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Uganda Capital Markets Authority joins IOSCO MMoU Appendix A

Capital Markets Authority (CMA) Uganda has taken a big step forward for international links, after changes to Ugandan law. CMA been admitted by global securities standards setter International Organization of Securities Commissions (IOSCO) as a signatory to Appendix A of the IOSCO Multilateral Memorandum of Understanding (MMoU).

The MMoU provides an international benchmark for cross-border cooperation and offers securities regulators tools for combating cross-border fraud and misconduct. Uganda’s regulator will have increased access to knowledge and research through the IOSCO network.

The admission follows the recent amendment of Uganda’s CMA Act. The capital market regulator becomes the 112th member to append its signature to the memorandum, which was instituted in 2002.

Keith Kalyegira, the CEO of CMA, said in a press release: “This is a big step for CMA and Uganda in general and I must thank all the stakeholders that have been very instrumental in enabling us to reach this milestone including the CMA Board; our parent ministry of Finance, Planning and Economic Development; Parliament of Uganda; and the Ministry of Justice and Constitutional Affairs which has tirelessly worked with us to enhance our regulatory framework so that it can fit international standards.

“Our desire going forward is to transform Uganda’s capital market into one of the most efficient, and trusted centres for attracting capital and providing capital in Africa, and this could not easily be achieved without enhancing our regulatory framework to fully suit international standards by ensuring we comply with Appendix A requirements”.

CMA Uganda became a member of the IOSCO Appendix B in 2007 and has since been compliant with most of the international best practices in regulation. However, its participation, engagement and contribution to international dialogues was limited.

The IOSCO MMoU supports mutual cooperation, assistance and consultation among members to ensure compliance with, and enforcement of securities laws and regulations. It is a response to more international activity in securities and derivatives markets.

The formal signing ceremony will be held at the 42nd IOSCO annual conference due in Jamaica in May 2017. CMA first applied to IOSCO to become a signatory to the IOSCO MMoU in September 2007, and was assigned to Appendix B. The capital market regulator proactively started steps over several years towards legislative change to bring Uganda’s legislation into compliance with the MMoU. The reapplication was submitted to the IOSCO General Secretariat in July 2016.

East Africa regulator links

CMA is also a member of the East African Securities Regulatory Authorities (EASRA), which is instrumental in the development of the capital markets industry in East Africa. This includes some joint oversight activities, particularly for financial firms operating in more than one of the East African Community EAC countries. CMA Uganda also does joint inspections with its Kenyan counterpart.

Uganda’s growing capital market

CMA recently concluded its 5-year strategy, and expects to launch a 10-year capital markets development master plan by the end of March. This will map a growth plan for Uganda’s capital market which already includes 2 Ugandan securities exchanges. It will lay a strategy for increasing access to patient capital to finance the growth of commerce and industry in Uganda.

In Uganda, CMA cooperates with other government agencies in the financial sector including Bank of Uganda, the Insurance Regulatory Authority, the Uganda Retirement Benefits Regulatory Authority (URBRA), and the Uganda Registration Services Bureau. The Uganda Registration Services Bureau acts as the Registrar of Companies and implements the Companies Act, 2012 (Companies Act).

It also works with law-enforcement agencies such as the Office of the Attorney General, Director of Public Prosecutions and the Uganda Police. CMA, Bank of Uganda and the Uganda Insurance Commission (now the Insurance Regulatory Authority) signed a Memorandum of Understanding to facilitate cooperation and exchange information in the securities, banking and insurance sectors.

Trading of listed securities is conducted through the Uganda Securities Exchange (USE), established in 1998. There are 16 listed companies on the USE, of which 7 are from privatization of government parastatals. Trading of government bonds on the USE was introduced in 2004.

In July 2015, an automated trading system was introduced on the USE. The clearing and settlement period is 3 days (T+3). A computerized Securities Central Depository System (SCD) was put in place in 2010 following the enactment of the Securities Central Depositories Act (SCD Act) in 2009. The SCD has enabled the USE to automate the clearing and settlement process.

On 4 March 2014, CMA’s Board of Directors considered and approved the application of ALT Xchange East Africa Limited to operate as a stock exchange in Uganda in accordance with the CMA Act.

