Lock‑In Period In Nepal: Rules For Promoter Shares, Legal Framework & CDSC Flagging Mechanism (2026)

Overview

This article from Niti Partners and Associates  explains the lock‑in period rules applicable to promoter shares, employee shares, project‑affected local shares, and other restricted securities under Nepali securities law. The lock‑in mechanism is primarily governed by the  Securities Registration and Issue Regulation, 2073  and enforced through the depository system of  CDS and Clearing Limited (CDSC). The article also covers the proposed dual ISIN reform and the legal consequences of non‑compliance.

1. What is a Lock‑In Period?

A lock ‑ in period is a statutory restriction that prohibits specified shareholders typically promoters, employees, and project‑affected locals from selling or transferring their shares for a fixed duration after a company's Initial Public Offering (IPO). The purpose is to protect public investors by ensuring that major shareholders do not immediately exit after listing, thereby promoting price stability and long‑term commitment.

In Nepal,lock‑in obligations apply to both promoter shares and other restricted categories, and are enforced through the depository system operated by CDS and Clearing Limited (CDSC) .

2. Legal Framework Governing Lock ‑ In in Nepal

The following legal instruments form the core of Nepal's lock‑in regime:

3. Lock ‑ In Period by Shareholder Category

The lock‑in period varies depending on the type of shareholder and the sector of the company. The table below summarises the current legal requirements:

For advice on structuring lock‑in provisions in shareholder agreements, visit ourCorporate & Securities practice page.

4 Calculation: Date of Allotment vs. Date of Listing

A common question is whether the lock‑inperiod runs from the date of allotment of shares or the date of listing on NEPSE.

• General rule (Regulation 38): The lock‑in for promoter shares is calculated from the  date of allotment  following the IPO.

• Exception for hydropower:  Many hydropower IPOs specify that the lock‑in runs from the  date of listing (i.e., the day shares begin trading on NEPSE). This is usually stated in the SEBON‑approved prospectus.

• Banks and financial institutions:  The lock‑in runs from the  date of commencement of operations  (not allotment or listing).

Practitioners must always verify the exact start date by reading the IPO prospectus  of the concerned company. The prospectus overrides general rules where a specific provision is made.

5. CDSC Flagging Mechanism and Enforcement

The  CDS and Clearing Limited (CDSC)  is the central depository that holds all de-materialised shares in Nepal.Lock‑in restrictions are enforced through asystem‑level"flagging" mechanism.

5.1. Single ISIN System (Current Practice)

Most companies (except banks, insurers, and some finance companies) currently use a  single ISIN  (International Securities Identification Number) for both promoter and public shares. Under this system, locked‑in shares are flagged in the depository records, but the flag is not visible to investors. This has led to compliance challenges.

5.2. How Flagging Works in Practice

When a shareholder attempts to transfer flagged shares:

• The CDSC system checks the restriction code attached to the ISIN or the specific shareholder account.

• If the lock‑in period has not expired, the transfer is automatically blocked.

• Off‑market transfers (e.g., gifts, pledges) are also blocked unless exempted by SEBON.

6. Consequences of Violating Lock ‑ In Provisions

Violation of lock‑in rules attracts legal action under the  Securities Act,2063  and  Securities Registration and Issue Regulation, 2073. Consequences include:

• Monetary penalties  imposed by SEBON.

• Referral for criminal prosecution  in cases of fraud or market manipulation.

• Suspension or cancellation  of director or promoter registration in extreme cases.

In addition, directors, CEOs, auditors, and company secretaries are prohibited from trading their company's shares during their tenure and for one year after leaving office a restriction separate from the general lock‑in period as per Securities Act.

7. Conclusion

The lock‑in period rules in Nepal serve to align promoter interests with public investors and maintain market integrity. Key legal requirements are found in the Securities Registration and Issue Regulation, 2073, with sector‑specific variations for hydropower and banking companies. Enforcement relies on CDSC's flagging mechanism, which is currently undergoing reform through a proposed dual ISIN system.

Companies planning an IPO, as well as existing promoters of listed companies, must carefully track lock‑in expiry dates and comply with SEBON's transfer restrictions. Legal advice should be sought before any post‑lock‑in share conversion or sale.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.