Distr.
LIMITED
CS/TCM/CESEM/I/14
July, 2007
Original: ENGLISH
COMMON MARKET FOR EASTERN
AND SOUTHERN AFRICA
The First Round Table Meeting of the Chief Executives of Stock Exchange
Markets in the COMESA Region
Cairo, Egypt
July 16 – 17, 2007
REPORT OF THE FIRST MEETING OF THE CHIEF EXECUTIVES OF
STOCK EXCHANGE MARKETS IN THE COMESA REGION
07- (rpm)
CS/TCM/CESEM/I/14
Page 1
A.
INTRODUCTION
1.
The First Round Table Meeting of the Chief Executives of the Stock Exchanges
in the COMESA region was held from July 16-17, 2007, in Cairo, Egypt. This meeting
was organised by COMESA, COMESA Regional Investment Agency and Cairo &
Alexandria Stock Exchange.
B.
ATTENDANCE, OPENING OF THE MEETING, ADOPTION OF THE AGENDA
AND ORGANISATION OF WORK
2.
The meeting was attended by delegates from Stock Exchanges in Egypt, Kenya,
Mauritius, Uganda, Zambia, Zimbabwe and the Johannesburg Securities Exchange. It
was also attended by Central Banks of Burundi, Congo (D.R.) Kenya , Libya, Sudan
and Zambia. The list of participants is in annex (II) of this report.
Opening of the Meeting (Agenda item 1)
3.
Mr. Maged Shawky Sourial, the Chief Executive of the Cairo and Alexandria
Stock Exchange, welcomed the delegates to the meeting. In his welcoming remarks, he
stated that Egypt was honoured to host the First Round Table Meeting of the Chief
Executives of the Stock Exchanges in the COMESA region. He emphasised the
importance of integrating capital markets. He pointed out that there are many
challenges that need to be addressed for integrating capital markets which includes
among others, harmonising legal and regulatory framework, trading rules and
procedures and compliance with International Financial Reporting Standards.
4.
Dr. Charles L. Chanthunya, the Director of Trade, Customs and Monetary Affairs
also made a statement to the meeting on behalf of the Secretary General of COMESA,
Mr. Erastus J.O. Mwencha, MBS.
5.
Dr. Chanthunya stated that integration of markets into large regional entities
would hopefully aid in tapping additional savings than would have been the case at the
national level, and hence improve the allocation of scarce resources. Such increased
savings can then be channelled into productive investments. Through a multiplier
process, such increased investments would stimulate and accelerate the process of
economic growth. There is also a resultant improvement of external financing which
could encourage the creation of regional projects with foreign equity participation. All
these will improve COMESA member countries’ future competitiveness in the
international market place. He, therefore underscored that, the focus in the COMESA
region should not only be reconstructing physical infrastructure but also developing
legal and financial infrastructure that fosters the growth of a well-functioning financial
economy.
Adoption of the Agenda and Organisation of Work (Agenda Item 2)
6.
The meeting adopted the following agenda
1.
Opening of the Meeting
CS/TCM/CESEM/I/14
Page 2
2.
Adoption of the Agenda and Organisation of Work
3.
Key Issues for Development of Stock Markets
4.
Models for Integration of Capital markets
5.
Experiences of Existing Regional Stock Exchange in Africa
(a)
(b)
6.
7.
Country Experiences on Integrating Capital Markets
(i)
Cairo and Alexandria Stock Exchange;
(ii)
Stock Exchange of Mauritius;
(iii)
Zimbabwe Stock Exchange;
(iv)
Uganda Securities Exchange Limited;
(v)
Lusaka Stock Exchange; and
(vi)
Johannesburg Securities Exchange
7.
Action Plan for Integrating Stock Exchanges in the COMESA Region
8.
Any Other Business; and
9.
Adoption of the Report and Closure of the Meeting.
The meeting agreed on the following hours of work:
Morning
Afternoon
C.
East African Regional Experience on Integrating Capital Markets;
Experiences of Bourse Regionale Des Valeurs Mobilierses
(BRVM).
09 .00 hours
14.30 hours
-
12.30 hours
18.00 hours
ACCOUNT OF PROCEEDINGS
Key Issues for Successful Capital Markets (Agenda item 3)
8.
The Secretariat presented a paper under this agenda item. The key issues that
were highlighted for developing successful capital markets include: an efficient
financial infrastructure; a sound and sustainable macro-economic framework; financial
intermediaries and inter-dealer broker network to support the market, and promote
liquidity in the secondary market; adequate infrastructure, such as legal and regulatory
framework and market wide trading and settlement system; adequate disclosure and
CS/TCM/CESEM/I/14
Page 3
sound accounting standards; the presence of hedging mechanisms through derivative
markets (forward, futures, and options) which helps to mitigate the negative impact of
volatility in exchange rates; appropriate tax policies which are not heavy and
discriminatory, harmonising investment rules and tax policies across countries; and
cross border monitoring and enforcement of laws to enhance investor confidence; and
awareness and capacity building in financial institutions and other relevant
organisations responsible for capital market oversight and operations.