Kampala view (credit www.enjoyuganda.info)

Computers quieter,faster than open outcry

Another floor of shouting traders has just closed in New York, after CME Group (named after Chicago Mercantile Exchange) closed its open outcry trading pits. The trading floor still continues in pits on various commodities in the Chicago building that houses the Chicago Board of Trade, in an approach that dates back to when the building opened in 1930, writes The Economist magazine this week.
The Chicago exchange only has 9 pits, down from 32 in 2007, and closed one trading floor in 2015 that used to be very crowded and busy. Like the rest of the hyperactive world securities and commodities markets that used to heave with life, emotion, despair, greed, fear, ambition, deception and many other human conditions, gradually the computers have taken over.
The magazine writes: “In the end it was not scandal or terrorism that undermined open outcry; it was efficiency. Computers turned out to be quicker, cheaper and more precise than humans”.
It notes that CME Group was quick to understand that most business was in interest rates, stockmarket indices and currencies, not in traditional commodities. It picked up good volumes and made economies of scale in trading and clearing and then bought up other exchanges that ran into problems. Volumes continue to climb and a tumultuous year of surprising votes in UK and US have seen a big spike in activity and volatility. It provided US and UK traders with a record December and record-breaking volumes on exchanges such as the CME.
The Chicago Board of Trade was formed in 1848 and moved in 1856 to make space for 122 new members.

Chicago Board of Trade building, the figure on top is the goddess Ceres (photo Wikipedia)

Regional integration tops 2017 agenda for Africa’s exchanges

Stock exchanges across Africa should be working towards regional integration, says Prime Minister of Rwanda Anastase Murekezi. He was guest speaker at the 20th African Securities Exchanges Association (ASEA) annual conference. The conference’s action agenda would see the regulated stock exchanges driving industrialization and economic transformation.
Panel discussions highlighted the opportunities for African exchanges, provided they adapt to meet the needs and demands of local investors and issuers. They must also find the balance between local context and environment, and alignment with global best practices.
Government support and engagement are keys to the success of exchanges and to providing the capital to grow economies. Governments should continue to create enabling environments that encourage investment, economic growth and development. Regulation should follow market needs and focus on supporting development as favourable regulatory frameworks are essential for sustainable economic growth.
Other challenges the exchanges should continue to work on include: financial inclusion or letting more people access the capital markets for investing and for raising long-term risk capital for their enterprises; financial literacy and investor education; product innovation including using technology and creating innovative platforms for new products; and finding ways to finance the missing middle of small and medium enterprises (SMEs) in Africa.
Exchanges should encourage greater emphasis on environmental, social and governance components to enhance corporate transparency and performance.
Celestin Rwabukumba, CEO of the Rwanda Stock Exchange, said innovation and technology would enable Africa’s capital markets to harness resources to fuel structural transformation: “Currently, less than 5% of the African populace participate in the capital markets; this means that there is a huge opportunity to widen the base of African capital markets by incorporating new models based on technology and other creative innovations that target provision of direct linkages with the ordinary citizens in order to bring them in the loop of resource mobilization and utilization”.
The 20th ASEA conference brought together 300 delegates, including securities exchange CEOs, regulators, ministers, investors and others. It was held in Kigali on 28-29 November 2016. The theme was “Road to 2030: Making the African capital markets relevant to the real economy”.
Speakers included Claver Gatete, Rwandan Minister of Finance, and Prime Minister Murekezi delivered a message from the President of Rwanda, His Excellency Paul Kagame, in which he commended ASEA for its role in deepening the capital markets as a way of addressing the challenges that hampered Africa
Other speakers included Prof. Kingsley Moghalu, (former Deputy Governor of the Central Bank of Nigeria), Tonye Cole (founder of Sahara Group), Staci Warden (Executive Director, Milken Institute), Sandy Frucher (Vice Chairman of Nasdaq), Paul Muthaura (CEO Capital Markets Authority Kenya), David Grayson (Co-founder and CEO of Auerbach Grayson & Company), as well as CEOs from ASEA member exchanges.

