Archive for the 'Clearing and settlement' Category

London Stock Exchange £24.5bn merger with Deutsche Börse in doubt

Doubt has been cast on the EUR29bn (£24.5bn) merger between London Stock Exchange Group plc and Deutsche Börse AG this week, after the European Commission demanded LSE must sell off its 60% stake in fixed-income trading platform MTS S.p.A. This is a part of LSE’s Italian business and an important clearing house for European government bonds, including Italian government debt.
The LSE says the EC is “unlikely to provide clearance” after it surprised the City and refused to comply with the demand. It said on Sunday that the request was “disproportionate”.
The deal had been announced a year ago as a “merger of equals” to create a mega-exchange capable of taking on the US exchanges. The European Commission could announce its verdict on 4 April.
LSE and Deutsche Börse had previously agreed to sell the French part of LSE’s clearing business, LCH, to satisfy competition concerns. Rival Euronext was the interested bidder. That may not go ahead.
LSE said that selling its stake in MTS would require approval from several European national regulators and hurt its wider Italian business, where MTS is classified as a “systemically important regulated business”. The LSE also owns Borsa Italiana, based in Milan.
In its statement, LSE said: “Taking all relevant factors into account, and acting in the best interests of shareholders, the LSE Board today concluded that it could not commit to the divestment of MTS.”
US exchanges, including Intercontinental Exchange, headquartered in Atlanta, may now start bidding for the LSE Group.
The 2 leading European exchanges had previously tried to merge in 2000 and 2005. In the current deal, Deutsche Börse, which operates Frankfurt Stock Exchange, will have a 54% stake in the enlarged business but the headquarters was forecast to stay in London. There were concerns post UK’s “Brexit” vote to leave the European Union that considerable volumes of clearing, especially securities denominated in euros, would move to Europe.
LSE and Deutsche Börse say the deal is still on, pending the European Commission verdict. Fees so far to City bankers, lawyers and public relations advisers have so far topped £300m, according to calculations on an announcement.
Deutsche Börse also operates the Luxembourg-based clearing house Clearstream and derivatives platform Eurex. It commented: “The parties will await the further assessment by the European commission and currently expect a decision by the European commission on the merger of Deutsche Börse and LSE by the end of March 2017.”

Paternoster Square with London Stock Exchange at right (credit: Wikipedia)

JSE switches to T+3 on 11 July

The Johannesburg Stock Exchange is switching to a shorter T+3 settlement cycle for the equity market from 11 July. It will reduce risk and add an estimated R50 billion ($3.3bn) of cash into circulation. Currently it is still working on T+5.

Last week the JSE announced that the final market-testing phase of the project has been successfully completed and the transition to a new post-trade dynamic will go ahead as planned. In the equity market, “T+3” is an abbreviation and means that ownership of equities is delivered in exchange for cleared payment in 4 days from the date of the trade. The current T+5 means this post-trade settlement cycle happens within 6 days. International best practice settlement standards are usually T+3 to allow time for international funds transfers to reach the target account in time for settlement. Many African securities exchanges are already on T+3 and some, such as Egyptian Exchange, are faster.

JSE Executive Director Dr Leila Fourie said: “South Africa must ensure that it remains as attractive as possible for foreign inflows of capital, and settlement assurance is vital for us to retain and keep attracting investment from outside of the country. Global investors need to be assured that, if they trade on our market, their trades will settle seamlessly. Currently, 37% of equity trades are held by non-residents with approximately 30% trading on a daily basis.

JSE celebrates 20 years since closing its trading floor on 7 June (photo Claudelle von Eck)

JSE celebrates 20 years since closing its trading floor on 7 June (photo Claudelle von Eck)


“A further benefit of a shorter settlement cycle is that it dramatically reduces the amount of unsettled trades at any given point. So, in the event of a market default, the number of unsettled trades that we have to unwind is reduced significantly. This reduces potential losses between trading parties, and enhances investor protection during the process.”

“The move to a shorter settlement cycle will catapult the country and the JSE to compete confidently among global equity markets, making it a matter of major importance for SA Inc. It will result in additional benefits to the market such as cash being released earlier in the settlement cycle, increasing the funds in circulation. Based on the average value traded per day of R25bn, this will create a release of R50bn into circulation.”

