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Why interconnectivity? Many African securities exchanges need more liquidity
Too few issuers/listings, too few opportunities to invest in (lots of investment capital is looking for opportunities)
Not enough secondary trading for buyers or sellers to get fair price and desired timing
Markets are inefficient, less desirable and have high transaction costs, increased cost of capital for issuers
Local markets are best for needs of local economies
Instead of merging exchanges, technology means linkages between national exchanges
Combine markets to get more opportunities to invest and more investors
CoSSE interconnectivity aims Enterprises can raise capital across SADC if
they are approved to raise on one exchange
Investors on one exchange can buy shares seamlessly on other exchanges within SADC region
The region’s capital markets become more liquid and more efficient
Global interconnectivity initiatives Association of South East Asian Nations - ASEAN Trading Link
2011 Single market access for 7 stock exchanges
First - Bursa Malaysia, Philippines Stock Exchange, Stock Exchange of Thailand and SGX-ST (equities of Singapore Exchange)
CEESEG AG owns 4 stock exchanges of Budapest, Ljubljana, Prague and Vienna as equal subsidiaries
SEE, backed by the European Bank for Reconstruction and Development (EBRD), links 3 Balkan stock exchanges
Mercado Integrado Latinoamericano (MILA) founding members Lima Stock Exchange (Perú), Santiago Stock Exchange (Chile) and Colombia Stock Exchange
Trading lower than expectations (partly due to post-trade issues)
African interconnectivity East African Community interconnectivity project ongoing
(interconnectivity hub in Arusha) – Nairobi, Dar es Salaam, Uganda, Rwanda
Bourse Régionale des Valeurs Mobilières SA (BRVM) headquarters in Abidjan One of the world’s most integrated regional exchanges Links 8 francophone countries (Benin, Burkina Faso, Guinea-
Bisssau, Côte d’Ivoire, Mali, Niger, Sénégal and Togo)
BRVM joins Ghana, Nigeria and Sierra Leone stock exchanges in West African Capital Market Integration Council (WACMIC), set up 2013
African Development Bank and African Securities Exchanges Association working on African Exchanges Linkage Project (AELP) to link Johannesburg, Nairobi, Casablanca and Nigerian stock exchanges.
Interconnectivity and SADC SADC Common Agenda (Article 5 of the SADC Treaty)
Regional Indicative Strategic Development Plan (RISDP) refers specifically to CoSSE (para 5.3.2)
Targets of RISDP operationalized through SADC protocols Finance and Investment Protocol (FIP) 2006 (especially Chap 7,
Articles 13 & 14 and Annex 11): Objective to facilitate financial integration through developing a harmonized securities market environment; establish “an integrated real time network of the national securities markets within SADC; pave the way towards cross-border listings and trading and investments.. facilitate the process of financial integration within the Region”.
Other SADC development - SIRESS SADC Committee of Central Bank Governors (CCBG)
developed + implementing SADC Integrated Regional Electronic Settlement System (SIRESS).
First transaction July 2013
73 banks participating (includes 6 central banks)
9 countries participating
Volumes of payments much larger than initially expected – by Jan 2016 had settled ZAR1.8 trillion ($114bn), total 381,879 transactions. Peak month was 24,960 transactions in Oct 2015, ZAR99bn in Sep 2015.
CoSSE previous work on interconnectivity Has been working on interconnectivity since 2008-9
Interconnectivity Project Steering Committee proposed technology hub solution
Could not raise funding
CoSSE business plan 2012 proposed new capital structure
2 or more exchanges could take the lead
Equity/for-profit investment structure to involve DFIs
Did not go forward.
CoSSE principles for interconnectivity (since 2008) Exchanges operate different trading, clearing and settlement
platforms Exchanges regulate their own listings but exchanges’ instruments
should be visible to other markets. Exchanges regulate their own trading, however, accessibility of
trading on other markets is requirement Exchanges will comply with individual country legislation and other
exchanges’ company law, insider trading legislation, etc.