Small African stock exchanges are likely to stay small

The Economist magazine says most African stock exchanges are small and likely to stay that way. It says few smaller, family-owned businesses, are keen to list on African stock exchanges and that liquidity or secondary trading is an “even bigger challenge” with few African exchanges achieving turnover (share value traded) of even 10% of market capitalization (the value of shares listed).

The magazine cites a recent paper by economists from Erasmus University, Rotterdam, and City University, London. They investigate 59 nascent stock exchanges around the world. They find that exchanges which start small, with few listings and low turnover, tend to remain so. The best chance for success comes from strong banks and growing savings, meaning that many African exchanges might need to wait until their economies grow.

Source: The Economist with figures from World Federation of Exchanges

Several African exchanges are big enough to move forward, including Johannesburg Stock Exchange with nearly $1 trn in market capitalization, Nigeria Stock Exchange and Kenya’s Nairobi Securities Exchange. The article also points to the successful regionalization project that is the Bourse Régionale des Valeurs Mobilières (BRVM), headquartered in Côte d’Ivoire and bringing together 8 national markets to create more investors and more listed stocks.

The article was written after the author attended last month’s 2016 African Securities Exchanges Association conference in Rwanda and watching the brokers in scarlet jackets at the trading board of the Rwanda Stock Exchange in Kigali. It says most African exchanges were created in the 1990s to help with the sale or privatization of state-owned enterprises. Many of these have been turned from loss making drains into high profit giants, driving economies, creating jobs and making investors including local institutions richer.

On the Uganda Securities Exchange, 7 out of 8 domestic listings are from privatizations, and many other exchanges tell the same story. Botswana’s national telco was the BSE’s biggest IPO when it came to market successfully this year. Others are forcing companies to list, for instance telecom companies and mining companies are key targets and listing can be forced through respective licensing of other regulations. Tanzania has reportedly ordered 8 telcos, including 3 offshoots of international companies, to float 28% of shares and MTN is likely to list on the Nigerian bourse in a deal with the telecoms regulator.

Meanwhile private equity continues to flourish in Africa. There could be a positive spin-off in terms of private equity funds using stock exchanges as exits to sell on to new funds and through IPOs. The article does not touch on one of the most interesting trends, the rise of African institutional investors and the effect they could have on capital markets development.

For the original Economist article, read here.

Africa IPO round-up

A roundup of some recent initial public offers (IPOs) of shares on Africa’s stock exchanges to raise capital

In early October, MTN launched plans to sell up to 35% of shares on the Ghana Stock Exchange. Ghana’s Securities and Exchange Commission Director General Adu Anane Antwi confirmed they had started the listing process and were working on the prospectus but no timeline had been given. According to local reports, MTN received its 15-year 4G licence in 2015 after spending $67.5m and on condition that it lists. It hopes to raise up to $500m.
MTN Nigeria is also working on plans for an initial public offer (IPO) of shares on the Nigerian Stock Exchange in 2017 which could raise up to $1bn. Nigeria is among several African governments encouraging telcos to list on local bourses and listing is among conditions to settle a record NGN330bn ($1.1bn) fine for failing to disconnect 5.1m unregistered subscribers. Nigeria contributes a third of sales and profit for the Africa’s biggest phone company, which is listed in Johannesburg with market capitalization of ZAR212.8bn ($15.3bn) in early October.
Listings and capital-raising momentum has been maintained on the Nairobi Securities Exchange. Deacons Kenya is the first listed fashion retailer, after joining the Alternative Investment Market Segment (AIMS) of the NSE on 2 August. CEO Muchiri Wahome said the extra funds were to fund expansion into towns with “a vibrant middle class” across Kenya, spurred Kenya’s rapid and ambitious devolution and setting up 47 counties under its 2010 Constitution. Deacons is also eyeing opportunities in neighbouring Rwanda and Uganda. It will also help existing shareholders who want to sell. The retailer listed about 123m shares at an opening price of KES15 ($0.15) each, but by early October the price had slumped to KES8.55.