The entire market and all participants are affected, including listed companies, traders, investors, clearing and back-office participants, the central depository Strate, the JSE and all regulators. The JSE is leading the move in close collaboration with the South African Reserve Bank, National Treasury, Financial Services Board and numerous other stakeholders to ensure system and process readiness ahead of the move.

South Africa’s rate for failed trades has been close to zero over the past 15 years. The new, shorter settlement cycle will increase the number of trades that roll and do not settle on time. The JSE expects that between 5% and 10% might roll in the new environment, but aims to maintain a target of less than 5%. Fourie says: “We are working with participants to minimize this percentage by improving the availability of securities for lending and borrowing activity and also by actively encouraging behaviour changes where required.”

The JSE has requested that listed companies avoid corporate actions between 4 and 18 July in order to reduce complexity during the cutover week. The JSE thanks all participants, both local and abroad, “for their tremendous support in making market testing a great success”, according to the announcement.

Global community heading to World Exchange Congress 22-23 March

Momentum building fast ahead of the key event for securities exchanges worldwide, the World Exchanges Congress, now in its 11th year and back in central London from 22-23 March.

This is the key gathering where more than 300 members of the global exchange community get together from all continents to share trends and to hear from experts and bourse leaders. Topics of interest in the fast-changing world of established and emerging trading venues regulated exchanges include “new customers, new revenues and new partnerships”.

For more information, check the website here.

The World Exchanges Congress was launched in London in 2005 and has been hosted in Istanbul, Madrid, Doha, Monaco, Dubai and Barcelona. CEOs from virtually every exchange and trading venue in the world have attended. In 2010, the event expanded to look at technology opportunities and challenges and there is strong participation from chief technology officers (CTOs) and other top executives with a focus on trends and innovations.

In 2016, the congress continues to be seen as the unofficial AGM of exchanges and it is the most significant date on every exchange executive’s diary. It gives bourse leaders the opportunity to harness the latest innovations, overcome their biggest challenges and be inspired to drive their organisations forward.

The gathering will focus on the most critical future trends affecting exchanges and changing the exchange landscape, including cyber-security, crowd-funding, bitcoin, big data, crypto-currency and post-trade automation. Core topics running through the programme are the growth of financial centres, market integrity and finding ways to succeed through innovation.

Confirmed speakers are CEOs and other leaders from securities exchanges and other trading venues around the world as well as from the World Federation of Exchanges. They will explain their successes and challenges driving into new partnerships and revenue opportunities including commodities, derivatives and FX, regional expansion, the trading landscape under Europe’s MiFID II directive, opportunities for automation, over-the counter (OTC) trading on exchanges, distributed ledger/block chains, attracting more listings, crowdfunding platforms, data and index revenues for exchanges, post-trade models, innovation pitches, latest developments in central clearing, cyber security and finding new customers and new partnerships.

The conference has a strong tradition of formal and informal networking. It continues to be the key place where exchanges come to meet their peers and colleagues, benchmark their organizations and share ideas. Interactive exchange-led roundtables in 2016 mean that this year’s event will be no different.

For more details and to book your attendance, please head to the conference website.

SPONSORED STORY

JSE Clear gets approval from European regulator ESMA

In a step forward for derivatives, clearing and settlement in Africa, the European Securities and Markets Authority (ESMA) has recognized JSE Clear, the derivative central counterparty (CCP) owned by the Johannesburg Stock Exchange. Stephen Maijoor, Chairman of ESMA’s Board of Supervisors, says in a letter to the JSE: “JSE Clear is recognized as a third country CCP under Title III of Chapter 4 of EMIR.”

This means that the European Union’s regulator recognizes JSE Clear as “equivalent” to CCPs in the EU.

The JSE and the Financial Services Board (FSB) worked together closely to obtain EU recognition, says Leila Fourie, Executive Director of the JSE. JSE Clear’s process to securing ESMA recognition was undertaken in conjunction with the FSB, and successfully finished 2 pieces of work:
• Obtain decision from the EU recognizing that South Africa’s legal framework and supervisory practices are equivalent to those contemplated within the EU regulations
• Obtain EU acknowledgement of the appropriateness of our CCP design and risk management processes in terms of the functioning of the market it is meant to serve.

