The dispute over the international security identification number (ISIN numbers) is growing. After issuing initial public offerings (IPOs), companies receive an ISIN to trade on the secondary market. However, the issue of ISIN allocation has now reached the accounting committee and the anti-corruption investigation office.
The problem became complicated when CDS and Clearing Limited (CDSC) started the controversial practice of giving two ISINs to new companies. Traditionally, Nepal Rastra Bank and the Insurance Authority assign separate ISINs for public and promoter shares. But recently, CDSC tried to give two ISINs to other companies as well, causing disagreements. Normally, a company is given only one ISIN worldwide for its shares.
CDSC refused to follow the Nepal Securities Board’s (SEBON) repeated instructions, citing unclear legal interpretations. Because of this, some companies that have already issued shares face issues where shareholders cannot see their shares in their accounts.
This dispute began with Emerging Nepal. That company was given two ISINs at that time. Now, it has asked for only one ISIN, raising questions about the need for two. CDSC tried to apply the two-ISIN system to other companies, which increased the problem.
The anti-corruption investigation commission has also started looking into this matter. After requesting clarification, SEBON responded based on a committee’s recommendation and instructed CDSC to work according to existing laws within seven days.
At the same time, the parliamentary accounting committee has expressed concern and communicated with the authorities. Even if CDSC decides to create new laws and present them to the board, how these will be implemented and resolved in the long term remains uncertain.
ISIN numbers impact on IPO
This issue directly affects companies that recently launched IPOs and their shareholders. Because companies cannot list shares properly, trading in the secondary market has become difficult. Founding shareholders face problems as they cannot see their shares in their Demat accounts.
The conflict between regulatory bodies has damaged transparency, trust, and investor confidence in the capital market. According to CDSC’s information booklet, an ISIN is a unique 12-character alphanumeric code given to securities when they are listed in the depository system.
Globally, ISIN was introduced in 1981 and widely adopted after the G30 group’s recommendation in 1989. In 2004, the European Union made it mandatory for regulatory reporting.
ISIN is an important pillar of the capital market. It helps provide international identification, registration, tracking, and accounting of securities.
In Nepal, banks, financial institutions, and insurance companies have separate ISINs for founder and public shares. All other companies have only common shares. Currently, CDSC has issued 491 ISINs, including 39 for closed-end mutual funds, 8 for open-end funds, 77 for bonds, 136 for founder shares, and 255 for common shares. Founder shares mainly belong to banks, financial institutions, and insurance-related businesses.
According to the securities registration and issuance regulations, securities issued through public offerings cannot be sold within three years of distribution. This rule also covers founder and bonus shares.
There is no legal or international dispute about ISIN rules. CDSC has followed these rules since its establishment.
Recently, disputes arose because the listed shares of some companies were not properly credited (dematerialized) in investors’ accounts. This caused many investors to complain about the security of their investments.
Stopping ISIN issuance based on retaliation harms the capital market and investor-friendly environment. Although SEBON has instructed CDSC to dematerialize shares in investors’ accounts as per law and good practice, CDSC has been slow to comply.
Internationally, even companies like Facebook have one ISIN despite different voting rights. But in Nepal, there is debate about whether shares with the same rights and returns should have different ISINs. SEBON has also directed that Nepal follow international standards in this regard.
