Archive for the 'Clearing and settlement' Category

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which can now be traded are those which have been dematerialized, which means that paper share certificates have been replaced by dematerialized entries on the CSD computer.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.

East African securities exchange integration – what’s on in 2015

Securities exchanges in East Africa are working together on the infrastructure for tighter cooperation and links between the capital markets of Rwanda, Kenya, Uganda and Tanzania and potentially Burundi. The body for cooperation is the East African Securities Exchanges Association (EASEA). The key integration driver is the Technical Working Group (TWG), which has a member from each State. It was established by the East African Community (EAC) to review the best infrastructure and legal framework to facilitate seamless cross-border movement of capital.

Training and qualifications
Also important is the Securities Industry Training Institute (SITI) East Africa, which is improving skills and technical capacity to international standards and creating regional qualifications to enable skilled candidates to work across the region. For 2015 SITI East Africa aims to help more market players and regulators have SITI certification and examinations and is driving training to meet the growing demand for expertise. SITI was set up in 2009 to establish a common curriculum. See this post about the launch of SITI.

Infrastructure
A regional inter-depository transfer mechanism is in place to support movement of cross-listed securities and provide possibilities for investors seeking cross-border trading and investment opportunities. It is part of a capital market infrastructure project progressing under the EAC Financial Sector Development Regional Project (FSDRP I). Each country is leading publicity and workshops to raise awareness and boost cross-border trading.

Backbone – new directives
The TWG is developing Council Directives “which will be the backbone of the proposed integration of the regional capital markets”, according to the communiqué (“EASEA Press Release”) of the last EASEA meeting. The directives under public discussion are:
1. Council Directive of the EAC on Central Securities Depository
2. Council Directive of the EAC on Securities Exchanges
3. Council Directive of the EAC on Self-Regulatory Organizations
4. Council Directive of the EAC on Conduct of Business for Market Intermediaries
5. Council Directive of the EAC on Corporate Governance for Listing Companies.

The TWG has also drafted and completed directives on
1. Council Directive of the EAC on Investor Compensation Schemes
2. Council Directive of the EAC on Financial Education and Consumer Protection
3. Council Directive of the EAC on Disaster Recovery for Capital Market Infrastructure
4. Council Directive of the EAC on Regulated Activities
5. Council Directive of the EAC on Credit-Rating Agencies
6. Council Directive of the EAC on Regulatory Authorities
7. Council Directive of the EAC on Anti-Money Laundering and Combating of Financial Terrorism

The last meeting of EASEA was 26-27 November and Tanzania did not attend. The next is due in Uganda in the Q2 of 2015. EASEA is a member of the Capital Markets Development Committee (CMDC) of the East African Community (EAC) – a committee of the East African Community Secretariat, according to the Uganda Securities Exchange website. The CMDC objectives include

  • Establish cross-listing of stocks, a rating system of listed companies and an index of trading performance to facilitate the negotiation and sale of shares within and external to the Community
  • Ensure unimpeded flow of capital within the Community by facilitating the removal of controls on the transfer of capital among the Partner States
  • Prevent money-laundering activities through the capital markets
  • Ensure that the citizens of and persons resident in a Partner State are allowed to acquire stocks, shares and other securities or to invest in enterprises in the other Partner States

Encourage cross-border trade in financial instruments.