Fourie commented in a press release on 1 Feb: “This achievement is hugely important for the JSE, our regulator the FSB and participants in South Africa’s financial markets. Today’s announcement means that EU-based market participants that clear trades through JSE Clear will be permitted to continue clearing for investors trading on the JSE.”

JSE Clear is required to apply for recognition by ESMA (the European Securities and Markets Authority), as a result of the fact that the CCP has Clearing Members that are either branches or subsidiaries of European registered entities.

Fourie added: “ESMA recognition strengthens our global credibility and fulfils a key requirement for multinational clearing members operating in the local market. Participation from these multinationals helps to distribute the credit, liquidity, operational and legal risk on our market – instead of concentrating this risk in a smaller number of clearing members.”

Central counterparty - graphic from www.economist.com

Central counterparty – graphic from www.economist.com

SA rules are globally relevant
“It is vital for South Africa that its rules are globally relevant and consistent with financial centers such as the EU. This milestone demonstrates that our CCP is robust and meets global standards in promoting financial stability and reducing systemic risk. The recognition of equivalence is a significant indicator of the rigidity of SA’s market infrastructures, and will aid in attracting international flows to our emerging market.

“The JSE is grateful to the FSB for their contribution in obtaining this major milestone for JSE Clear and the South African markets.”

“Clearing” denotes all “post-trade” activities from the time a securities transaction is executed until it is settled. A CCP is an organization that helps to reduce risk and safeguard against losses that could be incurred by a default of a trading participant when trading on the JSE’s markets.

JSE Clear was among the first in the world to be granted QCCP IOSCO status, i.e. marking it out as a “qualifying” CCP in terms established by the Basel Committee on Banking Supervision in July 2012. CPSS-IOSCO is a global standard for risk management aimed at any organization enabling the clearing, settlement and recording of a transaction.

The decision from ESMA follows earlier equivalence determinations for CCPs in Australia, Singapore, Japan and Hong Kong.

The JSE is one of the top 20 exchanges in the world in terms of market capitalization and is a member of the World Federation of Exchanges (WFE) and Association of Futures Markets (AFM). The JSE offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management.

Update 2 – Zimbabwe Stock Exchange automation successful

The Zimbabwe Stock Exchange (ZSE) started successfully trading on its new automated trading system (ATS) on Monday 6 July and volumes were picking up during the week. This is a long-awaited change as the stock exchange moved away from call over and paper-based systems.
ZSE CEO Alban Chirume and a couple of Zimbabwean stockbrokers confirmed to AfricanCapitalMarketsNews that was working well. Monday had started slowly, as expected, but once orders were being matched successfully and there were no problems, volumes seemed to up on Tuesday and today (8 July). Chirume described it as a “major transformation” for the ZSE, founded in 1896. Stockbrokers were upbeat, saying their clients local and international had been waiting for this.
There was a false start on 3 July, originally announced as the launch day, when the “close coupling” linkage between the ATS and the settlement system gave some teething problems. This was resolved by Monday and the settlement system seemed to be working well after that.
The news comes as a relief to brokers and dealers, who can now trade from their own offices and do not need to spend time travelling to the Zimbabwe Stock Exchange building. Earlier this year the ZSE had moved out of its city-centre office and into its own premises.
Chirume said the ZSE staff were cheering as the first trade went through.
The ATS is supplied by InfoTech Middle East LLC and the settlement is run by Chengetedzai Depository Company Ltd, which is using Depo/X system supplied by CMA Small Systems from Sweden to run the central securities depository (CSD). The only securities which can now be traded are those which have been dematerialized, which means that paper share certificates have been replaced by dematerialized entries on the CSD computer. However, all the ZSE shares are now dematerialized apart from Border, which is under judicial management.

AfDB $400,000 seed equity to central depositories link Africlear Global

The central depositories of Kenya and Nigeria, two of the most dynamic in Africa, have formed a joint venture with Altree Financial Group. The African Development provided $400,000 in seed equity capital to the new Africlear Global venture, which aims to boost the efficiency of African capital markets by supporting modernizing the infrastructure of the central securities depositories.

The partners are Kenya’s Central Depository and Settlement Corporation (CDSC), Nigeria’s Central Securities Clearing System (CSCS) and Altree. However, several more African central depositories are interested in joining.

Africlear will help the depositories to pool their resources and boost buying power on equipment. They will work together to identify, acquire and maintain critical systems and technology, for instance for corporate actions, recording shareholder votes and other investor support services. The depositories will also share information and expertise.