 

Nairobi centre (credit www.kenya-advisor.com)

Nairobi centre (credit www.kenya-advisor.com)

In June, leather and shoe retailer Nairobi Business Ventures, which operates the brand KShoe, had become the fifth listing on the NSE’s Growth and Enterprise Market Segment aimed at smaller businesses. It was listed through introduction and valued at KES118m ($1.2m). Previous 2016 share issues included Longhorn Publishers in May. In June power generator Kengen succeeded in the Kenyan bourse’s largest rights issue, raising KES26.4bn ($262.1m) by offering 4.4bn new shares at KES6.55 each, with a 92% subscription rate. Kengen has projects to generate another 700MW of power, of which 605MW is geothermal.
However, Fusion Capital had to cancel its IPO despite extending twice after only getting 38% uptake and four investors for its KES2.3bn offering and failing to meet the minimum threshold.
The Johannesburg Stock Exchange had its second private equity listing. Universal Partners raised R1.3bn ($93.7m) in an IPO which was only open for 4-5 August and started trading on the Alt-X market on 11 August. The company was registered in Mauritius in April and also listed on the Stock Exchange of Mauritius. Its mandate is to invest in properties across Europe, at £10m-£30m ($12m-$37m) each and it aims to start investing within six months. The IPO was for 72m shares at R18.07 each. Several companies aiming to raise capital for African and international investments have dual-listing on the Mauritius and Johannesburg exchanges.
Liberty Holdings is likely to follow up its Kenyan IPO success with a South African Real Estate Investment Trust (REIT) called Liberty Two Degrees in December. This will include some ZAR6bn of its existing portfolio, including iconic malls around Gauteng, and ZAR4bn of new money. As in Kenya, the property investments are managed by Stanlib.
West Africa’s integrated regional stock exchange, Bourse Regionale des Valeurs Mobilieres (BRVM), based in Abidjan, Côte d’Ivoire, plans to build a platform for listing mining shares and raising capital locally. The exchange is talking with Canada’s Toronto Stock Exchange (TMX Group), a favourite bourse for early-stage mining entrepreneurs. BRVM General Manager Edoh Kossi Amenounve says it could open by 2018 and will be for companies exploring or operating mines in the region. There is likely to be a waiver to the usual requirement for 2 years of trading history. The BRVM links eight West African countries, including gold exporters Mali, Burkina Faso and Côte d’Ivoire, and fourth-largest uranium producer, Niger.
Egypt’s Minister of Investment Dalia Korshid says the Government aims to raise up to $10bn over the next three to five years with IPOs of government-owned companies in the oil sector but will start with restructuring state-owned electricity companies.

SADC stockbrokers linking for cross-border investment

Stockbroking firms across Southern Africa are invited for networking on 7 December 2016 to learn more about investment opportunities in neighbouring capital markets. The Committee of SADC Securities Exchanges (CoSSE) aims to implement SADC ideals of close linkages between the region’s capital markets and to support cross-border capital-raising and investments.
First steps are to encourage information flow between the markets and to establish networks so that brokers can route trading to other local exchanges by working with a local broker in the target exchange.

cosselogo_about-cosse

On the agenda for the 1st SADC Brokers’ Network Session will be to facilitate and provide a platform for SADC brokers to meet each other, agree to enter into a SADC database, agree on a standard counter-party agreement which will be used when brokers trade for each other in their respective jurisdictions, and share information about their respective markets.
Every firm is invited to send representatives to meet other broking firms and learn about their activities. After the networking session, brokers will be encouraged to keep each other informed on local opportunities such as initial public offers (IPOs) which brokers in other countries and their clients may be interested in. Brokers will be able to share trading commissions on such deals when two firms are working together.
There are increasing linkages between the financial systems in the region’s capital markets, including the SADC Integrated Regional Electronic Settlement System (SIRESS) which was successfully launched in 2013 and has been growing fast since then.
The networking session will last all day from 8-5 and it will be at the Johannesburg Stock Exchange in Sandton, South Africa. It will be followed by a cocktail. Brokers wishing to attend should contact their national stock exchange.
Other information can be obtained by emailing CoSSEBrokerSession@jse.co.za.

New South African stock exchange ZAR X to start 3 October

Trading is to start on South Africa’s new ZAR X securities exchange on 3 October. It gained a licence on 2 September and the first listings will be Senwes and  Senwes Beleggings, with up to 5 listings planned for first week October.