9.
In the discussion that followed, it was pointed out that in addition to the above,
there is need to facilitate mobilisation of financial resources for the development of
Small and Medium Scale Enterprises (SMEs). In this regard, it was indicated that it is
necessary to create a bulletin of unquoted stocks to trade on an Alternative Stock
Exchange which is a desk in the formal exchange of quoted stocks. The Alternative
Stock Exchange listing of SMEs can best be takled by registering SPVs by
Development Finance Institutions or Commercial Banks that will raise wholesale funding
for selling to SMEs.
10.
Alternative listing can also be applied to raising funds to commodity producers
e.g. coffee or cotton growers and for special requirements like housing development.
Models for integration of capital (Agenda item 4)
11.
The Secretariat also presented a paper under this agenda item. The meeting was
informed that the following are the justifications among others, for the creation of
regional stock exchanges.
(a)
National stock markets in the COMESA region are relatively small with
thin trading volumes. Integrated capital markets aid in tapping additional
savings than would have been the case at the national level, and hence,
improve the allocation of scarce funds;
(b)
Severe debt problems worldwide have also shown the need for future use
of equity in place of excessive reliance on bank loans. These
circumstances make it urgent both to develop domestic capital markets
further and to enhance access to international equity investors.
(c)
Capital market integration increases the flexibility and pace with which the
financial system can adjust to internal and external changes and absorb
shocks since, in fact, such capital markets represent the deep end of the
financial system, and the deeper the system, the greater its ability and
resilience.
(d)
Capital market integration increases and ensures the availability of longterm financial resources, while minimizing the risk of financial instability,
by lengthening the terms financial assets acceptable to savers and
establishing a proper framework for term transformation by financial
institutions. It also broadens the base of ownership of real and financial
assets and hence indirectly improves the distribution of income.
CS/TCM/CESEM/I/14
Page 4
(e)
To the extent that regional securities are attractive to foreign investors, it
would be possible to attract foreign capital.
(f)
Investors gain greater access to a broader range of financial products and
hence derive the benefits of a broader geographical spread of investment
of financial opportunities.
(g)
Capital market integration would tend to reduce, in some countries, the
high cost of marketing and distributing securities. Also, a general
broadening of the market is likely to result in the reduction of the “handling
charges” of dealing in securities. The evolution of regional markets will
raise the volume of business done by stockbrokers, placing them in a
position to take advantage of the resultant economies of scale to charge
internationally competitive rates for their services.
12.
The meeting was also informed that Capital market integration that reflect various
levels of integration are cross-border alliances and regional markets.
13.
Cross-border alliances are arrangements between markets to link up through
cross-border trading, multiple listings and clearing and settlement systems. Cross-listing
among stock exchanges allows companies in each country to list on another market and
would expand the sources of funds available to issuers, especially in cases where
issues are too large to be absorbed by a single market. Cross-listing allows foreign
investors to trade stocks as if they were domestic stocks.
14.
At another extreme, is a full-blown integration, which would lead to a single stock
exchange at a regional level, with a concomitant disappearance of all national
exchanges. Trading would take place electronically with orders routed from local
brokers to a central order execution facility with trade confirmations rerouted
electronically back to the originating brokers. The following were sighted as the major
obstacles to full-blown integration at a regional level.
(a)
Lack of uniform regulatory and accounting standards among member
states of the various regional blocks;
(b)
Restrictions on transfers on capital account within each country;
(c)
Lack of currency convertibility.
15.
The meeting was further informed that Bourse Regionale Des Valeurs
Mobilierses (BRVM) is a single stock exchange serving eight countries that belong to
the Union Economique et Monetaire Ouest Africaine (UEMOA).
16.
In the discussions that followed the meeting agreed that there is need to make a
business case which supports cross listing or integration of stock exchanges. The
meeting also agreed that for cross listing or integration, it is important to harmonise tax
rates, legal and regulatory framework; trading rules and procedures; compliance with
CS/TCM/CESEM/I/14
Page 5
International Financial Reporting Standards etc. In this regard, it was stressed that
COMESA should have programme of cooperation with regional and continental
programmes for harmonisation, namely ASEA, SADC and EAC.
17.
In the discussions that followed, it was pointed out that cross listing has never
been a major factor for the growth of capital markets. It was therefore, emphasised that
there is need to develop a business case before developing a financial product.
Experiences of Existing Regional Stock Exchange in Africa (Agenda item 5)
(a)
East African Regional Experience on Integrating Capital Markets;
(b)
Experiences of Bourse Regionale Des Valeurs Mobilierses (BRVM).
East African Region Experience on Integrating capital markets (Agenda item 5(a))
18.