The African Development Bank (AfDB) invested $400,000 in seed capital through the Fund for Africa Private Sector Assistance in an agreement signed 5 March in Abidjan. This may inspire more investors to join in building the company.

Africlear will use the money to improve the infrastructure used for post-trading processes such as settlements after a sale is done. According to AfDB press release: “The goal of the investment is to enhance the efficiency of capital markets by supporting the modernisation of central securities depository infrastructure in African securities markets.” Solomon Asamoah, AfDB Vice-President, Infrastructure, Private Sector and Regional Integration, and Anthony Fischli, Director, Africlear Global, signed the Shareholder and Subscription agreements on behalf of the Bank and Africlear Global, respectively.

Rose Mambo, CEO of CDSC, is the chairperson of Africlear. She was reported in Standard news in Kenya saying: “Africlear members will be able to realise significant cost savings via collective bargaining with industry participants and technology vendors. Africlear will also allow its members to offer more services ranging from corporate actions processing and collateral management to clearing and settlement.”

Kyari Bukar of CSCS said Africlear will accelerate process standardization and promote system integration across the borders. “By employing industry best practices, Africlear will facilitate improved levels of transparency and corporate governance within the African capital markets. This will enable local market practitioners to effectively compete for domestic and international capital.”

The board of Africlear held its first meeting in Nairobi on 24 April 2015. The members also include Altree Financial Group chairman Anthony Fischli and a representative from the AfDB to be named. Fischli said: “Africlear supports an open marketplace where scale and connectivity serve as the company’s competitive strengths” Benefits for investors should include improved access to securities services, collaboration between countries and cost-effective pricing of infrastructure.

Fischli told AfricanCapitalMarketsNews on 11 May that Africlear could also help the different countries’ and exchanges’ central depositories in future if they want to establish links. Fischli said in a press release “The AfDB investment in Africlear Global supports the improvement of securities market infrastructure through promotion of industry-leading technologies designed to enhance the underlying efficiency and overall functioning of the African capital markets.”

Kenya’s Business Daily reports that CDSC expects to gain revenue from its investment in Africlear by being able to charge for corporate actions such as reconciling investors on share splits, dividend declaration and payments. Revenues are particularly expected from international investors who mostly make the bulk of the traders on the Nairobi Securities Exchange.

Central Depository and Settlement Corporation (CDSC) Kenya is approved by the Capital Markets Authority of Kenya as provider of clearing and settlement services to the Kenyan capital markets. Central Securities Clearing System (CSCS) Nigeria is licensed by the Securities and Exchange Commission of Nigeria and serves as the clearing and settlement house for the Nigerian capital markets and The Nigerian Stock Exchange. Altree Financial Group is an integrated financial-services company licensed to conduct Investment Business by the Bermuda Monetary Authority.

The AfDB’s FAPA fund is a multi-donor thematic trust fund that provides grant funding for capacity building, seed capital and advisory services to support implementation of the Bank’s Private Sector Development Strategy. AfDB and the Governments of Japan and Austria have contributed to the fund, which to date has provided over $60m to 56 projects in 38 countries across Africa. The portfolio includes regional and national projects aimed at improving the business environment, strengthening financial systems, building private-sector infrastructure, promotion of trade and development of micro, small and medium enterprises

COMMENT – African nations seem keen on having national exchanges and central depositories under domestic regulation. However, they are working hard on harmonizing regulations, including to global standards, particularly within regional associations of regulators.

Africa is also looking for ways to increase links between the exchanges, eventually pushing to the point where a broker in one country can route orders to other exchanges, meaning that investors all over Africa have access to different exchanges, boosting liquidity and achieving more cross-border communications, trading, cross listings and remote memberships.

Africlear can be a key part of this. Getting post-trade “plumbing” for payments, clearing and settlement is key to ensuring African exchanges. Africlear is set to be an important step forward.

