Archive for the 'Exchange-Traded Fund (ETF)' Category

Nigerian Stock Exchange to roll out top-speed NASDAQ OMX trading platform

The Nigerian Stock Exchange says it will have the fastest trading system in Africa when it upgrades its trading to NASDAQ OMX Group’s X-Stream platform, with a target date of second quarter of 2013. The new system will handle a wide range of instruments, accounts will be accessible from smart-phones and it will enable the NSE to host other exchanges’ trading platforms.

Previously the NSE was automated with NASDAQ’s Horizon system. The new platform is part of the wider reforms being carried through by CEO Oscar Onyema, some of which were initiated by the previous interim administrator Emmanuel Ikazoboh. Reuters reports that reforms to the market include allowing covered short-selling and extending trading hours. The news agency reports that exchange officials said that the new trading system will build confidence in the market’s transparency and adds that analysts expect the market to end 2012 with gains.

The signing ceremony was held on 24 April, chaired by CEO Onyema and Adeolu Bajomo, (Executive Director, Market Operations and Technology) from the NSE, and for NASDAQ Sandy Frucher, Vice Chairman of The NASDAQ OMX Group and Lars Ottersgard, NASDAQ senior vice president and head of technology. The NSE and NASDAQ OMX have been working on designs since September 2010. Frucher said that the surveillance system has been integrated into the trading system while Ottersgard was reported as saying the latest edition of the X-stream technology matches orders in under 100 millionths of a second.

According to a report in This Day newspaper, Onyema described the new platform as high-performance, robust and scalable, multi-asset, multi-market matching trading engine: “The new trading platform will enable the NSE to have the fastest trading engine in Africa and investors, through their stockbrokers, will have real-time access to market prices, their portfolios and be enabled to execute market orders in near real-time from anywhere and on a wide range of devices including smart phones.”

Onyema noted that the new system would improve transparency and provide efficient price discovery in the market, among other benefits, stressing that investors in the market would benefit significantly from the system upgrade as it would afford them the opportunity to diversify their investment portfolio: “With this new system, equities, a fully functional bond market and exchange-traded funds (ETFs) will be accommodated in phase one of the project, while derivatives will be introduced in the second phase. The system will also enable the NSE to host other exchanges.” Several West African countries are discussing plans to open stock exchanges.

Bajomo said the process of selecting the system had been rigorous and that the NASDAQ OMX X-stream is used by 94 exchanges around the world. “We will work aggressively to go live with the Nasdaq platform by the second quarter of 2013, but this will depend largely on the preparedness of the other market operators.”

The price of the new platform is mostly quoted in the Nigerian press (for instance Daily Independent newspaper as US$2 million. A day earlier, This Day newspaper had put the cost at over $8.8m.


Other reforms: market makers, ETFs

Media reports (for example here) quote Onyema pointing to other reform targets, including a big rise in the number of listed companies, vibrant trading of those securities and a wider range of products: “As part of the strategic transformation of the exchange we set out last year to launch five products in five years and in December 2011, we launched the first exchange-traded fund in West Africa, the ABSA NewGold ETF. We are working on launching more products in the medium term and by 2013/2014, we plan to create an options market that will trade stock options, bond options and index options. This would be followed by a futures market in 2016 that will comprise currency futures and interest rate.”

On market liquidity, he said the exchange recently unveiled 10 market makers: “With this in place, we will soon start short selling and securities lending to further increase efficiency and liquidity in the market by making available securities where they are needed. These initiatives are a vital part of increasing the vibrancy, depth and competitiveness of the market. We have also put in place rules to allow companies to repurchase outstanding shares through a share buy-back process. This would facilitate the repurchase by a company of a portion of its outstanding issued shares. The aim is to improve shareholder value (ROA, ROE, EPS, P/E); meaning a companies that feel their share prices are undervalued may engage in share buy-back to shore up the prices while also reorganizing their capital structures.”

Reportedly the NSE aims for market capitalization of $1 trillion by 2015 and to be “the gateway to the African markets”. According to an earlier report in This Day newspaper the 10 stockbroking market makers were selected from a list of 20 applicants. They include: Stanbic IBTC, Renaissance Capital, Future View Securities, Vetiva Capital, ESS/Dunn Loren Merrifield, WSTC Financial Services, Capital Bancorp, FBN Securities, Greenwich Securities and CSL Stockbrokers. Onyema said: “The companies selected went through a very rigorous process and met the minimum net capital requirement of N570 million ($3.6m). We also examined their compliance history and looked into their operational capabilities, including their technology and processes.” He added the firms were trained, debated the appropriate market structure and the Securities and Exchange Commission approved the selection. The market makers used a draw to select a basket of quoted companies in which they would provide the desired level of liquidity.

