THE Securities and Exchange Commission of Zimbabwe (SecZim) says for the African Exchanges Linkage Project (AELP) to be implemented effectively, African states need to develop an efficient regulatory environment.
AELP is a capital markets integration initiative by the African Securities Exchanges Association (ASEA) and the African Development Bank (AfDB) which aims to facilitate cross-border investment flows through trading of securities across participating exchanges in Africa.
In December last year, AELP launched an e-platform (The AELP Trading Link), enabling seamless cross-border securities trading among seven African stock exchanges representing 2 000 companies with roughly US$1,5 trillion market capitalisation.
The first phase of the AELP will connect seven stock exchanges across 14 African countries — Morocco, Egypt, Nigeria, Kenya, Mauritius, South Africa and the West Africa Economic and Monetary Union, which comprises Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.
The participating exchanges include the Bourse Régionale des Valeurs Mobilières integrating the eight West African countries, the Casablanca Stock Exchange, the Egyptian Exchange, the Johannesburg Stock Exchange, the Nairobi Securities Exchange, the Nigerian Stock Exchange and the Stock Exchange of Mauritius.
“There should be an effective whistle-blower policy as well as adequate governance to ensure objectivity, appropriate independence and accountability to the government,” SecZim chief executive Anymore Taruvinga told delegates at the AESA seminar in Victoria Falls last week.
“Policy should be based on understanding of financial markets; be a hybrid of command and control, and market mechanism should be preferred, consistent with existing laws and policies, and minimise arbitrage opportunities.”
The SecZim chief said there should be an effective regulatory framework which ensured regulations were credibly supervised and enforced.
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The integration of African exchange securities is coming on the back of insufficient liquidity associated with high costs of trading, increased cost of raising capital and low returns, lack of a diverse investor base and low income among retail investor, among other challenges.
The small size of the private sector in these markets has been seen to make investors and issuers scarce and investment products and investors seeking to diversify are forced to look outside their local markets.
A presentation done by the AESA at the seminar shows that the project is also expected to allow visibility of domestic and global institutional investors for member countries.
The platform will be a one-stop shop to the most significant African markets saving transaction and operational costs.
“Regional integration has the potential to help capital markets overcome these constraints, developing domestic capital markets can be done through a regional approach, through facilitating cross-border trading, harmonising market infrastructure, investor education, and removing constraints on capital transactions and movement.
“Absence of restrictions on capital mobility increases the allocation of international financial resources into the economies,” the association said.
Under the project, securities remain listed on the host exchange and comply with that market’s existing listing requirements, rules and regulations.