Payments messaging booms in Africa

Payments and securities transactions are growing faster in Africa than in any other part of the world, according to data from financial messaging institution SWIFT. Traffic volumes of payments information in Africa grew by 13.2% for the year to date compared to the same period in 2014, surpassing Asia Pacific (Apac) at 12.6%; the Americas at 12.1%; and for the “EMEA” region which includes Europe, the Middle East and Africa at 6.9%, or 8.8% growth for SWIFT worldwide.
Traffic between African countries has also been booming, good news for those who believe that Africa should focus on building competitive links and bringing the securities markets together.
SWIFT is a member-owned cooperative that connects more than 10,000 financial institutions and corporations in 212 countries and territories and provides a communications platform, products and services. Its SWIFT Index is seen to anticipate economic (GDP) growth in advanced countries, because the SWIFT infrastructure is so widespread that it picks up on increased levels of activity, particularly on commercial payments and transactions messages (MT103) on its systems.
Here are some examples of stand-out growth in SWIFT traffic in different countries (%age growth year-to-date compared to same period last year):
• Angola – payments traffic grew more than 78%
• Ghana – payments traffic rose by almost 30% and securities by almost 55%. Ghana has seen average growth of 27.2% since 2013
• Kenya – payment message traffic rose by 23.1%, while securities-related growth was 122.3%
• Nigeria – average yearly growth of 29.1% in traffic since 2013
• Tanzania – payments rose by 32.9% and securities by 45%
• Uganda – payments were up by 17.5% and securities by 31.6%.
The growth has been sustained for several years. Africa’s total SWIFT traffic rose by 44% over the last 3 years, of which payments rose 42% and securities information was up 37% across Africa.
For the first quarter of 2015, traffic from South Africa was 53% of traffic in Africa, compared to 72% in 2003.
Christian Sarafidis, Deputy Chief Executive EMEA, SWIFT, highlighted the value of SWIFT data in the story it tells about African economies: “The figures show strong organic growth across Africa and in East Africa particularly, and serve as validation of the positive growth trends we are witnessing in the region.”
Hugo Smit, Head of Sub-Sahara Africa, SWIFT, says: “Africa is an important market for SWIFT. Once again it has outperformed most of our other regions and has proven itself a critical component of our global business. Because the continent has such huge growth potential, we are continuing to invest more resources to support the local financial community. It is very heartening to see such impressive growth in West and East Africa, where we are currently opening new SWIFT offices.”
African corridors are becoming stronger. For the full year 2014, SWIFT data shows that 52% of the traffic sent from Africa stayed within the African zone, up by 16% on the year before and the highest growth rate for intra-African traffic. The trend was even more pronounced in the Southern African Development Community (SADC) region, where 55% of traffic sent from SADC stays in SADC, and the region is recording record growth, up 16.2% for the full year 2014 compared to 2013.

African financial innovators
SWIFT’s African Regional Conference (ARC) 2015 is happening this week (5-7 May) in Cape Town. One highlight is bringing Innotribe’s fintech Startup Challenge to Africa. The Startup Challenge introduces the world’s brightest start-up businesses to highly qualified financial service experts, angel investors, venture capitalists, and global leading fintech and financial decision makers. Innotribe is SWIFT’s financial technology innovation initiative and in the 2015 challenge, SWIFT Innotribe will have a round dedicated to fintech companies from across Africa, who will come to Cape Town in order to pitch to investors.

About SWIFT and the index
SWIFT is the Society for Worldwide Interbank Financial Telecommunication. It was founded in 1973 and still has its headquarters in Belgium. The SWIFT index is based on data on SWIFT MT 103 messages, a specific format that enables the bilateral transfer of information about payment transactions between customers of different banks or financial institutions. SWIFT says it is “the de facto global standard for cross-border single customer credit transfers and is used primarily for commercial rather than low-value retail payments”.
Wikipedia gives a run-down of the different SWIFT message types.

SWIFT operating centre (Source: SWIFT)

SWIFT operating centre (Source: SWIFT)

Woes of Zimbabwe Stock Exchange

($ refers to USD)

The value of shares traded on the recently demutualized Zimbabwe Stock Exchange fell by 22.2% in the first quarter of 2015, compared to the same quarter last year. A story from The Herald newspaper said that turnover to 31 March was $70 million, down from $90 million in the first quarter of 2014. However, the volume of shares traded was up to 586 million from last year’s 306 million for the period.
Trading in January was $16m (down from $63m in 2014), in February $35m ($26m) and in March $19m ($27m). The share bought by foreigners was down to $41m ($64m) over the quarter.