Another exchange is also being readied, 4AX also called 4 Africa Exchange (see story below).

South Africa’s regulator, the Financial Services Board, announced on 2 September that it had granted licences to ZAR X and 4 Africa Exchange Licences. It said: “The Registrar of Securities Services.. received and considered applications for exchange licences from ZARX (Pty) Ltd (“ZAR X”) and 4 Africa Exchange (Pty) Ltd (“4AX”) and has, in terms of section 9(1) of the Act, granted ZAR X and 4AX exchange licences with conditions after careful consideration of objections received as a result of a notice referred to in section 7(4).”

Initially FSB gave ZARX a conditional licence but in August a court ruled in favour of an application by the JSE, which had argued there was no provision for conditional licensing. JSE CEO Nicky Newton-King said at the time there were concerns about the complexity and the potential for systemic risk that multiple exchanges could bring.

ZAR X has a different level of risk as it requires to be pre-funded, which means that participants must lodge scrip and cash before they trade and settlement is then the same day (T+0). In July the JSE and other market participants moved their market from T+5 settlement to T+3 without any problems. Most institutional investors prefer transferring stocks or money after they have traded, when they know the exact amounts to transfer.

Etienne Nel, CEO of ZAR X, said: “We need to create a level of co-operation within the market space to make it as simple as possible for all participants to coexist”.

Speaking to Business Day TV, he said: “..we are very happy, obviously, delighted since it’s been a long time coming. To give you some context around the conditions, it’s obviously what we applied for. We initially said we were not going to be offering derivatives to the market and obviously as a result one of the conditions is we may not offer derivative trades on our market. Similarly, we cannot offer shares already listed on another exchange, but that was never in our application so we are obviously delighted with the licence that we finally got.”

Nel said in September they were busy getting brokers on board and putting investors through necessary screening and checks of the Financial Intelligence Centre Act (38 of 2001 “FICA”)

Nel says ZAR X has less onerous rules on admitting companies for trading (listing requirements): “In our approach to listings.. we will have a conversation with the issuer and we are taking what is called a principles-based approach to listing rather than rules-based. Now what that achieves is if we get the slightest inclination that something is awry within a company we would actually rather walk away rather than doing the listing.. A rules-based environment .. becomes a tick-box exercise and in that environment you would end up with a situation where people end up finding loopholes, which a principles-based approach does not allow for”.

It breaks over 100 years of monopoly Africa by the Johannesburg Stock Exchange, as the JSE was founded in 1887 but there were several stock exchanges around during the first South African gold rush. Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

Both ZARX and 4AX will use Strate as their central securities depository (CSD).

 

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

About 4AX – new South African securities exchange

South Africa’s second new exchange, which also got a licence according to the 2 September announcement by the Financial Services Board (FSB), is 4AX, also known as 4 Africa Exchange. It plans to trade securities that are currently traded over-the-counter (OTC) and to go live early in 2017.

Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

According to the background on its website: “A unique situation in South Africa has however created the need for 4AX. Previously, a number of South African companies issued shares and facilitated trading in the over-the-counter (OTC) market using unregulated OTC platforms. The current OTC market boasts a combined market capitalisation in excess of R30 billion ($2.2bn).

“As the OTC market expanded, the FSB recognised a need for greater regulation to protect shareholders and ensure a fair, orderly and transparent marketplace for issuers. The FSB determined that all operators of unregulated OTC platforms must cease operating or apply to become licensed exchanges under the Financial Market Act of 2012 (FMA). Board Notice 68 of 2014 reaffirmed the view of the Registrar that operators of exchange infrastructure should be licensed and that a proliferation of exchanges should not be allowed. This has caused significant upheaval in the market, for both issuers as well as shareholders.

“As a result of the regulatory amendments a substantial number of OTC companies are now in breach of the FMA. Faced with significant potential penalties under the FMA these companies have either stopped operating their OTC platforms or applied for extensions from the FSB, whilst searching for an alternative to unregulated OTC platforms. 4AX provide the solution.

