Nepal’s capital market, represented by the Nepal Stock Exchange (NEPSE), is undergoing a pivotal moment. Once seen as a promising platform for investment and economic mobilization, it now stands marred by widespread manipulation and unethical practices that compromise its credibility. While the trading volume has increased and the number of retail investors has multiplied over the years, the surge in activity has also invited a disturbing trend: systematic market malpractices designed to mislead, exploit and ultimately strip small investors of their capital.
Among the most pervasive of these practices is the manipulation of share prices through coordinated trading, a tactic that exploits small-cap companies with low floating shares. Groups of traders often conspire to corner such stocks—accumulating large quantities and controlling the float. By executing a series of synchronized buy and sell orders through different accounts they control, they create the illusion of heightened market activity and demand. This simulated momentum attracts unsuspecting retail investors who, seeing the surge, interpret it as a sign of growth or news-based rally. In reality, they are walking into a trap. Once these orchestrators have driven up prices and lured in enough buyers, they quickly offload their shares at inflated rates, leaving latecomers saddled with overvalued assets.
This behavior is enabled and obscured by the use of multiple dematerialized (demat) and Trading Management System (TMS) accounts, often opened under the names of family members or associates. These accounts, though legally distinct, are in practice controlled by a single orchestrator, allowing them to shuffle shares around and simulate market demand. By exploiting NEPSE’s lenient policy on multiple accounts per individual, manipulators hide their tracks with relative ease. The lack of comprehensive Know Your Customer (KYC) implementation adds another layer of opacity, making it exceedingly difficult for regulators to identify patterns of abuse or hold culprits accountable.
Price manipulation often intersects with insider trading, which continues to thrive in the absence of robust regulatory deterrence. Those with early access to corporate decisions or financial information use it to strategically time their trades. In some cases, prices are deliberately inflated through internal transfers before being pushed onto the public with aggressive promotion tactics. Retail investors are then exposed to these stocks at their artificial peaks, unaware that the fundamentals of the companies in question do not justify such valuations. By the time the truth unfolds, the orchestrators have exited, and the average investor is left with significant losses.
An alarming dimension of this scheme is the misuse of social media platforms. Sites like Facebook, YouTube and emerging voice platforms such as Clubhouse are increasingly being used to spread misinformation, generate artificial hype, and create momentum for otherwise illiquid or fundamentally weak stocks. Traders pose as analysts or experts and recommend stocks with confident predictions of sharp price increases. These discussions are timed with manipulative trades in the market, creating a feedback loop that convinces the public of the stock’s potential. When the bubble bursts, it is often too late for the retail investor to escape.
Adding to the opacity is the practice of fund transfers between related accounts to obscure the money trail. Manipulators move capital across multiple bank accounts under family names or proxy ownership to fund share purchases or mask the source of the investment. This kind of financial obfuscation makes regulatory tracing cumbersome and dilutes the possibility of legal intervention. In some cases, these same actors even default on broker payments, taking advantage of the trust-based relationships between clients and their brokerage firms. By settling trades but withholding payments, they place brokers in financial jeopardy and erode trust within the trading ecosystem.
The use of netting—where trades are balanced across multiple controlled accounts to avoid generating a net position—is another technique used to manipulate prices while maintaining an appearance of normalcy. This tactic helps manipulators push and pull prices during the day, all while ensuring their overall exposure remains neutral by the end of the session. The end result is a market that appears healthy on the surface but is deeply flawed beneath.
The implications of these activities are far-reaching. First and foremost, they create a hostile environment for the average investor. Many enter the market with the hopes of earning modest returns, only to find themselves caught in traps laid by sophisticated manipulators. As losses mount, trust in the market diminishes, driving potential investors away. This is particularly harmful in a developing economy like Nepal, where capital markets should ideally be a channel for democratized wealth creation and economic participation. Instead, the current environment fosters inequality, where those with the knowledge and resources to manipulate the system grow richer at the expense of the uninformed.
From a macroeconomic perspective, this kind of manipulation distorts the price discovery mechanism of the stock market. In an ideal system, stock prices reflect the underlying fundamentals of a company—its profitability, governance, market potential and operational integrity. But when prices are artificially inflated or deflated through manipulative trades, capital is misallocated. Poor-performing companies may receive undue attention and investment, while fundamentally sound firms may be ignored. This harms the broader economy by diverting resources from productive to speculative uses.
Addressing these issues requires a coordinated, multi-pronged reform strategy that targets both the structural loopholes and behavioral incentives that currently enable market abuse. Regulatory oversight must be significantly strengthened. SEBON, as the primary market regulator, needs to enhance its surveillance capabilities, adopting real-time monitoring systems that can detect patterns of matching trades, coordinated activity, and unusual volume surges. The technology exists—it is a matter of political and institutional will to deploy it effectively. Alongside this, NEPSE must overhaul its trading platform to plug known loopholes. Transfers of shares between brokers or across accounts without scrutiny should be restricted or tightly monitored.
There is a compelling need to impose stricter controls on account creation. Limiting each individual to a single demat and TMS account, along with robust biometric KYC processes, will curb the use of multiple accounts for manipulation. SEBON should also require the declaration of beneficial ownership in all trades. Without full transparency on who is ultimately controlling a transaction, regulators cannot effectively enforce accountability.
The penal framework must evolve to reflect the severity of market manipulation. Financial penalties alone may not be sufficient deterrents; trading bans and even criminal prosecution must be part of the regulatory toolkit. Enforcement actions should also be made public, not just to set examples but to build investor confidence that the system protects their interests.
Regulating the influence of social media is another urgent frontier. Financial discussions on public platforms should be brought under the purview of regulatory oversight. Collaborations between SEBON and social media companies can help in tracking, flagging, and penalizing accounts that promote stocks for manipulative purposes. A regulatory framework could also be created to license or verify credible financial commentators, ensuring that their analyses meet ethical and factual standards.
Protecting brokers and incentivizing their role in fraud prevention is equally important. Brokers are often the first to sense suspicious behavior but may hesitate to act due to fear of losing clients or facing legal repercussions. Regulatory bodies must establish clear reporting mechanisms and ensure that brokers are legally protected and encouraged to report red flags. A compensation fund for retail investors, supported by penalties collected from offenders, could provide a safety net for those affected by fraudulent activity.
Education remains the long-term solution. Without empowering investors to think critically, avoid herd behavior and analyze fundamentals, reforms can only go so far. Awareness campaigns, seminars and digital content aimed at educating the public about common manipulation tactics can create a more resilient investor base. Retail investors must be taught how to interpret company filings, understand earnings reports and spot red flags in stock behavior.
Nepal’s stock market is at a crossroads. On one side lies the path of reform, transparency and long-term stability, on the other a continuation of short-termism, manipulation and systemic erosion. The market cannot flourish in an environment where deception outweighs disclosure, and exploitation overshadows equity. A functioning capital market is not just a feature of a modern economy—it is its lifeline. Nepal must choose to protect this vital institution by acting now, decisively and with unwavering commitment to integrity.
