Establishment of the Capital Market Authority in Ethiopia 2020
The National Bank of Ethiopia (NBE) drafted a bill on Capital Market Authority, that is expected to be legislated before the end of 2020. For the past year, a technical committee characterized by members drawn from the central bank, the Ministry of Finance, the Office of the Attorney General and external advisors, has been working on the bill.
According to the bill, Ethiopia will soon have its own Capital Market Authority that will supervise and regulate a new financial market, where equities, bonds and financial derivatives will be transacted.
Further, the bill proposes the launch of a secondary market in Ethiopia for the first time. The 63-page draft proclamation, further outlines that the capital market will be established to support the development of the national economy by mobilising capital, promoting financial innovation and sharing investment risks.
Capital Market Participants
The Authority will regulate the listing and delisting of financial products including bonds and stocks on the trading platform, grant licenses for operation to securities brokers, securities dealers, investment advisers, fund managers, investment banks and collective investment schemes.
It will also engage with the approval of operation as a securities exchange and derivatives exchange, among other duties.
The Authority will accord an exchange license to the establishment of the Ethiopian Securities Exchange, which provides the trading platform for financial products and will be established as a share company. The capital of the Ethiopian Securities Exchange is to be determined by the board members of the Authority.
In addition, the establishment of the Ethiopian Securities Exchange will have a share composition of no less than five percent and a maximum of 25pc to be allocated to the government.
No less than 25pc and not more than 55pc will be allocated for corporations, capital market intermediaries, and international securities exchange operators.
A minimum of 20pc and not more than 40pc of the shares will be offered to individuals with a maximum limit of five percent, while the total shareholdings of international securities exchange operators and other foreign investors are not to exceed 25pc of the Exchange’s capital.
The idea is to make the market predominantly owned by the private sector and the government to be a strategic partner and market maker in the process.
However, in the scenario where there might be insufficient demand from citizens, then the maximum limit on shareholding by corporations, capital market intermediaries, and international securities exchange operators can be increased up to 75pc.
In another scenario where there is no interest from citizens, corporations, capital market intermediaries, and international securities exchange operators, the maximum limit on government shareholding can be increased to 100pc.
Securities to be Traded
The Ethiopian Securities Exchange Company will provide the trading platform for capital market products such as equities, debt securities, derivative instruments, units in a collective investment scheme, real estate investment trusts, currency exchange contracts and other products to be declared by the Authority’s directive.
The bill also grants capital market activities like buying, selling and dealing in financial market products, investment advice, underwriting, fund management, real estate investment trust management, and corporate finance advice relating to acquisitions and mergers.
Establishment of the Capital Market Tribunal
To handle any kind of dispute in the securities market, the bill also outlined the formation of the Capital Market Tribunal to appeal against the decision of the Authority. Under the appointment of the Prime Minister, the Tribunal will have five members with a chairperson and a vice-chairperson.
The chair and the vice-chair should comply with the requirements the High Court judges should fulfil, while the rest of the members must have experience in law, commerce or accounting. The members will have three-year terms of office and will be eligible for re-appointment for a further three years.
For additional information about the opportunities that your company can gain from the establishment of Ethiopia’s Capital Market Authority and the Valsen Fiduciaries service offering in Ethiopia, please contact us.