Exchange control in various countries, Common Monetary Area is not considered in timeline Exchanges will trade and settle in their own currency Securities will be held in the country of register
Exchanges to decide on data sales independently and manage individually. However, market data should be visible internationally
CoSSE interconnectivity African Development Bank funded consultant 2015-16
Update 2012 business plan and 2008-9 project
Discuss way forward with exchanges and stakeholders (regulators, stockbrokers, investment institutions, etc)
Met 9 potential IT suppliers
Stock exchange trading systems and smart order routers
Broker network providers
Data vendors
Investigate alternatives in line with business needs
CoSSE Interconnectivity project 2 Review international (ASEAN, MILA, CEESEG, SEE, etc in
Europe) and African linkages (EAC, WACMIC) and lessons
Review changing landscape, including SIRESS (SADC cross-border payment system)
Recommendations regarding way forward, including relations with SADC including CISNA, CCBG
Report adopted by CoSSE in Windhoek March 2016
Background to recommendations Cross-border trading already possible
Client in one country can tell broker to place order with broker in another country
Little volume for this
Obstacles to more trading? Information – information about prices, trading, opportunities
Contacts between brokers and others, ease of opening accounts, etc
Regulatory and risk structures including sharing risks across borders, institutional regulations (domestic assets/prudential limits for pension/insurance funds – 5% in some countries), exchange controls
Market opportunities, lack of attractive investments
Post-trade, clearing and settlement, custody, etc
3 technology options 1. Information providers –
buy-side and stockbroker traders see data on their trading screens call each other/use messaging to trade, book through exchange.
2. Network provider s and broker order management networks – share broker data screens, straight-through processing (STP) from buy-side clients (either
approve or sponsored direct market access/DMA).
3. Smart order router networks and exchange technology suppliers used for linkages in Latin America and South-East Asia exchanges joint venture owns + operates technology sends orders from brokers/automated trading system/ATS) via
gateways on one exchange to another exchange. East Africa similar approach to be owned/operated by the East
African Community
Technology issues How do systems fit with existing stock exchanges?
FIX protocol is global standard for pre-trade orders (SWIFT is standard for post-trade transfers of value)
Existing networks already in use by
Investment institutions local and foreign
Stockbrokers local and foreign
Saves on new buy-in and adoption
Exchange timeframes Member Readiness to
Integrate
Option for fees Comments
Botswana Long term % of Txn value TBA
Malawi Long term % of Txn value No Infrastructure
Mauritius Short term Per Trade TBA
Mozambique Long term Per Trade Need for a proper legal framework
Namibia Immediate % of Txn value
Zambia Long term % of Txn value Need for a proper legal framework
South Africa TBA Per Trade Will depend of the nature of the implementation
Tanzania Immediate % of Txn value
Based on questionnaire sent to members (from SADC-CoSSE Project Final Report April 2015)
CoSSE recommends 1 – Stockbroker network Exchanges inform stockbrokers and “buy-side” (institutional
investors)
Linkages
CoSSE and SADC organs to encourage and facilitate links between stockbrokers in different countries
Investigate next steps – broker profiles in central database, sharing stockbroker research, capacity-building on research and cross-border trading
Stockbrokers first step in information campaign to “buy side”
Investigate if broker network technology providers can support more cross-border trading
CoSSE recommends 2 – regulatory issues Where regulatory barriers identified to cross border
trade between 2 exchanges
Regulators, central banks and others work on bilateral basis
Bilateral is supplementary and pilot for regional bodies removing obstacles
Work closely with CISNA
Includes banking, payments, funds (pension/insurance), etc
CoSSE recommends - Phase 2, in future Re-investigate feasibility of technology solution/ hub-and-
spoke
Based on feedback from brokers and Phase 1
Other exchanges to join
Relate to developments in AELP project
Concrete assumptions (user survey, commitments, track record) to update business plan
Invest in technology when business case exists.
The goal Enterprises, governments and others can
raise capital across SADC by listing on one exchange
Investors on one exchange can buy shares seamlessly on other exchanges within SADC
The region’s capital markets become more efficient and liquid – encourage savings, investment & integration.
Next steps Proceed with front-runner exchanges
Information exchange and stockbroker network
Identify bilateral regulatory or other restrictions/blocks
Resolve issues with regulators and Ministry of Finance, etc.
Memoranda of understanding
Investigate issues for cross-border IPOs, buy and sell orders starting from frontrunner countries.
Use bilateral progress as pilot for setting example/resolving SADC issues
Work with selected exchanges Work with selected exchanges to see way forward
Encourage information flow – create guides
Encourage broker linkages
Investigate next steps using broker networks
Information flow/exchange See if all exchanges’ data (live trading data, statistics, etc.)
can be shared to broker trading systems
Not compete with data sales (could enhance data sales for exchanges)
Create a CoSSE/SADC asset class? Create information flows about southern African assets.