Mr. Chris Mwebesa, Chief Executive of the Nairobi Stock Exchange made a
presentation under this agenda item. The meeting was informed that Articles 85, 86, 87
of the Treaty for the Establishment of the East African Community (EAC) provide the
main framework for integration of the regional capital markets. The provisions of the
Articles call for:
(a)
Capital market development programs and a conducive environment for
the movement of capital within the EAC;
(b)
Harmonized capital markets policies on cross border listing, foreign
portfolio investors, taxation of capital market transactions, accounting,
auditing and financial reporting standards, commissions and other
charges;
(c)
The establishment of a regional stock exchange within the EAC with
trading floors in each of the Partner States;
(d)
Adherence by the appropriate national authorities to harmonized stock
trading systems, and permitting residents of the Partner States to freely
acquire and negotiate monetary instruments within the EAC;
(e)
The unimpeded flow of capital within the EAC.
19.
To achieve the above goals, it was pointed out that Capital Markets Development
Committee (CMDC) of the East African Community was established in 2001. This
comprises, Central Banks, Securities Markets Regulators, Ministries of
Finance/Treasuries, Stock Exchanges and Insurance and Pension Sector Regulators.
20.
The meeting was also informed that in the East African Community, the following
activities are in progress:
(a)
Harmonization of tax rates and tax incidences;
CS/TCM/CESEM/I/14
Page 6
(b)
Pension Sector Reform;
(c)
Legal and regulatory cooperation and/or harmonization;
(d)
Compliance with International Financial Reporting Standards (IFRS);
(f)
Harmonization of trading rules and procedures;
(g)
Corporate Governance Guidelines;
(h)
Framework for dispute resolutions; and
(i)
Framework for Collective Investment Schemes.
21.
The meeting was further informed that, on November 27, 2006, the Nairobi Stock
Exchange (NSE) and Uganda Stock Exchange (USE) signed a Memorandum of
Understanding (MoU) on cross border listing, which establishes a mutually agreed
process for the cross listing of blue chip companies on their respective exchanges, the
simplification of cross listing process and trading of cross listed securities.
22.
It was pointed out that discussions are also being undertaken, on the merger of
the NSE and the USE to create a regional securities exchange with trading floors
situated in Kampala and Nairobi.
23.
As regards the infrastructure, the following were cited as the important steps that
are being undertaken for enhancing integration of capital markets in the East African
Community:
(a)
Common trading platform by June 2008. Single access point for issuers
and investors;
(b)
EAC Capital Markets Law to be presented by June 2008;
(c)
Single Federal regulatory with country branches and individual state
regulators with common regulatory framework, by June 2009;
(d)
Demutualization of each Exchange by June 2008; and
(e)
Merger by June 2009.
24.
The following were cited as the major challenges for integration of capital
markets in EAC:
(a)
Differentials in key macro economic indicators (interest rates, inflation,
currencies);
(b)
Partial capital account liberalization in some of the countries;
CS/TCM/CESEM/I/14
Page 7
(c)
Lack of depth and liquidity – pension sectors in Uganda and Tanzania are
dominated by public pension schemes;
(d)
Multiplicity of regional blocks:(i)
Kenya is a member of Common Market of Eastern and Southern
Africa (COMESA) and the East African Community (EAC);
(ii)
Uganda is a member of COMESA and the EAC;
(iii)
Tanzania is a member of EAC and Southern African Development
Community (SADC).
Experiences of Bourse Regionale Des Valeurs Mobilierses (BRVM) (Agenda item
5 (b))
25.
Under this agenda item, the meeting was informed that BRVM is a private limited
company with the following share holding structure.
26.
(a)
Governments of UEMOA States …….. 13%
(b)
Development Banks
(c)
Chambers of Commerce of
UEMOA States
……. 11%
(d)
Brokerage firms
……. 28%
(e)
Private business in UEMOA region ….. 25%
…….. 23%
It was pointed out that activities of the BRVM are centred around the following:
(a)
The Conseil Regionale which is responsible for supervising the market in
the entire UEMOA region;
(b)
The Central Depository and Settlement Bank (DCBR) which is responsible
for custody and registration of listed securities. It is also responsible for
the settlement of transactions on the BRVM;
(c)
The BRVM brokerage firms (SGIs) which are private limited liability
companies. They have the monopoly with regard to the trading of listed
securities and are mainly in charge of custody for their clients.
The detailed working of BRVM is elaborated in annex (I)
27.
The following were cited as the important lessons that can be learned from the
BRVM experience:
CS/TCM/CESEM/I/14
Page 8
(a)
Unity of purpose: the first step is for all member-states in each regional
bloc to move in the same direction in terms of the same aim of integrating;
(b)
Harmonisation: It is necessary to identify processes that need to be
harmonized in the national stock exchanges and also across the regional
economic community. Some of the processes, which need to be
harmonized, include listing rules and requirements, capital account
transfers, taxes, investment policies and guidelines and transaction costs
and brokerage services. BRVM’s ability to serve the eight UEMOA
countries has been enhanced by uniform business law and accounting
systems under the Organisation pour L’Harmonisation du Droit des
Affaires en Afrique (OHADA);
(c)
The BRVM experience underscores the importance of information
technology in the integration of markets;
(d)
Macro-economic convergence and a common legal system.
