create rules. It reviews international practice, analyses Nepal's position and asks the market to respond, after which SEBON says it will draft three separate regulations: a Margin Lending Regulation, a Securities Lending and Borrowing Regulation, and a Covered Short Selling Regulation. Anything you read quoting specific margin ratios or collateral percentages from it is probably quoting the chapters on Thailand, China or India, which is most of the document. In parallel, a secondary-market reform committee chaired by SEBON's Supervision Department executive director is working the same four items, alongside the primary-market task force behind the IPO and book-building reform.

The division of labour in the paper is worth knowing, because it tells you who to complain to later.

The four mechanisms in plain terms

The SEBON paper's own illustration of margin lending is an investor with Rs 5 lakh of shares using them as collateral to borrow more. That product already exists in two forms on NEPSE, and the arithmetic of how it wipes out small accounts is worked through in margin lending on NEPSE. The genuinely new items are the middle two.

Why "covered" is the word that matters

Short selling comes in two varieties, and Nepal is being offered only one.

Covered means the seller borrows actual shares before selling them. Someone owns those shares, has agreed to lend them, and gets them back. Naked short selling skips that step: the seller sells stock they neither own nor borrowed, promising to find it later. Most markets that allow shorting at all restrict it to the covered kind, and section 4.9.1 of SEBON's paper says exactly that: given the size of Nepal's market and its institutional capacity, covered short selling should be provided for and naked short selling prohibited.

This is also why the sequence is not arbitrary. Covered short selling is impossible without a pool of lendable shares, so securities lending and borrowing has to be built and populated first. The paper's own phased plan (section 4.6) runs in this order:

1. Issue the regulations for margin trading, SLB and covered short selling.
2. NEPSE and CDSC make the technical arrangements.
3. Build broker capacity and investor awareness.
4. Implement margin trading effectively.
5. Start the securities lending and borrowing service.
6. Bring in covered short selling.

Short selling is last on a six-step list whose first step has not happened. Intraday trading is not in that sequence at all; it sits in the separate capital market policy for the fiscal year, which is why timelines quoted for it and for shorting should not be treated as the same clock.

The plumbing being rebuilt underneath

Short selling gets the headlines. The settlement changes will touch more people. SEBON's capital market policy for FY 2083/84 also commits to:

• A gradual move to T+1 settlement, one trading day after execution instead of the current two. Sale proceeds reach you faster; the mechanics of the existing cycle are in T+2 settlement and circuit breakers on NEPSE.
• Legal and institutional preparation for a Central Counterparty, which sits between buyer and seller so neither carries the other's default risk.
• Market maker and authorised participant systems, intended to damp extreme price swings.
• An auction market for securities that fail to settle normally, and Straight Through Processing to automate the whole chain across NEPSE, CDSC and the banks.

None of these carry announced dates. The policy language is trial-based and gradual throughout, which is the honest reading of the timeline.

The leverage already in the market

Nepal is not starting from zero on borrowed money, and the numbers explain why the debate is loud. Margin lending against shares reached Rs 162.9 billion as of mid-June 2026, up around 16 percent year on year, against Rs 76.5 billion in mid-July 2023. It is about 2.7 percent of the total loan book of banks and financial institutions.

A market capitalised at roughly 70 percent of GDP, swinging 500 index points inside sixteen months, is the environment these instruments would launch into. Whether that level is rich or reasonable is argued in is NEPSE expensive right now.

What changes for someone who just buys and holds

Four practical things, assuming the regulations land as proposed.

• Idle shares could earn a fee. The clearest retail benefit is on the lending side of SLB. Shares parked for years in a demat account do nothing between dividends. Lending them out generates income on a dormant asset. The fee level, minimum tenure, collateral the borrower posts, and how the fee is taxed are unpublished.
• You keep the economic exposure, not the certainty. Lending a share means someone else holds it for a while. Recall rights, what happens to your dividend and bonus entitlement during a loan, and who bears the risk if the borrower fails are precisely what the Central Counterparty proposal is meant to address, and precisely what is not written down yet.
• Someone can bet against a stock you own. That feels worse than it usually is, since every short position has to be closed by buying shares back. It does mean sharper falls when sentiment turns.
• Cash frees up a day earlier under T+1. Minor, real, and it applies to everyone rather than just active traders.

What does not change: your Demat, CRN and Mero Share setup, described in how to buy your first share on NEPSE, and the broker commission and SEBON fee structure in what a NEPSE trade actually costs.

The objection worth taking seriously

The sharpest published criticism is not about short selling. It is that Nepal's regulators assess margin loans by the quality of the collateral, meaning the fundamentals of the pledged company, rather than the capacity of the borrower to withstand a drawdown. When an index falls 20 to 30 percent, good companies get sold alongside bad ones because margin calls do not distinguish. Adding leverage tools to a retail-heavy market with 5.6 percent non-performing loans invites the cascade rather than preventing it.

Short selling carries a different risk, a political one. In markets where it is new, a falling index tends to get blamed on short sellers, and bans follow. That volatility of rules is its own hazard for anyone planning around the mechanism. And leveraged instruments in a market where Telegram tip groups already run pump-and-dump operations give those operators a second gear.

What you actually need to know

None of this is live. A consultation paper is a request for opinions, and the three regulations behind it have not been drafted, let alone enforced. Treat any broker or Telegram channel offering short selling on NEPSE today as a scam, because the mechanism does not exist.

The order matters more than the dates. Margin trading comes first and is already Rs 162.9 billion of exposure, share lending follows, and short selling sits last on SEBON's own six-step list because it cannot function until a lending pool exists. Intraday trading runs on a separate track in the fiscal-year policy.

For a long-term holder the honest summary is one clear gain and one clear unknown. Lending dormant shares for a fee is new income on assets doing nothing. What that fee will be, and what protects you if a borrower defaults before the Central Counterparty is built, are the questions to put to SEBON while the consultation is open.

If you hold shares you would consider lending and want to compare what the rules should say, write to me at parjanya57@gmail.com.

This post is part of the Nepal Money Basics guide — the investing section.