JSE stock exchange unveils new Africa strategy

This morning (2 April) South Africa’s securities exchange, the JSE Ltd, announced a revised strategy to attract more listings from African countries, as they say international interest in investing into the continent’s growth story continues to soar. The JSE is closing its Africa Board and moving the 2 listed companies onto the Main Board (listing requirements for the Africa Board are the same as for the Main Board) or to Alt-X if they are growth companies. The JSE is also stepping up trading in depository receipts (DRs) and offering a broader range of exchange-traded funds and debt instruments.
Siobhan Cleary, Director of Strategy and Public Policy at the JSE, said in a press release: “The JSE’s existing African offering includes 12 African companies. In future, there will be no differentiation (for listing purposes). For equities, this will mean that we will list the companies on the Main Board or AltX as applicable. We will also actively market and profile the African companies that are already listed.”
She says the move is driven by demand for capital and also by the increasing supply of capital from investors. African consumer markets are increasingly being targeted by local companies and companies from overseas, including a growing wave of foreign direct investment activity. Other very active channels for investments are private equity funds, hedge funds and other investors. “We think it is time that stock exchanges started to play an appropriate role in channelling the investments.”
In October 2011 South Africa’s National Treasury announced that companies previously viewed as foreign listings would in future be treated as domestic and this makes it easier for South Africans to invest in JSE-listed African stocks and makes it easier for foreign companies to raise capital. South African institutions will apparently be able to include JSE listed companies among their domestic asset holdings. Second, the JSE has developed good relations with several stock exchanges on the continent through the African Stock Exchanges Association and the Committee of SADC Stock Exchanges. Third, there are increasing investment flows into the continent’s markets and more funds focused on the region, seen as high growth compared to many world markets.
Nathan Mintah, Chairman of the JSE’s Africa Advisory Committee, commented: “This evolution in JSE’s strategy is a step in the right direction in the quest to increase capital flows into the rest of Africa. Offering issuers and investors the ‘whole JSE’ market platform for access to instruments across the capital structure in equities, mezzanine, and fixed income combined with the JSE’s liquidity will clearly benefit all stakeholders and serve as a catalyst for product innovation in areas such as exchange traded products for the rest of Africa.”
The JSE is diversifying the instrument range it offers investors from the rest of the continent. Cleary says: “We already have four interest-rate instruments from the rest of the continent, as well as an African exchange-traded product. We will give increased focus to listing further debt and quasi-equity products in future. These will also include DRs, which are traded like shares and offer investors the same economic, corporate and voting rights as holding underlying shares directly. DRs enable issuers to reach investors located outside their home markets while reducing the risk of cross-border investment.” The JSE altered its listing requirements last year to accommodate DRs, which will provide a way for African companies to raise capital on the JSE without requiring a secondary listing. DRs are applicable for African companies regardless of whether they have an existing listing on an African exchange or any other exchange. Freely traded in South African Rands, this will allow African companies to market themselves to both South African and international investors.
Cleary says there is a pipeline of companies interested and she expects more African listings this year. The JSE is competing with international exchanges such as London and New York for key listings, and also with Australia and Toronto for mining listings. Recently Nigeria’s Aliko Dangote said (see article in Financial Times, for instance) he would take the $11bn Dangote Cement for a London listing in 2013, and last year Zambia’s Zambeef also opted for London.
The two listings on the JSE Africa Board, launched in February 2009, were Trustco from Namibia and Wilderness Safaris from Botswana. The JSE says both prefer to be ranked with their sector peers and in industry sectors. Quinton van Rooyen, Trustco Group MD, commented: “This repositioning of Trustco allows the company, whilst keeping its African identity, to be benchmarked against its peers, on a world-class platform. This can only be beneficial to Trustco and the extensive African investment community.” The JSE is also pledging roadshows and analyst events to highlight the African companies from outside South Africa.
The JSE believes that its approach provides a workable solution to the sometimes complex issue of investment on the continent. The JSE’s approach also contributes to the development of markets within their own economies. Cleary added: “There is an opportunity for the JSE to work with these exchanges and various development institutions to build capacity on the continent. It also gives the JSE the opportunity to evolve its Africa strategy. This has meant looking critically at what issuers – companies, governments and others – from the rest of the continent are looking for, and aligning their needs with the JSE’s objectives,” says Cleary.