28.
In the discussion that followed the issue of making a business case for
integration or cross listing of stocks was again emphasised. It was observed that there
was need to have analysis of the performance of BVRM in order to see its track record
in its integration agenda. The importance of human resource development; awareness
campaigns; and sharing of information were also emphasised.
Country Experiences with Particular Emphasis on Cross Listing of Stocks
(Agenda item 6)
(i)
Cairo and Alexandria Stock Exchange;
(ii)
Stock Exchange of Mauritius;
(iii)
Zimbabwe Stock Exchange;
(iv)
Uganda Securities Exchange Limited;
(v)
Lusaka Stock Exchange; and
(vi)
Johannesburg Securities Exchange
Cairo and Alexandria Stock Exchange ( Agenda item 6(i))
29.
The Chief Executive of Cairo and Alexandria Stock Exchange (CASE) Mr. Maged
Shawky Sourial informed the meeting that they have currently two cross-listed
companies, one in Kuwait, which is also traded in US$ on Cairo & Alexandria Stock
CS/TCM/CESEM/I/14
Page 9
Exchanges. The other one is cross listed in Abu Dhabi Stock Exchange. They also have
11 companies that are also traded in London and US Stock Exchanges.
30.
He also informed the meeting that Cairo and Alexandria Stock Exchanges have
now partnered with one of the leading IT solutions provider for Stock exchanges “OMX”
to upgrade its trading system. To accommodate a large number of transactions, the new
system also offers more reliable, flexible, credible and scalable solution. To date, CASE
has provided surveillance systems to two Gulf countries and is willing to help others in
setting up their stock exchanges. He stated that integration of capital markets will not
succeed if a strong business case is not there.
Stock Exchange of Mauritius (Agenda item 6(ii))
31.
Under this agenda item the Chief Executive of the Mauritius Stock Exchange Mr.
Sunil Benimadhu made a presentation. In his presentation, he highlighted what
investors require from stock exchange, and how the Stock Exchange of Mauritius
(SEM) addressed the challenging market conditions, and its strategy for development.
32.
He informed the meeting that investors require high level of liquidity; low
transaction costs; attractive returns; high disclosure standards; good corporate
governance; proper oversight of market operators by regulatory authorities; real-time
market information; world-class operational standards and political stability &
transparency.
33.
He stated that SEM addressed the Challenging Market Conditions by operating a
world-class stock market infrastructure consisting of a state-of-the-art automated trading
system; a Central Depository and Settlement System which meets G30 and IOSCO
requirements and operates with a T+3 settlement cycle; adoption of Listing Rules which
focus on timeliness and quality of disclosure by Listed Companies; release of a Code
of Corporate Governance; revamping of Securities Bill which is well aligned with
international standards; new regulatory framework which focuses on investor protection
and reinforcement of investor confidence; and new legislation to regulate auditors and
accounting profession.
34.
He highlighted key considerations for development strategy for SEM which
include, increasing the investor base; increase product base; attracting more foreign
investors; increase turnover and market capitalization; and ensure a closer integration
of the SEM into the international financial arena.
35.
He informed the meeting that SEM undertook aggressive sensitization campaign
through focused group meetings; radio programs; press adverts; educational brochures;
and organization of financial courses to improve market literacy.
36.
As regards increasing the product base, he stated that there is need to pursue
cross-listing initiatives; position SEM as an attractive listing centre for global funds; and
come up with derivative products on instruments traded elsewhere.
CS/TCM/CESEM/I/14
Page 10
37.
As regards attracting more foreign investors, he emphasized the importance of
riding on the wave of interest for Africa; capitalize on the macro-economic thrust given
in the last Budget for Mauritius which emphasizes a resolutely open policy and tries to
position Mauritius as a very attractive place to do business; and undertaking Road
Shows with listed company representations.
38.
As regards increasing turnover and market capitalization, he highlighted the
importance of introducing the concept of turnaround trades; introduce short-selling on
liquid stocks; encourage listed companies to increase the free-float from the current
25% to at least 50%; lengthen trading hours in the market, with a view to enabling
foreign investors to follow market activities in real time and act in real time; and
encourage companies to undertake stock splits.
39.
As regards ensuring a closer integration of SEM into the international financial
arena, he stated that this can only be achieved through strategic alliance with another
exchange where SEM would need to work out on a strategic thrust that will create a
win-win situation for both exchanges; and identification of key time-bound deliverables
that will create the win-win situation.
40.
As regards ensuring a closer integration of SEM into the international financial
arena, he underscored the importance of opening up the capital structure of SEM to
have on board the other Exchange; create an environment for the dual listing of
companies from the other exchanges onto SEM; launching derivative products on
underlying instruments traded on the other Exchange.