Zimbabwe Stock Exchange liquidity to 30 April (source ZSE website)

Zimbabwe Stock Exchange liquidity to 30 April (source ZSE website)

Meanwhile the exchange seems to be hit by a series of controversies and several companies have delisted, or removed their shares from trading.
The exchange in March was reported in the Herald newspaper that “go-live” date would be 19 June for its new automated trading system, Capizar ATS trading software from Infotech Middle East FZ, part of Infotech Group of Pakistan. This was in terms of a contract signed in March 2014, as reported here last September. However there has been little news of progress and the project missed previous deadlines, including for February.
There has also been criticism of the ZSE’s relocation to Ballantyne Park, a suburb 8.5km from the central business district effective 1 April before the automated trading system was ready. The new office has a smaller trading area. The Herald newspaper reported that parliamentarians and lobby groups had protested and Chairman of the Parliamentary Portfolio Committee on Budget and Finance David Chapfika said that relocating the exchange to Ballantyne Park will mean that small players will be excluded. ZSE interim chairperson Mrs Eve Gadzikwa said the move was necessary because of high rentals.

SECZ investigates ZSE CEO
In February the Herald newspaper reported that the Securities and Exchanges Commission of Zimbabwe (SECZ) was investigating ZSE CEO Alban Chirume after complaints over the suspension of Meikles (see below). He is said to have acted unprocedurally when he suspended Meikles and then unprofessionally when the decision was reversed. There were also complaints after he placed a notice in a newspaper urging investors to exercise caution when dealing with the shares.
If SECZ finds against him, he could be suspended or fired, according to the Herald report. Past CEO Emmanuel Munyukwi, who had been in post for many years, was suspended after an SECZ investigation and subsequently left the ZSE “on mutual agreement”.
According to the Herald: “Away from the Meikles issue, Mr Chirume has faced criticism over the purchase of a residential building in Ballantyne Park, the overshooting of the budget in the purchase of a vehicle and the numerous instances he has undermined the ZSE board and stockbrokers.”
An amendment in 2013 to Zimbabwe’s Securities Act gives the SECZ the power to dissolve the board of a registered securities exchange or dismiss one or more of its members, but only on certain grounds, and subject to appeal. If it dissolves a whole board it can appoint someone to run the exchange but only until a new board is elected in accordance with the articles of association, which should be within 3 months.

Delistings
Paint and chemical products manufacturer, Astra Industries, was the latest to leave at the close of business on 30 April after majority shareholders Kansai Plascon Africa (listed in Tokyo) and Hermistar investment vehicle for Astra management and staff increased their combined holding to 80.2%, breaching the rule of 30% free float, and applied to the ZSE to leave. Regional manufacturer ART Corporation may follow after buying out minorities.
Other recent delistings include TA Holdings and ABC Holdings in February. According to an article in Financial Gazette, 16 companies have delisted since 2007 when the hard currency (USD) economy was adopted – 8 of these chose to delist, and 8 were insolvent. Such is the turmoil in the Zimbabwe economy that many other companies are probably insolvent but it has not been announced yet as local manufacturers with high hard-currency costs and ancient machines cannot compete with imported goods. Meanwhile, another 4 companies are suspended: PG Industries, Cottco (formerly AICO Holdings), Phoenix and Celsy.
The article warns that more delistings are due this year, including Meikles (see below), Dawn Properties, African Sun. It says that companies do not see the benefit in being listed (see bottom of article). They cannot raise money successfully on the bourse due to the liquidity squeeze and shares being listed at a small fraction of their true value, unless money comes from foreign investors, who usually prefer to buy out minorities and delist. The peak had been over 80 listings.
The only new listing was in 2010 when Innscor Africa’s unbundled Padenga Securities and listed it through dividend in specie. The ZSE did particularly better than most parts of the economy during the years of hyperinflation as desperate investors turned to properties, equities or foreign currencies. It slowed dramatically after allowing trading in foreign currencies.
Creating a second-tier exchange for small companies is unlikely to have an overall positive effect on liquidity or the market.

Meikles row
A leading hotel group, Meikles Limited, is suing the ZSE for $50m in damages and is also warning that it may not remain listed. According to a Reuters report in March, Meikles filed papers on 26 February at the High Court, after its shares were suspended from trading for a week in February and then allowed again from 23 February. Meikles said its share price had fallen and its reputation suffered and it is seeking compensation for “potentially irreparable” consequences of its suspension. The ZSE also issued a warning that people should use caution when trading the shares.
Meikles also operates retail including supermarket chain TM Supermarkets (South Africa’s Pick’n’Pay has 49%), Tanganda Tea, the Victoria Falls Hotel and has a stake in Cape Grace Hotel in Cape Town.