JSE seeks more African equity listings in 2012, targets telecoms, mining and financials

The JSE Ltd (www.jse.co.za), South Africa’s securities exchange, is hoping to attract more listings from the rest of Africa in 2012 and to expand its range of products and services. This year should also see the JSE installing its equity trading system in Johannesburg, to avoid dependence on a transatlantic cable connecting it to the London Stock Exchange.
Nicky Newton-King, who took up her post as CEO last week after succeeding Russell Loubser and the first woman to hold the post, told Business Day newspaper the plan was to offer more access to African companies and products such as exchange-traded funds products that enable people to access new investments: “With the rules of inward listing being relaxed, we would also like to attract more inward listings.” Besides IPOs, Newton-King said she expected to see more types of products, such as depository receipts and derivatives linked to companies being offered.
The JSE is in “good conversation” with several companies elsewhere in Africa over more potential listings. Last November she told Reuters: “We’ve got good conversations going … particularly on the continent.” She said the bourse is targeting mining, telecommunications and financial services: “Our approach is to look at issuers that need capital — need investors where their home markets might be too small. So we’ve got a lot of different segments we are looking at, but we are looking at particular issuers rather than trying to speak to everyone.”
The JSE already has 14 African companies listed, with 4 different debt instruments and 1 African ETF. Last year Reuters highlighted that some growing African firms preferred other international exchanges, particularly the London Stock Exchange and its AIM market, over the JSE for raising capital and listings, as highlighted in stories on this website. The JSE seeks closer cooperation with other African exchanges as it competes with other world bourses: “Clearly we need to be trying to find a way to cooperate with African exchanges, with African issuers to bring more African product to the table here in SA, where we have a lot of international investors everyday.”
The JSE attracted a total of 16 listings last year, with a combined market capitalisation of more than R35 billion (US$4.3bn), according to data from the JSE’s director of issuer services, John Burke. There were also a number of initial public offerings from the property sector. About 15 companies de-listed last year and 21 were on the suspended list. The number of new IPOs worldwide is lower since the start of the global financial crisis. Newton-King said there is a pipeline for potential listings in 2012: “Definitely there’s a pipeline, there’s always a pipeline. We never talk about the number since how many companies actually list and when they list is very much dependent on the economic circumstances of the country and whether the companies themselves are ready to list.
“We are looking forward to being able to attract a wider range of companies and investment opportunities on the JSE.”
The plan is still to use the same computer provider, Sri Lanka’s Millennium IT which is a subsidiary of the LSE. In terms of a February 2011 press release, the JSE is to migrate to a new system Millennium Exchange™, which the LSE has also adopted, in the first half of 2012. Millennium IT systems are used on many African stock exchanges.
Newton-King told Business Day she hoped this will minimise the outages experienced last year, which were linked to technical issues on the transatlantic cable. The JSE halted trading on its equity markets at least twice last year, which led to the exchange attracting criticism from trading houses, which often spoke anonymously to the media.
She said: “We are critically dependent on information technology (IT) and invest heavily in IT to ensure it is robust and able to handle increased volumes as the JSE grows. Our equity systems are run in London and there’s been some trading outages in the lines between us and London…. We are bringing the systems back to avoid that. We will continue to look at whether our technology is robust enough to withstand volumes.”
She did not give much information on rumours that the JSE is talking with SA Treasury on starting a trading market for carbon credits but said the JSE was looking at the possibility and how it would work with others.
Of the type of environment that she envisions at the JSE, Ms Newton-King says: “In 2012 I would like the JSE to be recognised as a place of excellence, a place where SA’s top talent would come and work, where our clients recognise that we provide products and services that are valuable to them.”
Her former post as deputy CEO no longer exists and duties that fell to her are being given to other people so that they can also grow.

FTSE Group working on Pan-Africa index with African Securities Exchanges Association