41.
In conclusion he stated that Africa’s Stock Exchanges’ future closely depends on
Africa’s Exchanges ability to offer investors liquidity; cheaper trading costs (average
African Exchanges’ costs = 40 to 60 times higher than other exchanges); wider variety
of investment products; efficient trading and clearing systems; world-class stock
exchange infrastructure; lifting of unnecessary barriers to free-flow of capital in and out
of African countries. He stated that Africa’s Exchanges can achieve objectives through
Regional integration and Strategic alliance cum merger.
Zimbabwe Stock Exchange: Cross Listing Experiences in SADC Region with
particular Reference to Zimbabwe ( Agenda item 6(iii))
42.
Mr. Emmanuel Munyukwi the Chief Executive of the Zimbabwe Stock Exchange
made a presentation under this agenda item.
43.
He informed the meeting on dual listing experience of Zimbabwe Stock
Exchange. As regards Dual Listing experience in Zimbabwe there are 8 companies in
banking, manufacturing, mining, construction and retail and leisure which are dual listed
in Johannesburg Stock Exchange and London Stock Exchange.
44.
He stated that Dual listings are classified into inward and outward dual listing. He
said inward dual listings by foreign listed companies into one’s own exchange would
(from the perspective of the country of secondary listing) have the following advantages:
CS/TCM/CESEM/I/14
Page 11
(a)
create new investment opportunities which would attract foreign
investment;
(b)
could facilitate local expansion by foreign companies that would create
jobs;
(c)
foreign companies would be liable for taxation on local earnings,
increasing the tax base of the local revenue services;
(d)
local shareholders can benefit from international profits by way of
dividend;
(e)
venture capital can be raised offshore to explore local mineral rights; and
(f)
increase foreign interest in the country.
45.
On the other hand outward dual listings by local companies on foreign
exchanges would (from the perspective of the country of principal listing) would have
the following advantages:
46.
(a)
enable local companies to raise funds offshore in the form of foreign
currency;
(b)
enable local companies to expand and be more competitive;
(c)
increase the shareholder base and the trade ability of the company’s
shares; and
(d)
increase the market that the company is exposed to and hence protect the
company, to an extent, from the vagaries of local market sentiment.
The following were cited as disadvantages of Dual Listings:
(a)
high costs;
(b)
compliance with diversified listings requirements;
(c)
trading would be awkward; and
(d)
without exchange control regulations, trade would potentially move to the
most efficient market.
47.
The meeting was also informed on the futures of Depository Receipts (“DR’S”). It
was pointed out that DR’s are created when a broker/institution purchases a company’s
shares on the stock market of principal listing and delivers those shares to a local
custodian bank.
The custodian bank will then instruct a foreign depository
CS/TCM/CESEM/I/14
Page 12
bank/institution to issue DR’s in respect of such shares to the investor on that foreign
market.
48.
DR’s will be traded freely just as any other security on the foreign exchange: it
will be priced and quoted in the same currency and traded and settled in the normal
way.
49.
Example of Depository Receipts in Zimbabwe include Trans Zambezi Industries
Limited in Luxemburg and Art Corporation Limited in Luxemburg.
50.
The following were sighted as Benefits for the Depository Receipt (DR’s)
Exchanges:

51.
52.
Smaller exchanges often have few listings which are not closely followed.
This results in shares selling at low price-earnings multiples (“P/E’s”) in
illiquid markets, inhibiting capital formation in much of the region. Creating
and trading DR’s on say the JSE for companies listing on smaller
exchanges would provide greater exposure for the shares, resulting in
improved liquidity. Improved liquidity would permit shares to trade at P/E’s
more reflective of the JSE than of the exchange of principal listing.
Arbitrageurs would ensure price parity between the exchanges, thus
resulting in higher P/E’s for the underlying shares as well. Higher P/E’s, in
turn, would increase the viability of raising capital on the exchanges of
principal listing. In reciprocity, the exchanges could trade DR’s of say
selected JSE-listed companies, and would strengthen the rand as these
African investors would effectively buy rand in order to purchase DR’s of
JSE-listed companies.
The following were cited as benefits for DRs for the Company:
(a)
To enlarge the market for its shares through a broadened and more
diversified exposure which may increase or stabilise its share price.
(b)
To enhance the image of the company’s products, services or financial
instruments in a marketplace outside its local country and develop a new
following for the company’s shares.
(c)
To provide a mechanism for raising capital or as a vehicle for making an
acquisition.
(d)
To enable employees to invest in the parent company.
(e)
To provide a low cost entry into other countries financial marketplace.
(f)
To provide the ability to list on the local exchange.
