Market mechanism is the trading procedure through which listed securities are traded in an organized market. The market mechanism or the trading procedure is determined by NEPSE in Nepal. There are numerous procedures a stock exchange could follow in this regard. However, the two most popular procedures are automation and open-cry-out system. NEPSE has recently updated from open-cry-out system to automated one where in brokers enter electronic orders (buy and sell) without being physically present in the NEPSE floor. Currently two types of members participate in the stock exchange: market makers and market brokers.

MARKET MAKERS

Market makers are the institutional members. They, being well-organized institutions, are considered experts in the area of analyzing financial statements, controlling and regulating the market through market mechanism. So these organizations are allowed for making buy and sell in and from their own accounts. They are not allowed to deal with general investors though. It is expected that they will buy when there is excess supply of securities in the market and sell the securities when there is excess demand. In the case of excess supply, the price will come down whereas in case of excess demand, the price will increase.

NEPSE has only two licensed organizational market makers as of now. It is United Finance Ltd., situated in Durbar Marg, Kathmandu and Nepal Sri Lanka Merchant Bank Ltd., situated in Kamaladi, Kathmandu.

MEMBER BROKER

Member brokers are the license holders who are empowered to accept the buy and sell orders from the individual and institutional clients and make transactions in the NEPSE. The buying/selling process is organized, managed, and operated by stock exchange. Such security persons execute the orders on behalf of their clients and charge the commission on the basis of the traded amount. The rate of commission ranges from 0.7 to 1 percent. As of 31st January 2008, 23 institutional member brokers are participating in NEPSE and other 27 institutions will be given the licenses to act as member brokers in the capital market. The selection process is going on and we will have 50 member brokers very soon (hopefully after Constitutional Assembly poll).