Dateline – Marrakech
FTSE (www.ftse.com) is working on a FTSE-ASEA index with the African Securities Exchanges Association (www.africansea.org), which will help to unlock Africa an investment for larger portfolio investors. According to Imogen Dillon Hatcher, Executive Director, FTSE Group, speaking at the ASEA conference in Marrakech, Morocco, on 12 Dec, the index will make clear how much Africa is outperforming the rest of the world: “A ‘back-cast’ of the FTSE Africa index performs better than FTSE world index by quite a margin”. The index covers stocks on 16 exchanges and is adjusted for investibility, including free float and liquidity.
She said that FTSE Group was restructured on 12 Dec, with the London Stock Exchange Group buying out the 50% share owned by Pearson, owner of the Financial Times newspaper, “as of this morning”. The buyout transaction is set to close in the first quarter of 2012. FTSE calculates and manages over 200,000 indices worldwide, which are linked to over $3 trillion in global assets under management. These include the widely-used global benchmark, the FTSE All-World Index. She said FTSE is the top index group worldwide: “FTSE is known as a partner around the word, FTSE works with you to unlock the investment potential that is your market.” As markets mature, broader ranges of investible tools are needed including a reliable index that can promote the development of a wider range of investment products, including exchange-traded funds (ETFs).
The group had a strong commitment to Africa and already been working with South Africa’s JSE Ltd (www.jse.co.za) since 2002. In December 2010 they signed with the Casablanca SE (www.casablanca-bourse.com) to create FTSE CSE Morocco Index Series with two index products. On 8 November 2011 FTSE announced a partnership with the Nairobi Stock Exchange (www.nse.co.ke) to create new indices. FTSE NSE Kenya Index Series track the performance of the largest and most widely-traded stocks listed on Africa’s fourth oldest securities exchange.
Dillon Hatcher said FTSE China indices form the basis for $14 billion worth of ETFs, including giant funds by iShares. The group had worked to develop the indices with international and domestic managers including Xinhua Finance Ltd. She added: “We know something about building an index” and the ASEA index would “throw the light of transparency onto your markets”.
The work of developing the ASEA index had been led for over a year by Jonathan Cooper, Managing Director Middle East and Africa, working with a broad range of African exchanges. The target was to build an investible index, with clear and transparent rules and methodology. They started with all African companies; then filtered for those whose price information is available on Bloomberg and Thomson Reuters. They looked at securities types, adjusted for a minimum 15% free float (the proportion of shares potentially available for buyers) and did liquidity testing on the securities and then did country weightings. The index now covers 16 countries, which have securities which meet the requirements.
The new index will be reweighted twice a year. Dillon Hatcher added that FTSE would be working with a prospective client base to put forward this pan-Africa index: “We hope funds will come out of this and drive Africa as an investible destination, make sure the index stays fresh and make it sure it stays relevant, as the client base comes to us with ideas, such as sectoral indices.
She also explained how securities markets indices had evolved. It started as a general economic indicator, showing how share prices are moving as an indicator of investors’ expectations of business prospects. Then indices became a tool for benchmarking but were still simple measurement tools. From this they became an underlying framework for more passive asset management such as ETFs, and depending on market these could be simple or ever more complex, depending on the needs of organizations such as asset managers or investment banks. Eventually they would also develop into a tool to assess market risk, with much potential to get involved in top-end investment strategy, where “we are starting to blur the lines between passive and active management”.
She threw down the gauntlet to active managers “We would assert that over time it is very hard for an active manger to beat an index, we have done lots of work with academics.” She said indices bring market benefits including low-cost market access provided they are transparent, rules-based and useful. “All the name-brand indices have to be fit for purpose and they have to do a job. You know they will behave in a particular way.” At other meetings this author has heard exchanges have wondered about the future of securities markets when the volume and value of derivatives and ETFs traded far outweighs the trade in the actual shares.
Commenting on the transaction in which the LSE buys out Pearson, LSE CEO Xavier Rolet commented in a press release: “Fully aligning FTSE with one of the world’s most liquid and most international trading groups is an exciting opportunity. This transaction further delivers on our diversification strategy, expanding the London Stock Group’s existing offering deeper into indices, derivatives and market data products and services. This is a business we know well, and we expect that going forward our customers will directly benefit from greater choice, opportunity and innovation.”

African Stock Exchanges Association conference tackles key issues

The next step for Africa’s securities exchanges is critical for the continent’s development. There is a huge demand for capital to be put to productive use in what could be the world’s fastest-growing continent, with a dire need for fast growth to drive out poverty. There is also a tide of international risk capital, looking to fund that growth and share in the profits. Between the two are the capital markets, challenged to move fast to become liquid, transparent and effective.
Lots of these topics are on the agenda for The 15th Annual African Securities Exchange Association conference (www.aseaconference2011.ma) (in Marrakesh, Morocco), which looks to have an excellent agenda. Casablanca Stock Exchange is the host, the theme is “Africa, alive with opportunities!”
Top speakers include key opinion leaders such as Thomas Friedman, Mark Mobius and maybe Christine Lagarde of the IMF. Expect speeches from Sunil Benimadhu (Stock Exchange of Mauritius and chair of ASEA), Karim Hajji of the Casablanca bourse, leaders of African securities markets and top speakers from several world bourses including BM&F Bovespa, Istanbul, NASDAQ OMX and the London Stock Exchange, with India’s National Stock Exchange and NYSE Euronext to confirm. They will be joined by finance ministers, bankers, analysts, traders, investors and many more.
Topics on day 1 include
• “The financial crisis: Is there a pilot in the plane?” Top analysts, bankers and traders, possibly joined by a European Commissioner from the heart of the crisis
• The economic implications of the “Arab Spring” for the continent, featuring key Ministers who are rebuilding post-crisis countries, a strategist and others
Capital markets and BRICS (see previous story on stock exchange link-ups) – hear from CEOs and Executive Directors of key BRICS stock exchanges and Emergent Asset Management
Nursing Africa’s future IPOs: heads of top African stock exchanges from Mauritius to Morocco, via Ghana and maybe Nigeria, plus PAI Partners, a leading French private equity firm
• A new FTSE-ASEA African index.
Day 2 tackles
Regulation for cross-border development: Regulators from Morocco and the central African stock exchange, plus long-term Africa bull stockbroker Jonathan Auerbach
Cost-effective and scalable technology options for emerging markets exchanges – featuring Tony Weeresinghe of the LSE, Anne Ewing of NASDAQ and maybe Joseph Mecane of NYSE Euronext, 3 top suppliers of securities markets systems to the continent who hold many of the keys to the next stage of evolution.
• “What’s hot in Africa today?” with a host of top speakers from politics, consulting, banking, mining, economics and development finance covering energy, infrastructure, mining, industry, agribusiness and others.
OPINION: Please note the Day 2 morning topics address critical and urgent issues of how African stock exchanges can work across (colonial) borders to build liquid and effective markets, part of the grand process of African integration and building viable economies.
Expect participants from over 100 countries. The ASEA AGM and committee are on 11 Dec and the conference starts on 12 Dec. The official language is English with Arabic and French translations.
Unmissable! Book the conference here via the ASEA website (www.africansea.org).
Warning!! You may not want to come home. The conference is in Hotel Palmeraie Golf Palace & Spa. The conference website says: “As a backdrop, the majestic, silvery, sentry-like summits of the High Atlas stand out. At the foot of the mountain lies a beautiful city, built in red and surrounded by age-old palm trees. Monuments defying time form a string of pearls for her. An enticing labaryinth, created centuries ago, of old ramparts meanders along its slender “body”. In this fairy-tale decor, lies Marrakesh the legendary; Marrakesh the imperial, the pearl of the south, bathed by an invigorating sun all year round.”

