A controversy arising from CDS and Clearing Limited (CDSC) over the name of the capital market’s technical identification system - the International Securities Identification Number (ISIN) - has posed a risk of billions of rupees worth of investments being locked.

Without consulting the companies, CDSC moved forward with the practice of issuing two ‘ISIN’ numbers, which has created confusion and mistrust in the stock market.

The plan is to assign two separate ISINs (identification numbers) for promoter shares and ordinary shares. There is growing opposition to the decision to implement this dual ISIN system - already in practice among banks, financial institutions, and insurance companies - in other companies as well.

When shares are issued, CDSC provides a 12-digit ISIN number to both promoter shareholders and general shareholders. Based on this number provided by CDSC, which handles securities clearing and settlement, the Nepal Stock Exchange Limited lists the shares and facilitates trading in the secondary market.

The global acceptance of ISIN enables Straight Through Processing (STP), which facilitates electronic transactions in trade clearing and settlement. ISIN is used to track investors’ holdings, and its format is standardized across markets worldwide.

If the new procedure is implemented, shares worth Rs. 87 billion from 58 companies currently in the lock-in period, Rs. 53 billion from energy companies, and IPOs worth Rs. 41 billion still in the pipeline are expected to be at risk. Investors have stated that a total of Rs. 128 billion in promoter shares could be locked. As a result, investors are outraged, saying that it would create problems in mobilizing capital for new projects.

The practice of dual use of ISIN numbers began with Emerging Nepal Limited. After CDSC issued two ISINs to the company, the resulting controversy has now stirred the entire capital market. The dispute has intensified as there are signs that this practice, which started there, is now being institutionalized through a new directive.

In Nepal, the practice of assigning a separate ISIN for promoter shares of banks, financial institutions, and insurance companies has existed for some time. However, such a system does not apply to other companies.

According to the existing laws, promoter shares are automatically restricted from trading during the lock-in period and are automatically converted into ordinary shares afterward. However, CDSC is attempting to bypass this provision by proposing separate ISINs in the new procedure.

Organizations such as the Independent Power Producers’ Association Nepal (IPPAN), Nepal Chamber of Commerce, and Solar Power Producers’ Association Nepal (SOPAN) have opposed this move, calling it ‘against the interests of investors.’

Ganesh Karki, Chairman of IPPAN, said, “The new system introduced in Nepal goes against existing laws, international practices, and the essence of the capital market. It will undermine confidence in foreign investment.”

He stated that thousands of investors engaged in the energy sector will be directly affected by this proposal. “On one hand, the government is promoting the increase of foreign investment, while on the other hand, regulatory bodies are manipulating the investments,” Karki said.

The proposed dual ISIN, intended to intimidate investors and create uncertainty in the market, is expected to cause shares in the lock-in period to not appear in the accounts, prevent promoter shares from automatically converting into public shares, block the sale of promoter shares, and delay or halt new company IPOs. For these reasons, the capital market has experienced negative impacts. Due to all these factors, investors feel their capital is at risk. Signs also indicate a contraction in market liquidity, a decline in share prices, and a reduction in government revenue.

The purpose of ISIN is the identification, tracking, and accounting of securities. However, stakeholders are angered, saying that CDSC is attempting to turn this ‘technical code’ into a tool for investment control under the guise of regulation.

CDSC claims that this will help streamline the capital market. They assert that it will improve data transparency, record-keeping, and regulatory effectiveness.

Source: Biznessnews