Maponya Group has a 15% shareholding, other shareholders listed on its website include Global Environmental Markets Ltd, Capital Market Brokers which is a leading member of the Stock Exchange of Mauritius, independent fiduciary Intercontinental Trust Ltd,  agricultural firm NWK, and investment banking firm Pallidus.

BRVM bourse aims for specialist mining shares platform

The integrated regional stock exchange for West Africa is working with the miners’ favourite global exchange for raising capital in order to build a platform for listing mining shares. Bourse Regionale des Valeurs Mobilieres (BRVM), based in Abidjan, Côte d’Ivoire, aims to have a dedicated section for mining ready for business by 2018.

BRVM General Manager Edoh Kossi Amenounve told Bloomberg in an interview that the new mining exchange will be open for companies exploring or operating mines in the region. He explained that the BRVM is talking with Canada’s Toronto Stock Exchange (TMX Group) to set up a “technical partnership” between the two bourses and will “take inspiration” from the Canadian mining-exchange model. Discussions may be completed by the end of 2016.

He told Bloomberg: “Mining companies operating in the region only raise funds in foreign currencies.. Some of them have approached us to see how they could raise the resources they need in local currency. Some have even asked us for a dual listing with the Toronto stock exchange, but the regulating framework isn’t compatible at the moment.”

The BRVM links eight West African countries in an innovative exchange, including gold exporters Mali, Burkina Faso and Côte d’Ivoire (Ivory Coast), and the world’s fourth-largest uranium producer, Niger. Many want to boost their mining industries: Burkina Faso is developing new gold and manganese mines, while Côte d’Ivoire is diversifying from agriculture, including cocoa, and aims to develop its untapped mining deposits, including gold and iron ore, according to Bloomberg. The BRVM attracts investors partly because the countries are part of the West African Economic and Monetary Union (WAEMU) and so use the CFA Franc, which is pegged to the euro.

Amenounve said: “Most of the countries of the region have significant mining deposits… The development of the mining sector has been extremely important in the last few years. We want to support this development..  We need local, African shareholders to invest in the mining sector.”

The bourse currently dominated by banks and telecommunications shares. It is amending its listing regulations to accommodated the new mining platform. Currently listing regulations require two years of certified accounts. The BRVM exchange aims to list mining issuers, including new companies who are raising money for exploration.

Karma heap-leach project in Burkina Faso (photo:True Gold Mining)

Karma heap-leach project in Burkina Faso (photo:True Gold Mining)

Opinion: Steps for regional integration of capital markets

YOUR COMMENTS AND DISCUSSION ARE WELCOMED!

In mature capital markets, regional integration shows significant benefits in unlocking potential and allowing investors to mobilize liquidity across borders by interconnecting diverse markets. Regional integration seems to be the future of world capital markets.

Can it also work for African capital markets, many of which face considerable problems of liquidity?

Many parts of the world have already tackled integration and each has faced its own challenges. In the past, the state of the technology and the feasibility of effective regional integration used to be a major challenge, and often offset the benefits.

This has changed. The technology has become cost-effective and industrial standards have evolved, based upon the widespread experience and solid implementations in different regions. Remaining challenges that still prevent smooth implementation are not in technology but in the business processes and political will.

First it is important to understand the landscape. Africa’s exchanges are usually divided into 4 categories:
• Dominant market: South Africa is the biggest contender
• Medium-size market: Each region tends to have its leading market
• Emerging markets: Several markets are growing fast and showing innovation and determination
• Markets yet to take off: Some are recently established, some are showing slow growth.

As African stock markets have become larger and more prevalent over the last 10 years, there have been preliminary moves towards regional integration. This is the global trend, but more importantly because integration can meet the mutual needs of the exchanges themselves.

Lack of liquidity is a major constraint to attracting influxes of foreign capital (portfolio investment) and to efficient allocation of savings and asset pricing. The different businesses (shares) on offer can be limited and the size of potential deals is often small. Pricing and other cross-comparisons within sectors and across companies can be difficult.

Efficient securities markets in Africa will help exchanges act as efficient channels for the growing pools of domestic savings funds (pensions and insurance) towards national growth and development – both infrastructure and enterprises – as well as providing comfort for foreign and domestic investors. Links and eventual integration between national stock exchanges is the way to ensure this.