BRICS stock exchanges form alliance

The securities exchanges of the “BRICS” emerging market bloc have announced a joint initiative to expose investors to the dynamic economies of the bloc members, Brazil, Russia, India, China and South Africa. China and India are among the fastest-growing major economies over the next five years, according to forecasts, and all are increasingly attractive to investors worried about stagnation on US, European and other major exchanges. The initiative was announced on 12 October, during the 51st AGM of the World Federation of Exchanges (WFE), held in Johannesburg.
The stock exchanges will start by cross-listing benchmark equity index derivatives on the boards of each of the other alliance members. Following that, the alliance will develop innovative products to track the BRICS exchanges.
This brings together Brazil’s BM&F BOVESPA stock exchange, MICEX from Russia (currently merging with RTS Exchange), Hong Kong Exchanges and Clearing Limited (HKEx) as the initial representative of China, and South Africa’s JSE Ltd (the Johannesburg Stock Exchange). The National Stock Exchange of India (NSE) and the BSE Ltd (formerly known as Bombay Stock Exchange) have signed letters of support and will join the alliance after finalizing outstanding requirements.
The seven stock exchanges represent a combined listed market capitalization of US$ 9.02 trillion (source WFE and RTS website) with listed 9,481 companies2, equity-market trading value of US$ 422 billion per month and over 18% of all exchange-listed derivative contracts traded by volume worldwide (source Futures Industry Association) as of June 2011.
Ronald Arculli, chairman of HKEx and of the WFE, says in a press statement: “Global investors are increasingly seeking exposure to leading developing markets. The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives, which will now be offered in local currency on these exchanges. These cross-listings are planned to take place by June 2012.”
He adds that this is an important moment in the history of developing countries: “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power. From a global perspective this alliance points to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlines the reason for the BRICS relationship.”
Russell Loubser, CEO of the JSE, says: “As well as being barometers of market performance, indices also form the basis of other tradeable products, including exchange-traded funds. As a logical second phase in the alliance, the exchanges have agreed to work together to develop new products for cross-listing on the respective exchanges.” These products would combine exposures to equity indices of all alliance partner exchanges. Edemir Pinto, CEO of BM&F BOVESPA, explains: “These products would then be cross-listed and traded in local currencies. They will also allow investors to gain exposure to other emerging markets through a locally listed product.”
A third phase may include product development and cooperation in additional asset classes and services.
Madhu Kannan, CEO of BSE Ltd, says: “The BRICS exchanges alliance holds great promise, as it will create avenues for Indian investors to diversify and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets.”
Investors worldwide and those whose homes are in the BRICS economies are increasingly interested in investing in high growth emerging economies. Most of the BRICS countries are predicted to have above-average economic growth. They are going through shifts in that there is rising consumer power generated by a growing middle classes in each, which will accelerate demand.

