NEPSE expands daily price movement limit to 15%, Introduces new circuit breaker rules

KATHMANDU: Nepal Stock Exchange has revised its trading regulations, allowing listed companies’ share prices to fluctuate by up to 15 percent in a single trading day, marking a significant shift in Nepal’s capital market dynamics.

The new provision, set to come into effect from Monday, replaces the existing 10 percent daily price movement cap. The adjustment has been made through the fourth amendment to the “Trading Operation Bylaws, 2082,” approved by NEPSE’s board, increasing the threshold by an additional 5 percentage points.

Wider Price Band to Boost Market Liquidity

Under the revised framework, investors will now be able to place buy or sell orders within a 15 percent range above or below the previous day’s closing price. This change is expected to enhance market liquidity, price discovery, and trading flexibility, particularly during periods of high volatility.

Additionally, NEPSE has introduced a refined order management mechanism through its Trading Management System (TMS). Orders placed before or after official trading hours will now be queued based on time priority and automatically entered into the system once trading begins.

Revised Trading Sessions and Limits

The amended regulation also introduces differentiated pricing limits across trading sessions:

• Pre-open session (10:30 AM to 10:45 AM): Orders must fall within a 5 percent range above or below the previous day’s closing price. Trades executed in this session will be carried into the regular session.
• Regular trading session: Orders can be placed within a 3 percent price fluctuation band relative to the last traded price. Previously, this limit was set at 2 percent, indicating a moderate relaxation.

New Circuit Breaker Mechanism

In a parallel move, NEPSE has overhauled its circuit breaker rules to better manage market volatility:

• First circuit breaker: Triggered if the NEPSE index moves up or down by 5 percent within the first two hours of trading. Trading will be halted for 15 minutes.
• Second circuit breaker: If the index further moves by 8 percent after trading resumes, the market will be closed for the remainder of the day.

This replaces the earlier three-tier circuit breaker system, which imposed trading halts at 4 percent, 5 percent, and 6 percent movements within the first hour and subsequent sessions.

Structural Reform in Nepal’s Capital Market

Market analysts view the revised price band and circuit breaker adjustments as part of broader structural reforms aimed at modernizing Nepal’s stock market. By aligning trading mechanisms closer to international practices, NEPSE is attempting to create a more responsive and efficient marketplace.

However, the increased volatility range may also elevate short-term risks for retail investors, particularly in a market still dominated by individual participants rather than institutional investors.

The move comes amid sustained growth in Nepal’s equity market participation, driven by digital trading platforms, rising financial literacy, and increased interest from younger investors. As NEPSE continues to evolve, regulatory balancing between market efficiency and investor protection remains a key challenge for policymakers.