CHRIS MWEBESA

1
Plenary Session How will adopting international
best practice benefit the African securities
markets in the long run? SWIFT Regional
Conference in Africa 2008 Durban 19 22 May
2008

• CHRIS MWEBESA
• CHIEF EXECUTIVE, NAIROBI STOCK EXCHANGE

2

• How will adopting International Best
• Practice
• Benefit the African Securities Markets?
• A good starting point in answering this question
  is to remind ourselves of the twin
• important mandates of Capital/Securities markets.
  This will pave the way for us to
• then determine what areas/issues in the
  Capital/Securities markets require
• adoption of Best Practice and hence we should
  arrive at the standards that ought
• to be considered best practice in the
  Capital/Securities Markets and the benefits
• that they can bestow on African
  Capital/Securities Markets.
• Securities markets serve two basic purposes
• Provide an avenue for raising of long-term
  capital
• Provide an avenue for wealth creation and wealth
  management
• As such Standards in this important industry will
  focus on
• enhancing these twin mandates

3

• How will adopting International Best
• Practice
• Benefit the African Securities Markets?
• Group of 30's (G30) standards, adopted in 1989 to
  ensure that securities trading
• world-wide becomes simpler, safer and more
  efficient are really the Global
• Standards when it comes to the Capital Markets.
  The International Organization of
• Securities Commissions (IOSCO) has also
  promulgated several standards on capital
• market issues ranging from IPO standards to
  Settlement and Clearing standards.
• These standards cover the following four areas
  which transcend the twin mandates
• of Capital/Securities Markets.
• Market Regulations and the Enforcement of
  Regulations.
• Corporate Governance
• Market Infrastructure.
• Availability and Quality of Market Information

4

• Market Regulations and the Enforcement of
  Regulations.
• Adoption of widely accepted, standard and
  accessible rules and regulations on licensing
  procedures for market participants lowers
  barriers to entry by providing clarity in the
  licensing process, facilitating competition and
  consumer choice in terms of service providers.
• Market surveillance during the trading session,
  enables proactive monitoring of the trading
  session and provides added assurance that the
  Exchange and the Capital Markets Authority are
  assuring trades are executed according to the
  laid down rules and regulations.
• Corporate Governance
• Experience in developed market economies
  indicates that the legal framework for
  competition policy, the legal framework for
  enforcing shareholders rights, systems for
  accounting and auditing and a well-regulated
  Capital Market System are among the institutions
  that discipline corporations.
• Sam Mensah in his paper Corporate Governance in
  Africa The role of Capital Market Regulation
  concludes that capital markets support corporate
  governance by providing the discipline that holds
  the excesses of controlling managers in check.

5

• Market Infrastructure.
• Widely accepted communications protocols
  facilitates communication with investors and
  other market participants and enables
  technological linkages with other markets.
• Automating clearing and settlement reduces
  settlement risk as it minimizes forgery, bad
  delivery, and human error prevalent in a
  certificated environment.
• The reduction in settlement risk results in
  greater market turnover due to shorter
  transaction times, and lower transaction costs
  increasing financial markets efficiency.
• Automating trading enables the process to be
  conducted through standardized rules and
  regulations, which are well known by all market
  participants. Market participants are able to
  view a centralized order book, where their trades
  are queued, allowing impartiality and greater
  transparency in the transaction.
• The use of widely accepted technologies for
  clearing, settlement, trading and communication
  enables the Exchange to link with other
  securities exchanges, facilitating access to
  other securities for the investor and creating
  additional revenue streams for the Exchange
  through transactions. This deepens liquidity
  pools and concentrates liquidity on the Exchange.
• Potential lower cost of capital due to increased
  operational efficiencies in the trading of listed
  securities, and deeper pools of liquidity and
  capital.

6

• Availability and Quality of Market Information
• Democratization of information flows through
  facilitating faster, more cost effective and
  easier access to market information.
• The automation of clearing and settlement and
  trading, the provision of almost real time market
  statistics enables the introduction of derivative
  products and other financial instruments such as
  exchange traded funds, derived from listed
  equities, equity and bond indices especially if
  the equity and bond indices are compiled using
  international best practice, this introduces an
  alternative investment avenue for the investor to
  access the market.
• Adoption of international financial reporting
  standards and corporate governance standards by
  listed companies enables comparison of financial
  performance within sectors, across sectors and
  across economies facilitating the investment
  decision making process.
•  

7

• Best Practice in Securities Markets must be
  adopted if African Securities Markets
• are to become a prominent part of the global
  financial system.
• Benefits of adopting international best practice
  include-
• Improved risk management by reducing settlement
  times following trade execution,
• Mobilization of domestic savings,
• Increased foreign portfolio investments,
• Improved liquidity,
• Lower costs of capital and
• Enhanced integration with international financial
  markets.