Stock Exchange of Mauritius aims to be global centre for listing funds

The dynamic Stock Exchange of Mauritius (www.stockexchangeofmauritius.com) is pushing ahead with a wide range of activities aimed at building its role as a secure base for international funding transactions and an African alternative to international listing venues. It is moving to becoming a multi-product exchange aimed at the international market, through rapid development from its origins as an exchange focused only on the domestic market.
According to the website: “In the years to come, the split of listings on SEM is expected to overwhelmingly consist of international funds, international issuers, specialized debt instruments, Africa-focused Exchange-traded funds and other structured products. As SEM also aspires to emerge as a capital-raising platform for Africa-focused investments routed through the Global Business Sector, the SEM platform will growingly (sic) be used to channel investment flows from SA/Europe/Asia into Africa and from USA/Europe into Asia.” Mauritius combines good regulation with flexibility and has been a key base for funds including private equity funds investing into Africa and into India.
The bourse is aiming for a wide range and growing numbers of issuers, players and investors, increasing the breadth and depth of the Mauritius market and integrating the Mauritius financial services sector within the international financial system.
It made major changes to the Listing Rules (early 2010) to align them with the government’s Collective Investment Schemes Regulations 2008, positioning SEM as an attractive venue for listing Global and Specialised Funds, in line with the strategic shifts. The Listing Rules are more flexible to reflect the specific attributes and characteristics of the specialised funds to be listed. SEM aims to be platform of choice for listing a wide variety of funds such as Specialised Collective Investment Schemes, Professional Collective Schemes Export Funds, Global Schemes as part of diversifying product offerings and emerging as an international exchange. The management also commits to aggressive timing in processing listing applications and a competitive listing fee structure. In May 2011, SEM introduced Chapter 18 in the SEM’s Listing Rules, to cater for the listing of specialist companies and specialist debt instruments, targeted at qualified investors.
It is one of the African leaders in multi-currency trading and (since 2010) can trade and settle equity and debt products in Euro and GBP. From June 2011 it was the first exchange in Africa to list, trade and settle equity products in USD.
It supplies real time data through top global vendors such as Thompson Reuters, Financial Times and Bloomberg (since early 2010). The data coverage by global vendors is a powerful marketing medium to enhance SEM’s visibility internationally and put the exchange on the radar screen of a wider spectrum of international investors, thus attracting more foreign investor interest on our market. Mauritius is one of the few African exchanges to be connected to Bloomberg and Thompson Reuters real-time. Growing interest from international investors has prompted index and data providers including Standard & Poors, Morgan Stanley, Dow Jones and FTSE to include SEM in new indexes recently launched to track the evolution of key frontier emerging markets.
Over the last 10 years, the Mauritius Bourse has attracted strong foreign investor interest, generating positive investment inflows into many listed companies. 2010 was a record year for net foreign investment inflows. “For 2011, we are already stepping up our efforts via international conferences and roadshows, to place the SEM on the radar screen of institutional investors who are keen on frontier emerging markets that are well regulated and adhere to international best practice”, says the website.
SEM also has ambitions to contribute more broadly to the development of the Mauritian economy and to help grow capital market activities nationally and throughout Africa.

Highlights of recent history
SEM became a full member of the World Federation of Exchanges (WFE – www.world-exchanges.org) in November 2005. This is a high standard and shows that SEM is in the top rank in terms of stringent standards and market principles required to be accepted to this status by the WFE, which sets the standards for registered securities markets worldwide. The standards are recognized by industry, regulators and supervisorss. The WFE membership helps ensure that foreign investors play a growing role – “in a typical year, foreign investments represent 25–35% of trading activities on our market” according to the website.
The Development & Enterprise Market (DEM) was set up in 2006 This is the market for small and medium-sized enterprises (SME’s) and newly set-up companies with sound business plans and showing growth potential. Companies can use the advantages and facilities of an organised and regulated market to raise capital for growth, to improve liquidity in their shares, to obtain an objective market valuation and to enhance their corporate image.
Since March 2010, the SEM was designated by the Cayman Islands Monetary Authority (CIMA) as an “Approved Stock Exchange” by virtue of its membership of the WFE for the purposes of CIMA’s Mutual Funds Law, Banks and Trust Companies Law, Insurance Law, Companies Management Law and Securities Investment Business Law. This raises SEM’s profile as a well-structured and properly regulated exchange and enhances SEM’s position as an attractive listing venue for global and specialised funds.
From 31 January 2011, SEM has been designated by the United Kingdom tax authorities, Her Majesty’s Revenue and Customs (HMRC), as a “recognised Stock Exchange” under section 1005 (1) (b) Income Tax Act 2007. This means that securities admitted to trading and listed on the Official Market of the SEM will meet the HMRC interpretation of “listed” as set out in section 1005 (3) (a) and (3) (b) Income Tax Act 2007 and for Inheritance Tax purposes. This designation confers potential benefits such as permitting UK pension schemes to hold securities listed on the Official Market of SEM, giving companies and funds listed on SEM access to a larger market of sophisticated, well-capitalised investors. The designation reinforces SEM’s attractiveness as a listing venue for global funds and specialized products. Securities listed on the Official Market of the SEM may be held in tax advantaged Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs) by UK investors. Holders of debt securities satisfying the Eurobond exemption and listed on the Official Market of the SEM are exempted from withholding tax on distributions underlying these debt securities. Inheritance tax advantages may accrue to UK holders of securities listed on the Official Market of the SEM.