New governance?

Meanwhile ZSE governance could change dramatically after the demutualization was completed recently, as reported last week. Some market participants were said to be surprised when stockbrokers ended up with a 68% majority of the company, after Government took 32%. There had been some suggestions of ownership wrangles.
This could mean that stockbrokers can hold a General Meeting and replace directors or otherwise take action on how the company is managed.

Why the stockmarket does not help business
(quoted from Financial Gazette)
Horticultural concern, Interfresh, which delisted on the last day of trading in 2013, highlighted the problems with being listed.
Chief executive officer, Lishon Chipango, said: “At the moment for us there is not too much (gains from listing). If you look at the contextual framework of the stock market, one of the benefits of being listed is to raise capital, but if you raise capital when the shares are so depressed, you are not going to raise that much. So the issue of benefiting if listed maybe down the road. (I) would not be surprised if others followed (us by delisting).
“The other aspect is there is no money in Zimbabwe. All the capital being raised is external. For us, it is not attractive,” Chipango said.
He then mourned over the discounted rate at which the company’s shares were trading.
“The rights issue to raise the US three million dollars (in 2012) caused a dilution of 75 percent because we used stock market valuations. Now if at that time we had raised money using Net Asset Value instead of stock market valuation, the dilution would have been 15 percent. You see why we are running away from the stock market? We are running away from the stock market valuation,” said Chipango.

zimbabwese50502_tradingboard

Zimbabwe central depository brings shares on board

Chengetedzai Depository Company Ltd, Zimbabwe’s central securities depository (CSD), was reported that the last securities had been brought on board in March 2015, according to a report in Zimbabwe Mail. Old Mutual announced that its shares were also dematerialized with effect from 30 March.
CDCL announced last year that it had received due approvals to start operations and it went live in September 2014 with 3 securities onboard, and had extended that to 43 counters by January 2015.
CDCL had been publishing announcements as new shares are brought on board, and latest additions were Mashonaland Holdings, Old Mutual, Dawn Properties and others. There are some delays in the automation of Zimbabwe Stock Exchange trading system which is supposed to link to the CSD.
A CSD keeps a computerized register of securities ownership and also registers transfers after shares have been bought, sold or otherwise transferred. It replaces paper share certificates for most shareholders, in a process known as “dematerialization”. It links to systems for payment and clearance of trades.
The previous system saw clearing and settlement done between the stockbrokers on a T+7 schedule, Chengetedzai says it reduces settlement this to T+5.
Apparently local retail customers initially found it hard to understand that they must address settlement queries to a custodian, not to their stockbrokers as previously. Campbell Musiwa, Chengetedzai Depository Company chief executive said that CBZ Custodial Services had been set up as an “affordable” custodian for retail customers.
NewsDay reported in January that investors and stockbrokers were still breaking regulations by selling shares before dematerialization is complete. It added that only 1,557 accounts had been opened at Chengetedzai, of which 61% are for foreigners who work through global custodians (usually banks) who then relate to local custodians. Chengetedzai has been criticized for not doing enough to educate local shareholders to switch although it has worked with media and produced pamphlets.
Musiwa said there had been some delays in trade settlements if investors had traded before meeting the requirements but also: “There has been a marked improvement which resulted from continuous lobbying with market players to observe the rules,” he said
In April 2014 Chengetedzai Depository Company Ltd was reported by Standard Newspaper saying it was still waiting for licensing and for the award of a CSD levy by SECZ. Chengetedzai Depository Company won the tender to introduce the CSD in 2009 as reported on AfricanCapitalMarketsNews. After a shareholding dispute, it installed core software for operations that were planned for September 2013 but was held up while waiting for the licence.
In 2013, Chengetedzai raised nearly $2.5m through share issues, according to its annual report, including a successful $1.5m rights issue to finance the roll out of the CSD. The ZSE has invested $643,000 including $287,000 in the rights issue, according to its 2013 annual report, and holds a 15% stake after scaling up from 12.93% in January 2014. Chengetedzai’s 2013 annual report says that “quasi-government financial institutions” owned 56% and private investors 44%. Main shareholders were Infrastructure Development Bank of Zimbabwe, First Transfer Secretaries and ZB Financial Holdings with 15% each and the National Social Security Authority with 13% at 31 Dec 2013.
The software is Depo/X system supplied by CMA Small Systems ab of Sweden.