The following were cited as benefits for the Investor:
CS/TCM/CESEM/I/14
Page 13
(a)
Local investors will aim to diversity their portfolios internationally. In Africa
in particular, however, problems with regard to different settlement
periods, costly currency conversions, unreliable custody services, poor
information flow, unfamiliar market practices and confusing tax
conversions may discourage institutions and private investors from moving
their money onto foreign exchanges.
(b)
However : as negotiable securities listed on the local exchange, DR’s will
be quoted in local currency and will pay dividends and/or interest in such
currency. DR’s may also overcome obstacles that pension funds and other
institutions have in purchasing and holding securities outside the local
country. DR’s are also as liquid as the underlying securities as the two are
interchangeable.
UGANDA Securities Exchange Limited (Agenda item 6(iv))
53.
Mr. Simon Rutega, The Chief Executive of Uganda Securities Exchange Limited
has made a presentation under this agenda item. He stated that the Uganda Securities
Exchange comprises the Capital Markets Authority – Regulator, Uganda Securities
Exchange – Stock Exchange; 7 broker/dealers; investment Advisors; Collective
Investment Schemes; Fund Managers; Unit Trusts. He said that the Stock Exchange
became operational in 1998. He informed the meeting that the listed securities include:
9 equities (6 local listings & 3 cross listings); over 20 Government Bonds (2, 3, 5 & 10
yrs.) and 3 Corporate Bonds.
54.
He informed the meeting that the available opportunities for development of stock
exchange in Uganda are: stable macro economy; growing financial sector, in terms of
both Products & Institutions; growing population; regional convergence, good Sovereign
Rating of B for Debt Issuances; attractive equity valuations; conducive Investment
Code which is non-discriminatory; increasing demand for housing, credit cards –
Securitization; corporate restructurings, through Mergers & Acquisitions in the banking
Sector and Venture Capital.
55.
He stated that the following are the major constraints for the development of
capital markets: low per capita income; small institutional base; unavailability of
compensation/guarantee funds; low level of awareness; weak Private Sector ;manual
Trading, Clearing & Settlement Systems; small but Growing Investor Base; weak
balance sheets and undeveloped payment systems.
56.
He informed the meeting that critical Infrastructural Reforms for the development
of securities exchange include: automate clearing and settlement function to CDS-2007;
passage of the CDS Bill; and same bank settlement accounts by Broker/dealers.
Lusaka Stock Exchange ( Agenda item 6(v))
57.
Mr. Brian Tembo, a representative of the Lusaka stock Exchange(LuSe) made a
presentation under this agenda item. He highlighted the experience of LuSe in dual
CS/TCM/CESEM/I/14
Page 14
listing. He stated that Shoprite Holdings Limited (RSA) is the only dual listed company.
In Zambia. The listing was possible due to harmonised requirements under Committee
of SADC Stock Exchanges (COSSE). Only 1% of issued shares of 508 million
registered locally and pricing is influenced by JSE Price. He informed the meeting that
the major challenges include: listing requirements are not truly harmonised; and the
difference in size and policies of countries.
Johannesburg Securities Exchange: A Johannesburg
Perspective on African Capital Markets (Agenda item 6(vi))
Stock
Exchange
58.
Mr. Geoff Rothschild presented a paper under this agenda item. He pointed out
that there has been a lot of exchange consolidation activity over the last few months.
The NYSE/Euronext deal has gone ahead, effectively creating the world’s largest
exchange, and the Chicago Mercantile Exchange and the Chicago Board of Trade set
to create the world’s largest derivatives exchange. The latest speculation is that the
New York Mercantile Exchange (NYMEX) is a target of three different suitors: Deutsche
Borse, NYSE/Euronext and CME.
59.
On the regulatory front, things are changing as well. In Europe, the Markets in
Financial Instruments Directive is redefining where trading may occur and removing
much of the protection that national exchanges enjoyed in the past. New execution
venues are being recognised (such as Multilateral Trade Facilities and Systematic
Internalisers) and the only thing that matters is “Best Execution”.
60.
It was stated that, the Johannesburg Stock Exchange is aggressively promoting
South Africa (and JSE) as a listing and investment destination. This needs to work with
government to enhance investment environment, interact with investors to understand
investment needs (products, access); host local and international road-shows to
promote JSE and its “products” and establishment of “junior” market for small and
medium, high-growth companies, and different listing requirements to Main Board.
61.
It was also stated that there is need to put significant emphasis on education –
with the right partners by introducing financial literacy programme at schools. The
importance of constant evaluation of and investment in technology to align with
international standards was also emphasized. It was stated that Exchange must be
relevant for the local context but cannot ignore demands of international investment
community. It was also stated that Exchanges cannot do everything themselves and
must leverage the expertise of other capital market actors. This will require willingness
to act together to find areas of mutual cooperation.
Action Plan for integrating Stock Exchanges in the COMESA Region ( agenda
item 7)
62.
Based on country and regional experiences which are elaborated above, the
meeting agreed that the following are the agenda for action for integrating Stock
Exchanges in the COMESA region.