Revolution at Egyptian Exchange – innovations to boost liquidity

The Egyptian Exchange (www.egyptse.com) is to introduce new products and trading innovations, including remote orders placed abroad, exchange-traded funds (ETFs), intraday trades and short selling. Mohamed Abdel Salam, chairman of the Exchange, told Reuters that transparency was up and political uncertainty was down in Egypt since the political uprising that overthrew former president Hosni Mubarak and this is bringing more investor confidence.
The trading changes had been delayed as the political mandate of the old government decreased. Some innovations could be introduced in July and talks on remote orders are to resume with the London Stock Exchange (www.londonstockexchange.com) on 20 June.
Mohamed Abdel Salam told Reuters in an interview on 13 June: “There are indicators that show the market is improving because of the revolution. First, it reduced political risk. In the past, things were vague. If the president were to die, would his son take over, or would the army? Many people have started trusting us now, and we are also trying to reduce transaction costs on foreign investors … so I think we will now introduce short-selling and intraday trade in the first days of July.”
He said that companies had been on time in publishing quarterly results, indicating the effects of the revolution on their earnings, and this improved the country’s credibility. In addition, since the changes institutional investors had become more prominent: “The market is becoming more stable, because institutional investors have begun to outnumber individual investors, who used to cause sharp market moves by their emotional trading.” Egypt is one of the African exchanges with very many active local individual shareholders.
He said the aim of the changes is to bring new energy into the exchange: “Egypt’s market is in need of new blood to be pumped in; it needs new products … It is unarguable that this is a main way to increase liquidity and volume.” Previously there had been moves to introduce short selling in 2008 but this had not been introduced in 2010 as scheduled.

Remote orders with FIX
The Egyptian Exchange aims to allow investors to place orders from abroad although trading would still have to be executed through a local broker. Investors could use the Financial Information eXchange (FIX) protocol (www.fixprotocol.org) to place orders and secure the details until the transaction was completed by the broker. The first link was due to be introduced via London in mid-2010, reports the agency, followed by links to centres in the Gulf. The Chairman said the delays had been caused by technical problems at the LSE and talks would resume this week on 20 June.
Another plan is for dual-listings with exchanges such as Qatar, Dubai, Abu Dhabi and Kuwait. Abdel Salam said: “There are Gulf companies that expressed a desire to enrol in the Egyptian stock exchange but I cannot disclose names now.” Several exchanges have been vying to form the centre of Arab trading.
Commodity trading in gold could be established through a fund and talks are on with Egypt’s Chamber of Metallurgical Industries. The Chairman said: “We want to introduce a new way to trade gold called ETC, standing for Exchange Traded Commodities; this should facilitate trading of raw gold, and Egypt is a strategic gold producer, so we should make use of it.”
The Egyptian Exchange was closed from 27 January to 23 March after the popular uprising and it faced turbulence and pent-up demand when it did open. The benchmark EGX 30 Index closed on 13 June at 5,550.22, down 17.5% since the revolution although the trend has been positive since a low of 4,850.41 on 8 May.

Nairobi Stock Exchange and FTSE work on new market indices

The Nairobi Stock Exchange (www.nse.co.ke) and FTSE International (www.ftse.com) are to create new FTSE/NSE share and bond indices. These could be marketed to international investors who monitor FTSE indices, create more revenues for the Kenyan bourse and encourage foreign portfolio investors, boosting liquidity.
According to a report in Business Daily newspaper (www.businessdailyafrica.com), Terrence Adembesa, Product Development Manager at the NSE, said: “We believe this partnership will lay the foundation for the creation of data products, exchange-traded funds (ETFs) and other index-based products and will further attract enhanced foreign investment in the local market.
The NSE recently announced it would introduce a local bond index, starting with treasury bonds.
According to the FTSE Group website, it works with partners and clients in 77 countries worldwide and calculates over 120,000 end-of-day and real-time indices covering more than 80 countries and all major asset classes such as equity, bond and alternative asset classes. It is an independent company jointly owned by The Financial Times and the London Stock Exchange.
The website explains: “FTSE indices are used extensively by a range of investors such as consultants, asset owners, fund managers, investment banks, stock exchanges and brokers. The indices are used for purposes of: investment analysis, performance measurement, asset allocation, portfolio hedging, and creation of index-tracking funds.
“Independent committees of senior fund managers, derivatives experts, actuaries and other experienced practitioners review and approve all changes to the indexes to ensure that they are made objectively and without bias.
FTSE has offices in London, Frankfurt, Hong Kong, Beijing, Shanghai, Madrid, Milan, Mumbai, Paris, New York, San Francisco, Sydney and Tokyo, FTSE Group.
The NSE said they were considering developing the bond index, an equity index, equity sectoral and finally shariah index series and they should be launched during the third quarter of 2011, helping diversify the NSE’s income and enhancing the value of its brand. Mr Adembesa commented: “The agreements have been firmed up within the technical teams for both FTSE and NSE and are awaiting board approvals.” Modalities on the equity and bond index constituents, weighting and calculation are still being worked out. The partnership could work towards developing an East African index series, while maintaining the NSE 20 share and NSE All Share indices.
The newspaper reports that the NSE made KSh35.8 million loss after tax for the year ended December 2009 (compared to a KSh59 mn profit in 2008). Total income was KSh184.5 mn (KSh328.4 m in 2008) of which 89% came from transaction levies, annual listing fees, initial listing fees and application and additional listing fees. Other income was advertising, data vending and sale of publications and merchandising items and this contributed 6% in 2009. According to law, the NSE earns 0.12% of the value of all equity transactions and 0.0035% on bond transactions at the bourse.
Kestrel Capital (www.kestrelcapital.com) executive director Andre DeSimone told the paper that having an international index would add confidence and acceptability among international investors: “Stock exchanges internationally not only make revenue from fees but they also from selling the information. It would also allow international investors to benchmark and compare the performance of other markets with the Kenyan market and exposes Kenya internationally.”
Mr Adembesa said that adopting FTSE’s global index methodology would attract enhanced international investment into the local market and NSE staff would be able to share and knowledge transfer through exposure to FTSE’s calculation systems and global distribution network.

