SEBON’s Intraday Trading Draft Is Ambitious on Risk Controls but Leaves Key Numbers Unwritten

Amrit Kharel

Margin rates, exposure limits, trading windows, the auto-square-off procedure and record-retention periods are all deferred to Board decisions. The schedules mostly list principles, with the “detailed standards” to follow. Rules 57 and 59 give the Board wide powers to remove difficulties and amend schedules. Core investor-facing parameters should instead be published in the rules themselves, or in a directive issued before the rules take effect. Investors cannot judge the proposal without the numbers.

KATHMANDU, Nov 12: The Securities Board of Nepal (SEBON) has circulated a preliminary draft of the Intraday Securities Trading Regulations, 2083 and invited public feedback until Mangsir 4, 2083.

The draft follows the Board’s concept paper of Ashwin 8, 2083. It would let investors buy and sell the same security within one trading day, and sell and then buy back, with the position closed before the session ends. It is issued under Section 116 of the Securities Act, 2063, with the approval of the Government of Nepal.

What the draft proposes

Approvals and eligibility

• SEBON must approve intraday trading. The stock exchange may start only after its technology, risk-management system and operating arrangements are ready (Rule 3).
• Only listed securities that meet criteria such as liquidity, daily turnover, free float, price volatility, market capitalisation, governance and the issuer’s financial health qualify. The exchange publishes the list and can remove or suspend a security (Rules 4-5).
• Brokers need SEBON approval. Conditions include at least Rs 20 crore paid-up capital, net worth above paid-up capital, a live risk-management system, an integrated order and trading system, a dedicated risk officer, internal controls and a business-continuity plan (Rule 6).

Investor protection

• Brokers must assess each client’s identity, financial capacity, risk appetite and suitability before offering the facility. The draft prescribes a suitability form, a risk-disclosure declaration and a signed agreement (Rules 7, 24, 25, 41; Schedules 1, 6, 13).
• Brokers must keep client assets separate from their own and manage conflicts of interest. They must also run a grievance system and escalate unresolved disputes to SEBON or mediation (Rules 42-45; Schedule 14).

Margin and exposure

• Clients must keep margin, revalued in real time or at intervals set by SEBON. Variation margin can be imposed when markets move sharply (Rules 16-17, 20).
• Exposure limits can be set per client, broker, security and for the whole market. Brokers must also maintain real-time risk controls that check each order before it reaches the market (Rules 18-19; Schedules 3-4).

Square-off

• Open positions must be closed the same day. Anything left open is automatically squared off by the system, and the client bears any resulting profit, loss and charges. The client must be notified afterwards with set details (Rules 13-14; Schedule 5).

Market oversight and resilience

• The exchange must run real-time surveillance for abnormal prices, abnormal volumes and manipulation, and report suspicious trades to SEBON (Rule 33).
• The exchange and the depository/clearing body must keep audit trails, maintain cyber-security, and have disaster-recovery and incident-reporting arrangements (Rules 34-39; Schedules 7, 10-12).

Rollout

• SEBON may phase in the regime, starting with selected securities, brokers or investor classes (Rule 58). It may also impose temporary measures such as higher margins or trading halts (Rules 22, 53).

Gaps and suggested amendments

1. Too much is left to later directives. Margin rates, exposure limits, trading windows, the auto-square-off procedure and record-retention periods are all deferred to Board decisions. The schedules mostly list principles, with the “detailed standards” to follow. Rules 57 and 59 give the Board wide powers to remove difficulties and amend schedules. Core investor-facing parameters should instead be published in the rules themselves, or in a directive issued before the rules take effect. Investors cannot judge the proposal without the numbers.

2. Short selling is not addressed. Rule 2(Gha) defines intraday trading to include sell-then-buy. That implies intraday short selling, which raises questions about legal basis, how a seller who holds no shares settles, and what happens on a failed buy-back. The final text should say whether it is permitted and how depository and clearing settlement handles it.

3. Rule 6 may be too exclusive. A Rs 20 crore capital floor may leave only a handful of brokers eligible. SEBON should publish an impact assessment of how many brokers qualify. It could also consider tiered requirements tied to risk limits rather than a single threshold.

4. Retail safeguards are thin. Suggested additions:

• Overall leverage caps and per-client loss alerts or daily loss limits.
• Mandatory risk warnings that include statistics on how many retail clients lose money.
• Rules on advertising and promotions, including social-media influencers.
• A trial period for new clients, such as a cap on position sizes.

5. Auto-square-off fairness. Rule 14(2) puts all consequences on the client, even when a system failure or late alert contributes. The rule should say who bears the loss when the broker’s or exchange’s system malfunctions, and set a minimum notice period before forced closure.

6. Volatility controls. The draft lets SEBON halt trading but does not define price bands, circuit breakers or volatility interruptions specific to intraday trading. These should be built in at the outset.

7. Pilot and review. Rule 58 allows phasing but sets no objective criteria. SEBON should state a pilot scope (for example, a small group of the most liquid securities), a fixed review date and a public report on outcomes.

8. Related legal and tax issues. The draft does not mention capital-gains tax treatment, exchange and broker fees for same-day round trips, or any link to an investor-protection fund. These need coordination with the Ministry of Finance and other bodies.

How other markets handle it

The most instructive recent change is American. For about two decades, anyone making four or more day trades in five business days had to keep at least $25,000 in a margin account. The SEC approved FINRA amendments that replace the day-trading margin provisions with intraday margin standards, and remove day-trading buying power and the $25,000 minimum. Brokers report that the replacement framework took effect on June 4, 2026. The US now judges whether an account has enough equity to cover its positions during the day rather than counting trades. Nepal’s draft already works on that risk-based logic through margin, exposure limits and real-time controls. It lacks the details that make the logic enforceable.

India shows both sides. Intraday trading deepens liquidity, but SEBI’s own findings on retail losses pushed it toward stricter upfront margin. The UK shows that investor-protection rules do not require banning products. They rely on leverage limits, disclosure and suitability. All three jurisdictions publish the exact margin and risk parameters in rules or exchange circulars, which is where Nepal’s draft is weakest.

The author is an expert on securities and derivatives market law.