African Capital Markets News

Electronic trading in Uganda another step to East African market

The Uganda Securities Exchange (www.use.or.ug) is set to introduce electronic trading before the end of 2009 and an East African common stock market to be launched in January 2010, says a report in East African Business Week (www.busiweek.com) newspaper. The report cites a speech by Japheth Katto, the Chief Executive Officer of the Ugandan Capital Markets Authority, saying that eventually investors will be able to buy shares in any listed company of the Member States.

Uganda passed a Securities Central Depository Act early in 2009. A report in the New Vision newspaper (www.newvision.co.ug) says that the USE is set to change rules and start to move from paper certificates and manual clearance and settlement of transactions to electronic settlements and investor receipts from October. Hardware and software have been tested, and electronic trading has been anticipated since earlier this year.

“Electronic trading on Ugandan’s stock market will be good for regional integration because it will be possible to have one East African stock market,” Katto is reported to have said.

The Nairobi Stock Exchange started electronic trading four years ago. The USE still faces usual challenges of African securities markets, including: low levels of domestic savings (reportedly 15% in Uganda); low awareness; thin supply of new equities; an underdeveloped pension sector which has not been liberalized; underdeveloped life insurance sector; and the current global financial crisis.

However, the regional integration project seems to be gaining momentum, including a customs union protocol. The Monitor newspaper (www.monitor.co.ug) reports that the East African Community Secretariat (www.eac.int) is holding consultations in the five partner states from 7-25 September on an East African Monetary Union (EAMU). They consultations target stakeholders such as: ministries of finance, EAC, trade, planning, etc; central banks, regulators; bureaus of statistics; bankers associations; academia; parliamentarians; the private sector and civil society. It is supported by the European Central Bank (www.ecb.int).

According to reports, the launching date for the political federation is set at 1 January 2010. After the customs union, the EAC will progress to a common market and harmonizing labour policies and legislation.

Tanzania thawing on East African integrated market?

Tanzania seems to be warming to the idea of linking the East African stock exchanges, in what could eventually be the development of a major regional market.
According to local media reports, Acting CEO of the Dar es Salaam Stock Exchange Mary Mniwasa said it is ready to join a software called Smart Order Router which links the securities exchanges of the East African Community member states. She is reported to have said the system will allow a stockbroker from the DSE, the Nairobi Stock Exchange and the Uganda Securities Exchange to see the markets and trade across borders without physically contacting a local market stockbroker.
The report quotes Simon Rutega, CEO of the USE, as saying Uganda fully supports the proposed integration of stock markets in east Africa. They have started using Central Depository Securities for holding securities and assisting in settlement.
The DSE and USE have long been dogged by lack of liquidity and outside investor interest. The newspaper cites a study by Codogan Financial & Associates, funded by the Efficient Securities Markets Institutional Development Initiative of the International Finance Corporation, part of the World Bank group. According to this, there are simply too few institutions and individuals who wish to invest in East Africa. The objective of the EAC stockmarkets integration is to enable consolidated EAC capital to flow and participants to operate freely across borders
The integration is being guided by an East African Securities Exchange Association, comprising the chief executives of the four exchanges – Dar, Nairobi, Uganda and Rwanda’s recently formed Over-The-Counter market. The original timetable was set in 2008 when the association resolved that a single clearing and settlement infrastructure was to be implemented within 3-6 months after January 2009. Senior members of the NSE are doubtful on progress.
One of the initiatives of the association is to integrate trading, clearing and settlement infrastructures within the EAC to facilitate a faster trading system within the bloc.
Tanzania has previously barred non-citizens from participating in initial public offers, such as when a 21% stake in the National Microfinance Bank was floated last year. In March 2008, it blocked its citizens from participating in the Safaricom IPO in Kenya.