Egyptian Exchange opens, hit by giant wave of selling

The Egyptian Exchange (www.egyptse.com) opened today at 10:30am after nearly two months, and was immediately swamped with a flood of selling, which saw the index plunge nearly 10% and trading halted a few minutes after the exchange opened. The EGX 30 Benchmark opened the day at 5,646.50 but selling pressure that had built up before trading opened saw the index start to plummet down and buyers stayed well clear. Trading was halted for 30 minutes with the index at 5,085.63, according to the EGX website.
When the exchange reopened, the mood was a little better and the index slowly edged up to 5,155.33 over the next 50 minutes before drifting through to close at 5,142.71 after a further 2 hours, down 8.9% on the day.
Foreigners and then Gulf Cooperation Council members reportedly led the sell-off.
The exchange regulator had introduced new rules to halt trading if the exchange or any shares are too volatile. According to the rules, trading was halted for half an hour after a 5% change in value in the EGX100 index and as long as the EGX Chairman decrees if it falls by 10%. Similarly if a share price moves by 10% the price will be fixed until the end of the trading session and Associated Press reports that this happened to telco Mobinil, Orascom Construction, and EFG-Hermes investment bank, while around 30% of the trading was in Orascom Telecom which rallied a bit during the day but closed the session down 2.7%.
The bourse, which combines the former Cairo and Alexandria exchanges, had closed its doors on 27 January after falling 16% in a week during of political unrest which unseated former President Hosni Mubarak on 11 February. The reopening was delayed repeatedly because of strikes which kept clearing and settlement banks from reopening. Officials also wanted to prevent economic disruption. However, today is reportedly 2 days before a deadline which could have seen the EGX removed from the MSCI Emerging Markets Index, according to an Associated Press report. Other reports today state that the trading halts could still lead to discussions about downgrading the Egyptian market to the MSCI Frontier Markets index.
Some 46 companies were suspended from trading, after acting EGX Chairman Mohammed Abdel-Salam said they had not given full requested financial disclosure or had sent incomplete information about the shareholdings of targeted individuals. This is linked to ongoing investigations into share holdings and dealings of the Mubarak regime and associated businesspeople.
Egypt has also seen pressure on the Egyptian pound currency, trading at LE5.955=$1 by Wednesday evening. The country had seen its sovereign rating downgraded and the Government had reduced growth forecasts to 4% from 6% although some thought growth could be considerably less.
Selling pressure on the stock market is set to continue, but there are still many long-term bulls who believe that democracy and better governance could be good for the economy and are likely to start snapping up bargains when share prices fall a little further.

ETF allows creation orders

New York-based asset manager Van Eck Global announced today that it is again accepting creation orders for Market Vectors Egypt Index ETF (www.vaneck.com/funds/EGPT.aspx). These were suspended on 31 January after a strong inflow into the fund from investors who felt then that political change could be good in the long-term, although it still allowed investors to redeem units. The asset manager warned: “Market Vectors Egypt Index ETF will begin accepting new creation orders in accordance with the policies and procedures detailed in the Fund’s prospectus and Statement of Additional Information that include the right to suspend creation orders again if necessary. In an effort to facilitate an orderly resumption of trading, the Egyptian Exchange will follow procedures and measures, including circuit breakers on individual stock price changes, which may limit the Fund’s ability to track the Market Vectors Egypt Index.” Reuters reported that the ETF was down 7.5% today, bringing its total loss since 26 Jan to 18%.