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:
| Instrument | Key Provision |
| Securities Act, 2063 | Empowers SEBON to impose transfer restrictions on securities. |
| Securities Registration and Issue Regulation, 2073 | Section 38 prescribes the standard lock‑in period for promoter shares. |
| Securities Issue and Allotment Directive, 2074 | Provides procedural rules for dematerialisation and lock‑in enforcement. |
| Bank and Financial Institution Act, 2073 (BAFIA) | Imposes a longer lock‑in for promoters of banks and financial institutions. |
| Securities Dematerialisation Operating Guidelines, 2025 (draft) | Proposes a dual ISIN system to separate promoter and public shares. |
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:
| Shareholder Category | Lock‑In Period | Calculation Start Point |
| Promoter shares (general companies) | 3 years | Date of IPO allotment |
| Promoter shares (hydropower / IPPs) | 1 year (typically) | Date of listing on NEPSE |
| Promoter shares (banks & financial institutions) | 5 years (minimum) | Date of commencement of operations |
| Pre‑IPO institutional investors (PE/VC) | 1 year | Date of IPO allotment |
| Employee quota shares | 1 year | Date of IPO allotment or listing |
| Project‑affected local shares | 3 years | Date of IPO allotment |
| General public shares | No lock‑in | – |
For advice on structuring lock‑in provisions in shareholder agreements, visit our Corporate & Securities practice page.
4 Calculation: Date of Allotment vs. Date of Listing
A common question is whether the lock‑in period 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 dematerialised shares in Nepal. Lock‑in restrictions are enforced through a system‑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.
Frequently Asked Questions
1. What is the standard lock‑in period for promoter shares in Nepal
The standard lock‑in period is 3 years from the date of IPO allotment, as per Section 38 of the Securities Registration and Issue Regulation, 2073. However, hydropower companies often have a 1‑year lock‑in from the listing date, and banks/financial institutions have a 5‑year lock‑in from the date of commencement of operations.
2. Does the lock‑in period start from the date of allotment or the date of listing?
For most companies, it starts from the date of allotment. For hydropower companies, it is often from the date of listing (check the IPO prospectus). For banks and financial institutions, it starts from the date of commencement of operations.
3. Can promoter shares be transferred before the lock‑in period expires?
No. Any transfer – whether by sale, gift, pledge, or any other means – is prohibited. The CDSC flagging system automatically blocks such transfers. Violations attract penalties from SEBON.
4. What is the CDSC flagging mechanism?
CDSC assigns a digital restriction code (flag) to locked‑in shares in its depository system. When a shareholder attempts to transfer flagged shares, the system automatically rejects the transaction. The mechanism is currently being upgraded to a dual ISIN system for better enforcement.
5. Are directors and CEOs allowed to sell their shares after the lock‑in period expires?
Not immediately. Directors, CEOs, auditors, and company secretaries are prohibited from trading their company’s shares during their tenure and for one year after leaving office, regardless of the general lock‑in expiry.
6. What happens if a promoter sells locked‑in shares illegally?
SEBON can impose monetary penalties, order disgorgement of illegal profits, refer the matter for criminal prosecution, and suspend or cancel director/promoter registration. Recent investigations have targeted such violations.
7. Are project‑affected local shares subject to lock‑in?
Yes. Project‑affected local shares typically have a 3‑year lock‑in from the date of IPO allotment, as specified in the IPO prospectus of the concerned company.
8. What is the proposed dual ISIN system?
The draft Securities Dematerialisation Operating Guidelines, 2025 proposes separate ISINs for promoter shares and public shares. This would make it impossible to “blend” locked‑in promoter shares with public shares. The directive is awaiting SEBON’s approval.
9. Can employee quota shares be sold immediately after listing?
The draft Securities Dematerialisation Operating Guidelines, 2025 proposes separate ISINs for promoter shares and public shares. This would make it impossible to “blend” locked‑in promoter shares with public shares. The directive is awaiting SEBON’s approval.
10. How can a company convert promoter shares to public shares after lock‑in expiry?
The company must pass an AGM resolution, obtain approval from SEBON and NEPSE, and then apply to CDSC for conversion. Under the proposed dual ISIN system, automatic conversion will not be allowed.