Transaction costs

Economies of scale or scope are achieved with increase in trade volume. The increase in trade volume comes through attracting more investors, trading greater variety of securities like stocks, bonds, derivatives, etc. which help to divide transaction cost evenly among them. Thus transcation costs can be reduced with a new stock exchange which will have greater variety of securities.

Transparency

In an attempt to attract greater pool of investors, the stock exchanges will be forced to expose as much information about the listed companies as possible so that the prices on these exchanges reflect the current market information as much as possible. Without proper exposure of public information, investors will not be willing to trade on either one of the exchanges and they might eventually loose listed companies too. Thus transparency will be induced with increased competition. Additionally, implementation of automation in trading in the exchange will make variables like market depth, easily visible to investors and increase capacity of matching orders.

Operational efficiency

Higher transparency in information in the market will lead the prices of securities to reflect accurate market information. The trading will then shift from hunch and instinct based trade to technical analysis based trade attracting more investors’ attention and confidence. Also, improved technology will allow the stock exchange to disseminate pricing information to more investors across the country and even operate for greater number of hours than at present which will be another driving factor for an increase in trade volumn in the stock market.

Higher product innovation and advanced technology

Increased competition among the two stock exchanges will force the exchanges to invest in IT and technology, innovate and offer value added services to the investors. As we will see later in the presentation, competition from stock exchanges led many stock exchanges to undergo complete structural and technological reforms to provide innovative and value added services to the issuers as well as investors.

Nationwide access to capital market

With increase in automation of stock trading, the capital market will not only be limited to few investors centralized in major cities like ktm, pokhara, birgunj, biratnagar, etc. Investors from all over Nepal will be able to trade and invest. Not only that, NRNs and other big institutional investors willing to invest in Nepalese capital market will be able to invest easily through automation services.

Diversified instrunments of trade

In the present stock exchange, only company scrips are traded mostly. Development bonds are virtually non existent while corporate bonds are very few in number. With a new exchange, to capture greater market share it will start trading not only scrips but various other instruments of trade.

Reduced listing fees: To attract greater number of companies in the exchanges, they might engage in price competition to reduce listing fees. The fees at the moment are monopolized by NEPSE and thus various companies are often found complaining that the fees are too high. Second stock exchange will force NEPSE to drive down its listing fees to beat the competitor.

Higher liquidity and marketability:

The market will have greater liquidity if the securities are available to the price takers and the prices reflect the available market information about the security. A new stock exchange will allow the prices to reflect all relevant information and hence, investors will also be willing to invest in such securities. The marketability will also increase since the full automation of the stock exchange will enable people from all over Nepal as well as outside to invest in the securities. Such increased liquidity and marketeablity of shares with enhanced communicaitons technology and investors’ confidence is a definite plus point for the issuing companies as more investors will be willing to invest in these companies now.

Diverse pool of investors: The present stock market deals mostly on stocks which are risky forms of investment. So for risk averse and risk neutral investors, there aren’t many lucrative investments in the capital market. With the introduction of second stock market, various other market instruments like risk neutral government bonds, municipal bonds, or risk averse mutual funds, etc. will get introduced due to the advanced technology and ability of the stock exchange to handle diverse group of securities.