CS/TCM/CESEM/I/14
Page 15
(a)
Business case promotion, to demonstrate to business that it makes sense
to cross list and integrate stock exchanges in the COMESA region. This
can take the form of the COMESA road show;
(b)
Promoion of the development of securities exchanges in member
countries where they don’t exist;
(c)
Indentifying gaps that are not addressed by other regional initiatives
(COSSE, ASEA, and EAC);
(d)
Creation of Securities Market Development Committee;
(e)
Signing of MOUs among securities Exchanges for cross listing Blue chip
companies;
(f)
Government (political support) to agree on harmonization of the following:-
(g)
(i)
Harmonization of tax rates and tax incidences;
(ii)
Pension Sector Reform;
(iii)
Legal and regulatory cooperation and/or harmonization;
(iv)
Compliance with International Financial Reporting Standards
(IFRS);
(v)
Harmonization of Trading Rules and Procedures;
(vi)
Corporate Governance Guidelines;
(vii)
Disclosure Requirements;
(viii)
Framework for Dispute Resolutions; and
(ix)
Framework for Collective Investment Schemes.
Consider demutualization of securities exchanges.
63.
Based on the above the meeting agreed on the following Action Plan for
2007/2008.
Action
Starting
date
1 Submission
of Nov/Dec
proposal to create 2007
Securities
Market
Development
End date
Deliverable
By whom
Creation of a COMESA
Committee
Secretariat
CS/TCM/CESEM/I/14
Page 16
Committee
to
Council of Ministers
2 Preparation
of March 08
materials
for
business
case
promotion
which
includes talking to
specific funds that
invest in member
countries
3 Identification of gaps January 08
which include seeing
other
regional
initiatives,
differences between
markets and which
markets
have
already integration
plans
4 Convening of the April 2008
First Meeting of
Securities
Market
development
Committee
June 08
Sensitization
materials
COMESA
Secretariat
March 08
Report
on COMESA/Regional
gaps to be Associations
of
addressed
Stock Exchange
and areas of
convergence
to
be
enhanced
The
COMESA
Committee will
adopt
its
Rules
of
Procedures
and Workplan
Any Other Business ( agenda item 8)
63.
No issue was raised under this agenda item.
Adoption of the Report and Closure of the Meeting (Agenda item 9)
64.
In closing the meeting Mr. Maged Shawky Sourial thanked all delegates for their
contributions. He stated that the meeting was a very good starting point for further
discussion on the issue of integrating capital markets in the COMESA region. He
underscored the importance of implementing the recommendations in order to achieve
the objective of integrating Securities Exchange in the region.
65
Dr. Charles L. Chanthunya also thanked all delegates on behalf of the Secretary
General of COMESA, Mr. Erastus J.O. Mwencha. He also thanked Mr. Shawky, the
Chief Executive of the Cairo and Alexandria Stock Exchanges and the COMESA
Regional Investment Agency (COMESA RIA) for their assistance in organising the
meeting. He also thanked them for their hospitality. He wished all delegates safe
journey back home.
CS/TCM/CESEM/I/14
Page 17
ANNEX I.
OPERATIONS
OF
BOURSE
MOBILIERRES (BRVM)
REGIONALE
DES
VALEURS
1.
This annex discusses the organization and functioning of the Abidjan-based
BRVM (Bourse Regionale des Valeurs Mobilieres (BRVM) or the west African Regional
Stock Exchange. As an exchange serving eight countries, the BRVM has been
described as the world’s first regional stock exchange.
(a)
The Evolution of the BRVM
2.
On November 14, 1973 a Treaty was signed by Benin, Burkina Faso, La Cote d’
Ivoire, Mali, Niger, Senegal and Togo establishing the members of the West African
Economic and Monetary union (UEMOA/WAMU). The Seven original member states
were joined in 1997 by Guinea Bissau. The treaty provided for the eventual creation of a
regional financial market. On December 17, 1993, the Council of UEMOA Ministers
decided to formally establish a Regional Financial Market and the Banque Centrale des
Etats de l’Afrique de I’Ouest (BCEAO) was mandated to carry out the project. On
December 18, 1996, preliminary work commenced in Cotonou to establish the BRVM
and the Central Depository and Clearing House. (depositaire Central/Banque de or the
DC/BR, thus marking the end of the BCEAO’s mandate and its management of the
project. On November 20, 1997, the Council of UEMOA Ministers approved the
immediate implementation of the Regional Securities Commission (Conseil Regionale
de I’ Epargne Publique et des Marches Financiers or the Regional Council for Public
Savings and Financial Markets. In September 1998 the world’s first regional stock
exchange, the BRVM finally opened, linking the UEMOA member states.
3.
The existing Bourse Valeurs d’ Abidjan (BVA) officially closed on December 31,
1997. Initially, all 35 listed companies on the BVA were automatically listed on the
BRVM. Companies originally listed on the Abidjan Stock Exchange were given a fixed
timetable to conform to the BRVM’s stricter listing criteria. The BRVM’s total
capitalization at inception was just over 2,904 billion CFA francs (US$5,143 billion).
