NAIROBI STOCK EXCHANGE Status Report on Regional Integration of African Markets East Africa Session 3: African Capital Markets – The Next Decade 14:30 – 15:30 11 th ASEA Conference Accra: Ghana 30 October 2007 Chris Mwebesa Chief Executive

NAIROBI STOCK EXCHANGE An Overview of Capital Markets Integration in the East African Community

Recent Efforts at EAC Financial Markets Integration

Capital Markets Integration Journey Nairobi Stock Exchange was established in During the first East African Community was considered the bourse for all East African companies. In 1977 Collapse of East African Community  Non- Kenyan companies de-listed Capital Markets Authority (K) Capital Markets and Securities Authority (T) Capital Markets Authority (U) – 1996 Dar es Salaam Stock Exchange was established in1996. NSE was involved in a consulting capacity. Uganda Securities Exchange was established in NSE involved in a consulting capacity. Rwanda is currently considering the establishment of a stock exchange possibly as a satellite of the Nairobi Stock Exchange.

EAC Treaty and Capital Markets Integration Articles 85, 86, 87 of the Treaty for the Establishment of the East African Community (EAC) provide the main framework for integration of the regional capital markets. The provisions of the Articles call for Capital market development programs and a conducive environment for the movement of capital within the EAC; Harmonized capital markets policies on cross border listing, foreign portfolio investors, taxation of capital market transactions, accounting, auditing and financial reporting standards, commissions and other charges; The establishment of a regional stock exchange within the EAC with trading floors in each of the Partner States; Adherence by the appropriate national authorities to harmonized stock trading systems, and permitting residents of the Partner States to freely acquire and negotiate monetary instruments within the EAC; The unimpeded flow of capital within the EAC.

Policy Formulation - Capital Markets Development Committee (CMDC) of the East African Community established Securities Markets Regulators; Ministries of Finance/Treasuries; Stock Exchanges; Insurance Sector Regulators; Pension Sector Regulators Market Infrastructure - Common market structure (3-tier); - Cross border listings (3 companies)  East African Breweries;  Kenya Airways and;  Jubilee Holdings. The three securities exchanges’ CDS and ATS software have been supplied by Millennium Information Technologies (MIT). So a single East African securities exchange based on the integration of trading, clearing and settlement systems is now possible. Current Areas of Co-operation

Infrastructure and Regulation Vision: “A fully integrated capital market with one regional stock exchange (by Dec. 2009)” Embodies the new thinking and agreed way forward between the regulators and the stock exchanges.

Infrastructure and Regulation Action Steps: Infrastructure 1. ATS/CDS in Uganda by June 2008; 2. Single access point for issuers and investors through a common trading platform by December 2008; – Explore integration of the trading platforms either through an interface or through an order routing system 3. CDS connected to Payment Systems for Real Delivery versus Payment (DvP) by December Corporate Structure of the Securities Exchanges 1. Demutualization of each Exchange by December 2008; 2. Merger of the Securities Exchanges and subsequent listing of a regional securities exchange by June 2009.

Challenges to Integration

Differentials in key macro economic indicators (interest rates, inflation, currencies); The capital account of Tanzania is only partially open; Lack of depth and liquidity – pension sectors in Uganda and Tanzania are dominated by public pension schemes; Multiplicity of regional blocks- – Kenya is a member of Common Market of Eastern and Southern Africa (COMESA) and the East African Community (EAC); – Uganda is a member of COMESA and the EAC; – Tanzania is a member of EAC and Southern African Development Community (SADC). Challenges to Integration

Benefits of Integration

Increased regionalization of capital markets has the potential to address the thinness and illiquidity of the regional capital markets. Offer East African Residents single access to all securities listed in the region. Bring Rwanda and Burundi on stream without them having to re-invent the wheel. Benefits of Integration

NAIROBI STOCK EXCHANGE End