The rules enable SEC to license, supervise and regulate the capital markets to ensure that high standards of professionalism and integrity are maintained.
SEC was also empowered to prescribe qualifications for licensed players, register, supervises and regulates securities exchange.
The commission was also mandated to prescribe qualifications of board members and board composition of the securities exchange. This week The Zimbabwe Independent chief business reporter Paul Nyakazeya (PN) spoke to SEC CEO Alban Chirume (AC) about the commission and its operations.
PN: What is the day to day job of the securities commission?
AC: Section 4,2 of the Securities Act provides for the mandate of the Securities Commission which are regulating trading and dealing in securities, license, supervise and regulate licensed persons and exchanges, advise government on all matters pertaining to securities, among other functions.
To achieve this mandate, the commission drafts rules and regulations, undertake inspections which (could be routine or ad hoc). The commission interfaces with the capital market players to understand their concerns, to clarify regulatory issues if the need arises and when new regulations are being drafted to provide channels of communication for submission of their own views on the proposed new legislation or rules. It is important that the commission monitors and anticipates possible risks which may impact the markets and take preventative measures where possible.
The commission accepts and encourages submission of complaints by investors and follow up on those complaints either as the commission or direct that they be dealt with by the relevant authorities (with possible feedback to the commission).
PN: How do you intend to deal with small indigenous companies that want to raise capital, but are not able to meet some of the requirements of listing on the ZSE — the JSE for example has launched their Africa Board initiative for small- cap African companies?
AC: This is a business case for the current exchange or aspiring exchanges. Unfortunately we cannot make a business decision we can only encourage the market players to look at that niche closely.
PN: How would you describe your relationship with ZSE?
AC: We always engage with ZSE as a licensee on critical issues. We have agreed and worked together on a couple of things and there are instances where we have not interpreted certain regulatory issues the same way, there are cases where the Act has sections which contradict each other or are ambiguous and those are the aspects that form the basis of our continual engagement. On a positive note, we have had joint presentations and share the same objectives and this is likely to continue in the future. The South African Symposium on November 4 is a good example. We should always remember that the commission and the ZSE are critical institutions which are driven by their respective mandates.
PN: Word on the market suggests that your relationship is characterised by a lot of clashes?
AC: We are a regulatory institution. Our processes are guided by the Act and rules. Unofficial word on the market can say anything. In a professional environment you always agree and also disagree in a professional way. That is how we operate. There are times when we are breaking new ground. This has its own growing pains. An example is the well known issue on the Investor Protection Levy which we instituted in 2009. All parties have now agreed it is a critical element of protection of investors and hence the Investor Protection Fund is now in existence. The fund is chaired by a retired High Court judge with other respected trustees to provide independence of the board.
PN: There have only been five new IPOs in the last five years, what has been preventing more listings? Apart from a poor operating environment of the last five years can this not be attributed to stringent listing requirements?
AC: Our listing requirements have not changed over a long time and they have not moved in line with international trends. As they stand they cannot be the deterrent. As a regulator, we have not received any complaint or concern about the limitation imposed by the listing requirements.
PN: What has been the Ministry of Finance’s response to your proposal to introduce tax incentives for foreign investors on the equities market owing to subdued foreign participation?
AC: On a relative basis we do not believe that foreign participation is subdued. Our proposals are premised on broad based participation by both local and foreign investors on the equities market. The proposals are under consideration. It is up to the minister to make a decision on the proposals that we made.
PN: What are the benefits of demutualising the stock market? The idea has been written about for nearly two years now. What is really happening?
AC: This question is better addressed by the exchange. We look at the whole process in a slightly different way. We are interested in the reform of the exchange by way of complying with the Act and SI 100 of 2010. Corporatisation of the exchange which will result in the separation of trading rights, ownership and management (independent board and executive management) will meet the requirements of our regulations. We are keen to see that process moving faster. The stock exchange can advise where it is and when they expect the process (of demutualisation) to be completed.
PN: Will the demutualisation be a success considering the clear evidence of lack of liquidity in this market?
AC: The current status could be working to the detriment of the market. Liquidity inflow is also a function of the confidence that investors have in a market. We need to build that confidence ourselves.
PN: What plans are there to build the confidence? A lot of foreigners are concerned with the current system and some have indicated that they will trade on the ZSE only if the bourse goes electronic as the current system is open to manipulation. What progress has been made in this regard and when should we expect electronic trading?
AC: ZSE is better placed to respond to this question. But just like your question on demutualisation, investors are looking at reformed markets more seriously.
PN: What rules currently govern the participation of foreign investors on the exchange?
AC: We do not have many rules except a guideline which limits foreign participation to 40% in a counter and 10% as an individual foreign investor.
PN: Do you think ZSE charges are reasonable when compared to the region?
AC: Our charges (total of buy and sell) are about 1,2% higher than the average charges within Sadc. In terms of fees relating directly to brokers and the securities exchange, they are at the same level as of the region. The main difference comes from charges relating to government. There should be a balance between reasonable charges in the face of investors and the viability of market participants.
PN: “Quality assets for a song” — is how our bourse is described and its attractiveness to the foreign investor, if only the indigenisation and ownership issues were more clearly defined — do you share this view?
AC: Share prices are a function of the market forces of demand and supply. All the information (both positive and negative) is factored into the prices. We are simply interested in the fairness of the market. Investors are free to make choices.
PN: How easy is it for foreigners to repatriate their funds? Have there been any changes to the Exchange Control Act?
AC: The RBZ is the best authority on this one. It regulates the monetary aspects of the financial system. Our understanding, though, is that for those who bring their funds through normal banking channels, the repatriation of funds is probably easier than in most countries in the region, with minimal foreign exchange risk. But let me hasten to say investors should not expect a completely unregulated foreign exchange regime. There are other critical issues such as money laundering that the central bank should deal with through exchange control.