1 Key Drivers for Development of African Capital Markets – Regulations and Market Development Andy Wilson CEO: The International Securities Consultancy 11 TH ASEA CONFERENCE Accra, Ghana

2 Regulation – Market Development!  Most securities regulators include market development in the Mission Statement  Brokers/Traders would prefer minimal regulation  “An exchange exists as a facility for its members to make money”

3 Making Finance Work for Africa  A lighter touch approach to legislation and regulation  For the present, most organized African securities markets are largely primary markets with relatively little secondary activity  Perhaps an over-elaborate model of regulation has been adopted for these markets  Too much emphasis has been placed in recent years on building costly regulatory regimes  Fixed costs make sense in a market with heavy volumes, but are not so easy to justify for a start up market

4 Over-regulation v Under-regulation  Over-regulation can stifle the potential growth of an emerging market  Under-regulation can kill it  Investor confidence because Government passes modern securities law of international standards  No enforcement!  Scams-market abuse-loss of confidence

5 Australian Parliamentary report on corporate failure and corporate fraud  “A cursory investigation of companies involved in recent corporate failures and fraud reveal that they had exhibited the trappings of good corporate governance”  Failure – Fraud  “Outward compliance with good corporate governance principles is not sufficient guarantee of their effective operation”

6 Market Surveillance  The goal of surveillance is to help achieve the objectives of efficiency, fairness and (by extension) liquidity.  The object of surveillance is to keep the market at maximum efficiency and safety for owners, participants and investors.

7 Surveillance – the front line in the fight against market abuse 1. Surveillance guards against market manipulation 2. Surveillance guards against insider trading 3. Surveillance may serve the market by assessing the impact of business rule changes on liquidity 4. Surveillance may expand market potential 5. Minimise market manipulation and insider trading - encourage faith in the market and encourage faith in the regulator

8 Improving standards and qualification of market participants  Investment advisers must meet the criteria laid down by the securities regulator  IOSCO Principle 21  Investors take confidence from the fact that those who are looking after their finances are qualified  A market that requires the people working in it to be qualified is much more highly regarded than a market that operates with minimal qualification requirements

9 Internet Trading  New functions and services can be easily added  Low cost  Poses regulatory and evidentiary issues for securities regulators  Brokerage Alerts issued by at 5pm local time. Brokerage Alerts include news of any Pakistani Stock Market regulations and daily “picks” by senior brokers for following day trades  Evidence of “Dealing Ahead” of the picks

10  If your broker does not immediately execute your trade, the broker himself is immediately executed  Online trading is popular because it gives immediacy of trade

11 Product Development  First Equities  Second Bonds  Third derivatives  Added problems for regulation

12 Cross-Border Listing and Trading  Main benefits are access to a broader investor base and increased marketability of an issuer’s securities  Liquidity increases because of the extended trading hours, the increased potential investor base and the heightened information flow  Companies cross-listed in the US trade at an average Tobin q ratio that is a 16.5% larger  In order to have efficient cross-border listing and trading we must remove the main obstacles of: foreign exchange and exchange control regulations; and legislative and regulatory prohibitions or constraints

13 In Conclusion  Regulation and market development do go hand in hand.  There are dangers in over-regulation, but  on balance under-regulation carries with it a greater danger for the development of securities markets  The secret is in getting the balance just right.

14 Thank You Andy Wilson On behalf of The International Securities Consultancy, London and Hong Kong