Rwanda Stock Exchange closer to Nasdaq X-stream automated trading

Rwanda Stock Exchange (RSE) says it is getting closer to introducing an Automated Trading System using trading technology from Nasdaq OMX. It will also link its trading infrastructure to the Central Securities Depository (CSD) and Real Time Gross Settlement System (RTGS) at the National Bank of Rwanda.

In March 2014, there was a report in The East African that the RSE was aiming to use the Nasdaq X-stream system installed at the East African Exchange (EAX) regional commodity market. The latest news from the East African Securities Exchanges Association EASEA press communiqué (available here) from the 24th meeting in Rwanda on 26-27 November was: “The RSE is in the final stages of automation of its trading system”.

Nasdaq describes X-stream as “a flexible, out-of-the-box solution trading multiple asset classes simultaneously on a single platform” on its website. It says X-stream is “the world’s most widely deployed matching technology” among market operators and is deployed in over 30 exchanges globally.

According to the March story in The East African: “John Rwangombwa, the governor of the National Bank of Rwanda, told Rwanda Today that though electronic trading had been delayed due to the heavy financial outlay required, RSE and EAX are now in advanced stages of sharing the NASDAQ system. .. We have been working on our side as a central bank to link the central securities depository. In the course of this year —in three or four months — automatic trading will be up and running.”

The report added: “While trade volumes on the RSE have been steadily increasing, its current manual trading platform makes it uncompetitive in particular among offshore investors.”

The RSE also reported that the bond market is becoming more “vibrant”, with quarterly issues by the Government of Rwanda. This was after work by a team made up of Capital Market Authority (CMA), Rwanda Stock Exchange (RSE), Central Bank of Rwanda and the Ministry of Finance and Economic Planning.

East African Exchange
The EAX was launched on 3 July 2014 by His Excellency President Uhuru Kenyatta of Kenya. It had been established by Tony O. Elumelu, CON, of Heirs Holdings, Nicolas Berggruen of Berggruen Holdings, Dr. Jendayi Frazer of 50 Ventures and Rwandan investment company Ngali Holdings. Acccording to a press release: “the EAX is a commodity exchange that aims to increase regional market efficiency and give the growing population, particularly smallholder farmers, better access to commercial markets.

“EAX will use NASDAQ’s OMX X-Stream trading platform for electronic trading and warehouse receipts so farmers can deposit their produce into EAX certified warehouses and access its services.

“At the formal launch, Mr. Elumelu said: ‘The EAX showcases our desire to identify far reaching investment opportunities, while ensuring that most of the value-adding aspects of Africa’s resource wealth stay on our continent. Africa must move toward greater self-sufficiency with private investment and strategic partnerships, just as we have done at EAX through our partnership with NASDAQ.’

“Nicolas Berggruen said: ‘EAX is complementing the EAC’s goal of regional economic integration, and putting in place a world-class exchange to create a globally competitive market for Africa’s commodities.’ EAX’s goal is to facilitate trade across all five East African Community member states. EAX is wholly owned by Africa Exchange Holdings, Ltd. (AFEX). EAX in Rwanda is additionally owned by local investment company Ngali Holdings.”

According to an earlier story on AFEX and its plans in Nigeria, Jendayi Frazer was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009). Nicholas Berggruen has a charitable trust which funds the investment arm to take “a long-term, patient capital value-oriented approach”.

A story written in New York Times in March 2014 described “A commodity exchange, with its dozen terminals and state-of-the-art software provided by Nasdaq, held its first six auctions over the past year — a fledgling venture, but the kind that helps explain how a nation with no oil, natural gas or other major natural resources has managed to grow at such a rapid clip in recent years.

Rwanda Stock Exchange trading boards (2013 - credit The East African/umuseke.rw).

Rwanda Stock Exchange trading boards (2013 – credit The East African/umuseke.rw).

For 2104 photos of the Rwanda Stock Exchange and the East African Exchange see the New York Times website here.