Nigerian Stock Exchange signs links to London SE Group

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

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

The Nigerian Stock Exchange (NSE) this week (18 Nov) signed a capital markets agreement with the London Stock Exchange Group (LSEG) to support African companies seeking dual listings in London and Lagos. It follows implementation earlier in 2014 of a new settlement process between the UK and Nigeria which significantly boosts the efficiency of listing and trading of ordinary shares of Nigerian companies listed in London and those of UK companies on the Nigerian market.
A top LSEG executive said it shows the global investment community is rushing to be part of the Nigerian story.
The agreement was signed by Oscar Onyema, CEO of the NSE, and Nikhil Rathi, Head of International Development, LSEG. Also present was Sir Roger Gifford, Country Head for the European Bank SEB, former Lord Mayor of London, and Co-Chairman of the UK Government’s Nigeria Emerging Capital Markets Task Force and Nigerian co-chair Aigboje Aig-Imoukhede, President of NSE.
Gifford said, according to the press release: “This is exactly the sort of ambitious project the ECMT Nigeria was launched to support. Nigeria is without doubt one of the most promising opportunities for capital markets development worldwide.
“An effective, transparent and well-governed capital market – across all asset classes – has the capacity to catalyse a nation’s quest for growth and development. In particular, functioning markets for corporate equity and debt reduce the dependence on bank capital and make investment securities available to a broader range of investors: institutional, private and international. This agreement will build on existing strong commercial and economic ties between the UK and Nigeria to our mutual benefit. ”
Mot of the previous dual-listings have listed on London’s AIM market although the milestone April dual-listing of Seplat (see below) saw Seplat head for the main market.
Onyema said: “Today’s agreement is another major step towards our goal of ensuring that all companies that have substantial operations in Nigeria are accessible to both Nigerian and international investors. In addition, we will be ensuring that our leading companies achieve the global profile and international institutional investment they deserve.”
The 9 Nigerian or Nigeria-focussed companies quoted on LSE have a collective market capitalisation of $14.2bn and include 6 oil & gas explorers and 3 major Nigerian banks.
The press release also quoted Rathi: “The agreement signed today is a reflection of the global investment community’s strong desire to be a part of the Nigeria story. As the world’s most international exchange, LSEG looks forward to building on the success of existing dual listings in Nigeria and London and partnering with the NSE to showcase the rapid developments in Nigerian capital markets and the Nigerian economy.”

Seplat dual-listing helping Nigeria bourse towards N1 trillion

Indigenous oil company Seplat was the first to make use of the linkages in April, when it raised $500 million in an Initial Public Offer (IPO) on both exchanges. Euromoney reported it was the first dual-listing and largest IPO from southern Africa since Dangote Cement in 2010. The London end was advised by BNP Paribas, Standard Bank, Citi and RBC Capital Markets, the Nigerian listing by Renaissance Securities and Stanbic IBTC.

The IPO added N28 billion ($161m) to the NSE market capitalization. The bourse aims to reach N1 trillion ($5.7 billion) by 2016 with oil and gas firms a key target.

Euromoney quoted Dolapo Oni, energy research analyst at Ecobank: “To list on the main board in London, Seplat required international accounting standards and the highest levels of corporate governance and transparency, which it has aimed for from its inception in 2009. Many other Nigerian companies are still not comfortable with disclosing this much information to the public and thus are not good enough to list on the main board.”

Miguel Azevedo, head of investment banking Africa at Citi, added: “It also represents the return of the sector to the London market, which hasn’t had a significant oil and gas listing since the financial crisis. Seplat really creates a new benchmark for international companies coming to the market.”

UK pushes emerging capital markets

UK Chancellor George Osborne announced the Emerging Capital Markets Taskforce on 9 April. It aims to unlock new opportunities for the UK financial services sector by helping to open and deepen capital markets in emerging economies through innovative collaboration between Government and private sector. This is part of the strategic public-private sector Financial Services Trade and Investment Board (FSTIB) launched in 2013 and chaired by HM Treasury. More details can be found via the FTSIB website.

London Stock Exchange offering to Africa

According to the London Stock Exchange, the listings of companies focussed on sub-Saharan Africa total 115 companies:
• 26 companies on the Main Market
• 3 Global Depository Receipt (GDR) listings on the Main Market
• 2 GDR listings on the Professional Securities Market (PSM)
• 84 companies quoted on AIM, the growth market
The LSE headquarters are in London and it has significant operations in Italy, France, North America and Sri Lanka and employs approximately 2,800 people.