Talk of pan-African or other continental structures can be a distraction. It may overlook the necessary work to be done on national and regional limits, including exchange controls, prudential regulations, macro-economic stability and others. It ignores the key roles of local securities exchanges, which are already central in their national economies and have working legal frameworks and institutional set-ups that can be built upon.

Each market has evolved according to the needs of the market participants and the challenges that have been impacting them. Each has its own electronic platforms built for the local practices. Existing micro-level frameworks can prevent change being introduced in a straightforward fashion. For example, in certain markets, turn-around trading is yet not available and settlement procedures are longer than necessary. Regional integration can take this into account if it involves a pragmatic framework that accommodates the composition of the markets.

In most regions, regulations are a key limitation on integration. The enabling environment for integration requires common policies, institutions and regional frameworks and, above all, the necessary political commitment that ensures macroeconomic stability. Cross-border settlements are difficult as there are no common currencies and the cost of trading is higher due to intermediary costs. Regulatory work to be overcome includes tackling national exchange controls, harmonization of regulations and recognizing each other’s institutions and intermediaries. Prudential limits on cross-border funds’ investments and regulations that stop share offers being marketed across borders could also be rolled back.

Political will is needed to recognize the importance of national structures and to recognize the added value of an integrated regional structure.

Regional integration demands not only that participants agree on a common standard of procedures at the higher level, but that there are platforms to support the regional integration charter. Initially the process may be structured around entities that exchange information with each other but operate on their own.

An ideal is to think towards forming one mega-enterprise with national outposts – Africa’s example is the BRVM which provides an integrated exchange linking 8 markets and is firmly anchored in the considerable monetary and policy integration structures in the francophone region. The evolving future regional exchanges should link all stakeholders through a set of global processes that bridge the gaps between the diverse systems that exist at various levels and connect all to bring value to customers.

There have already been some healthy efforts by Africa’s regional economic communities. The Southern African Development Community (SADC) is supporting linkages between regulators, central bankers and the Committee of SADC Securities Exchanges. Strong advances include the SIRESS cross-border payments systems and cooperation and harmonization between exchanges and regulators, including on listing requirements. The West Africa Capital Markets Integration Council considerable progress has extended to mutual recognition of stockbrokers and regional structures, as highlighted in this blog, and cross-border share deals between national exchanges, in addition to its ground-breaking BRVM regional exchange for 8 countries. The African Development Bank (AfDB) and other multilaterals and finance institutions are supporting important projects.

One of the leaders is the East African Community (EAC), following the signature and ratification of its Common Market Protocol. The EAC Secretariat, working with the World Bank and other development partners, established the EAC Financial Sector Development and Regionalization Project I (EAC-FSDRP I) to support the development of the financial sector through the establishment of a single market in financial services among EAC Partner States. The project objective is to establish the foundation for financial-sector integration among EAC partner States, including the broadening and deepening of the financial sector through the establishment of a single market in financial services, with a view to making a wide range of financial products and services available to all, at competitive prices. InfoTech, a Pakistani IT vendor with expertise in capital markets, particularly in Africa, is delivering the capital markets linkages.

To complement work on the IT and other systems, there is much to be done at policy-making level to harmonize the rules of the game across the region, backed by full commitment of all direct and indirect stakeholders, such as stock exchanges, depository companies, regulatory authorities etc. and their IT vendors to support their existing systems so they can support the regional integration.

Implementing the capital markets regional integration project will be a big milestone and a big step in tackling the core issues that hinder effective integration. The prospects are huge.

Capacity-building at all levels is also critical. Policymakers and regulators need to enhance skills on how to grow efficient markets to ensure they support national and regional development objectives. Exchanges, brokers, banks and key advisors such as lawyers are also central. Knowledge and skills among potential issuers, including small and medium-enterprises, and investors including both institutions and the investing public, all contribute to fast growth of more efficient markets.

Integration has already been proven in advanced markets and the technology works. The biggest challenge and responsibility is with the policymakers who have to formulate a governance framework with effective support to implement the framework at grassroots level.

Working together, African capital markets are moving to the next level of their evolution.