(b) Corporate Basis of the BRVM
4.
The BRVM is a private limited liability company with 2,904 billion CFA capital
(i.e., US$4.84 million). The shareholding structure of the BRVM is as follows:
Shareholders
Government of UEMOA states
Sub-regional institutions e.g. the West African
Development Bank
% held
13%
23%
CS/TCM/CESEM/I/14
Page 18
c)
Chambers of Commerce of UEMOA States
11%
SGIs (brokerage firms)
28%
Private businessmen in the UEMOA region
25%
Role and Functions of the BRVM
5.
The BRVM is in charge of ensuring that securities transactions are carried out
according to laid down procedures. Its objectives have been formally stated as:
(a)
The organization of its listing requirements;
(b)
The dissemination of quotes and other related information; and
(c)
The promotion and development of the securities market.
(d)
Institutional Arrangements
6.
The BRVM is centred on the following entities:
(a)
The Conseil Regional;
(b)
The Central Depository and Settlement Bank (DCBR);
(c)
The brokerage companies (Societe de Gestion et d’ Intermediation or
SGIs).
7.
The Counsel regional is a public entity, is responsible for supervising the market
in the entire UEMOA territory. It is equivalent to the Securities and Exchange
Commission in the US or Securities Investment Board in the UK. This body is based in
Abidjan.
8.
The DCBR is a private entity, based also in Abidjan, but is represented in each
UEMOA member states by a national BRVM branch. The DCBR is capitalized with
1.481 billion FCFA (US$2.47 million in 1999). Like the BRVM, the DCBR’s shares are
held as follows:
Shareholders
% held
UEMOA governments
13%
Sub-regional institutions e.g.
The West African Bank
23%
Chambers of Commerce of UEMOA States
11%
SGIs (brokerage firms)
28%
CS/TCM/CESEM/I/14
Page 19
Private businessmen in the UEMOA region
25%
9.
The DCBR is responsible for custody and registration of listed securities. It is
also responsible for the settlement of transactions on the BRVM. In this In this regard it
uses Ecobank, the bank with a presence in each of the UEMOA member States, for
receipts and payments of cash. The DCBR carries out both central depository and
settlement bank activities. This choice was made in order to have a better interface
between cash and securities positions. This improves the settlement and the safety of
cash position. The DCBR has the following responsibilities.
(a)
Centralising and keeping of current securities on behalf of its members;
(b)
Settlement and delivery of stock exchange transactions for each
brokerage firm by clearing all securities bought and sold, on an individual
basis.;
(c)
The settlement of outstanding balances resulting from market-related
clearing operations and the payment of securities-related interest and
dividend;
(d)
Guaranteeing the integrity of the market.
10.
The BRVM’s brokerage firms or SGIs are private limited liability companies. They
have the monopoly with regard to the trading of listed securities and are mainly in
charge of custody for their clients. The exchange has 15 brokerage firms. The market is
dominated by the 2 brokerage firms who happen to be wholly owned subsidiaries of the
two largest banks in the UEMOA Region namely Societe Generale de Bourse (owned
by the Societe Generale Group) and BICI bourse (owned by BICI bank). Other
brokerage firms like Ecobank Bourse are relatively small.
(e)
Listed securities
11.
On inception, the BRVM established a two-tier market for shares and a single-tier
market for bonds. The share market is made up of the Premier Compartment or the
First List and the Deuxieme Compartment or Second List. To qualify for the First List a
company must have a market capitalization in excess of 500 million CFA Francs, should
have generated an annual net sale margin of 3% for three consecutive years and
provide audited financial statement for five years, among others. Companies on the
Second List on the other hand are required to have market capitalization in excess of
200 million CFA Francs and financial statements for 2 years, among others.
12.
The bond market (Compartment Obligataire) is made up of corporate and
government bonds. To qualify for listing the volume f issued bonds must be in excess of
25000 with a face value in excess of 500 million CFA Francs.
(f)
Operating Methods
CS/TCM/CESEM/I/14
Page 20
13.
Trading on the BRVM is totally electronic and from its head office in Abidjan
provides shares quotations, trading and settlement services. From terminals located in
national BRVM branches, brokers are able to:
(a)
Receive buy and sell orders and transmit them via satellite to the BRVM
head office;
(b)
Consult and edit stock quotes;
(c)
Consult market statistics and clearing house information; and
(d)
Receive and transmit other information.
(g)
Regulatory Environment
14.
The regulatory Environment relating to the regional market encompasses the:
(a)
BRVM’s General Regulation (Reglement General de la Bourse Regional);
(b)
DCBR’s Procedural Manual (Reglement General De la Bourse Regional);
and
(c)
Collective Investment Scheme Law, which is not operational.