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In its press release about a link-up with the Nigerian Stock Exchange, the London bourse says it offers partner securities exchanges and investors a broad range of international equity, bond and derivatives markets, including London Stock Exchange; Borsa Italiana; MTS, Europe’s leading fixed-income market; and the pan-European equities platform, Turquoise. Through its markets, the Group offers international business, and investors, unrivalled access to Europe’s capital markets.
Increasingly important are the post-trade and risk-management services including CC&G, the Rome headquartered central counterparty clearing house (CCP) and Monte Titoli, the significant European settlement business, selected as a first wave participant in the T2S (TARGET2-Securities) European settlement engine that aims to offer centralized delivery-versus-payment. The Group is also a majority owner of LCH.Clearnet, the leading multi-asset global CCP.
LSEG offers its customers an extensive range of real-time and reference data products, including SEDOL, UnaVista, Proquote and RNS. It owns FTSE which calculates thousands of unique indices that measure and benchmark markets and asset classes in more than 80 countries around the world. African exchanges have recently been taking strong interest in FTSE products that will help their visibility and data flows.
By purchasing Sri Lanka’s MillenniumIT trading, surveillance and post trade technology some years ago, the LSEG established itself as a leading developer of high performance trading platforms and capital markets software. According to the LSE press release over 40 other organizations and exchanges around the world use the Group’s technology, although smaller African such as the Dar es Salaam Stock Exchange are switching to other systems as reported on this blog, as Millennium IT’s focus changes.

Nairobi SE trades bonds on new automated trading system

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The Nairobi Securities Exchange (www.nse.co.ke) is trading corporate bonds and Government of Kenya treasury bonds on an automated trading system. It marks another step forward for South Africa’s financial software development company Securities Trading & Technology Pty (STT), which also supplies the STT bond trading system used by the Johannesburg Stock Exchange (JSE), Africa’s most liquid bond market.
The new system allows on-line trading of debt securities and is integrated with the settlement system at the Central Bank of Kenya (CBK) for treasury bonds. It offers true delivery-versus-payment (DVP) to mitigate risk. In August 2014 the NSE increased the number of settlements in treasury bonds to 3 per day, with settlements at 11:00, 13:00 and 15:00 each day so that a bond trader can buy a Kenyan treasury bond and sell it the same day.
The new STT automated trading system (ATS) also is efficient, scalable and flexible, and supports trading in bonds that have been issued in different currencies.
Peter Mwangi, CEO of the Nairobi bourse, said in a press release: “This is a significant step towards the exchange’s goal of ensuring that the secondary market becomes more transparent and the price-discovery mechanism is beyond reproach.
“The multicurrency trading functionality of the new system means that foreign-denominated bonds can now be listed and traded on the NSE. With this development, we look forward to the listing of the Government of Kenya Sovereign Bond at the exchange.” He was referring to Kenya’s debut $2bn Eurobond that was successfully floated on the Irish Stock Exchange in June after attracting bids for 4 times the initial target.
Nairobi’s stock market was reported to be working with the Central Depository and Settlement Corporation (CDSC) and the CBK for settlements of corporate bonds.
It also follows the South African practice and allows reporting of bond prices by yield (i.e. the current interest rate to investors). According to an earlier report in Standard Media, Mr Mwangi said: “the bond trading system.. will allow reporting of bond prices by yield… Decision-making will be faster and this should spur further liquidity in the bond market.”
The STT system supports market-making, a 2-way-quote trading model, ability to integrate with regulators’ surveillance systems and ability to report transactions that are concluded over-the-counter (OTC) for purposes of settlement.
In enhancing the bond trading system, the Nairobi Securities Exchange acknowledges the vital role that a vibrant secondary market for active African bond trading continues to play in raising long-term capital for the Government and corporate entities. County governments can also use the same system to raise capital through issuing and listing county bonds.
Ms. Michelle Janke, Managing Director of Securities Trading & Technology said: “I am delighted to have partnered with the NSE, all teams have put in an enormous effort to take the market live”. The market went live on 26 September.
The Dar es Salaam Stock Exchange went live using the STT system on 27 June, as reported on this blog, after switching from Millennium IT system.