ATTRACTING INVESTMENT: What do Exchanges need to do to ensure that they are attractive investment destinations? Presented by: Sunil Benimadhu Chief Executive The Stock Exchange of Mauritius BAFM Conference – Johannesburg, 17 – 18 September 2015

PRESENTATION OUTLINE Key expectations of issuers. Key expectations of investors. How has the SEM addressed issuer and investor expectations? Key challenges facing African Exchanges.

KEY EXPECTATIONS OF ISSUERS  Competitive cost of raising funding through Exchange platform versus other mechanisms for raising funding.  A listed issuer should command a premium in terms of pricing compared to a non-listed issuer in the same industry.  Exchange platform should be a powerful value-creation platform for listed issuers.  Exchange platform should efficiently reflect the issuer’s performance in terms of share price evolution.  Liquidity.  Competitive costs of listing (Direct & Indirect costs).  Listing Rules should be clear, understandable and accompanied by guidance notes.  Exchange platform should be able to list a wide spectrum of products.  Enhanced image and visibility of the issuer.

KEY EXPECTATIONS OF INVESTORS  Multi-asset class Exchange. (Diversified product offering : Equity, debt, Government bonds, ETFs, Funds, Local and International products, Global business companies, Structured products, Derivatives).  Easily accessible, efficient and transparent Trading & Settlement platform.  Liquidity.  Centralised and efficient price discovery.  Competitive transaction costs.  State of the art technology and ease of access to information in real time.  Exchanges should be connected live to international data vendors.  Recent trend: Sustainable investment opportunities and listing of sustainable products.

 Gradual shift from an equity-centric domestic Exchange to a multi-asset class internationalised Exchange.  Gradual widening of the product offering. (Equity, debt, Government bonds, ETFs, Funds, local and international products, Global Business Companies, structured products, Mineral & Exploration Companies)  Introduction of a multicurrency capital raising, listing, trading and settlement platform.  Shortening the settlement cycle from T+5 to T+3.  Setting the annual listing fees at very competitive levels.  Implementation of reduced brokerage fees on turnaround trading on the Exchange to boost trading activity, and hence liquidity.  Implementation of reduced brokerage fees on debentures and corporate bonds trading on the SEM’s platform. HOW HAS THE SEM ADDRESSED ISSUER AND INVESTOR EXPECTATIONS?

 We have based ourselves on past statistics to actively market our Exchange as a powerful value creation platform. (For e.g. USD Total Return range from 2303 % to 9049 % for Top 10 companies)  Establishing synergistic links with the Mauritian Global Business sector to boost capital raising, listing and trading activity on the SEM’s platform. The SEM is positioned at the very heart of the convergence point of (1) demand-side flows (Funds and Structured products that are and will growingly be established in the Mauritian Global Business sector); and (2) supply-side opportunities (Global Business companies + other companies incorporated in Mauritius for outbound investments into Africa).  Exploring partnerships opportunities with other Exchanges to grow and develop the SEM’s product offering. (SEM recently signed a MOU with the National Stock Exchange of India to collaborate in terms of product development and capacity building.)  Active participation in international roadshows and marketing campaigns. HOW HAS THE SEM ADDRESSED ISSUER AND INVESTOR EXPECTATIONS?

 SEM is connected live to a top bracket of global vendors including the likes of Thompson Reuters, Interactive Data, Factset, Bloomberg and Inet Bridge, enabling both retail and institutional investors worldwide to follow our market on a real-time basis.  Ongoing investor education initiatives at the local level. (Roadshows, SEM Young Investor Award, training)  Launching of the SEM Sustainability Index (SEMSI) to bring sustainable Issuers and Responsible Investors together, locally and globally. HOW HAS THE SEM ADDRESSED ISSUER AND INVESTOR EXPECTATIONS?

 A very open market within the African Exchange space. (45% of the SEM’s daily trading volumes currently being accounted for by international investors)  SEM is today a compelling international capital raising platform for issuers, with more than USD 2.9 billion having been raised since HOW THE INITIATIVES TAKEN BY SEM HAVE PAID OFF SO FAR No. of Listings Market Capitalisation (Rs Bn) Market Capitalisation/ GDP (%) SEMDEX (End of Period) , SEMTRI ( in Rs terms) , Annual Turnover (Rs M) , , , Quantitative assessment of the evolution of the SEM from 1989 to September 2015

WHAT NEXT TO INCREASE THE ATTRACTIVENESS OF THE SEM TO ISSUERS & INVESTORS ?  Introducing the concept of remote membership and attracting more international members to the SEM.  Actively exploring the possibility for strategic partnerships and cross-linking the SEM with other Exchanges.  Implementing stock borrowing/lending and introducing the concept of covered short-selling on liquid stocks.  We are considering shortening the settlement cycle from T+3 to T+2.  Exploring new avenues for establishing further synergistic links with the Global Business sector to position the SEM as a capital-raising, listing and trading platform of reference in Africa.  Introducing a new trading technology that opens the space: 1. For foreign players to connect directly to our trading systems, and 2. Cross-link our market with other markets in the region.

KEY CHALLENGES FACING AFRICAN EXCHANGES  Low diversity in products / asset classes offered. Most Exchanges are equity- centric.  Fragmented nature of financial services sector.  Restricted market depth and breadth.  Liquidity issues.  Unusually high transaction costs.  Absence of an active and well developed domestic investor base (low institutional participation & less than 1% retail participation).  Issues of efficiency and real-time availability of market information.  Corporate Governance practices of Listed Companies.  Protection of Minority Shareholders’ rights.  Accounting and Disclosure standards.  Transmission mechanism.

HOWEVER, THE OUTLOOK FOR AFRICAN EXCHANGES IS ENCOURAGING  Gradual shift in the balance of economic power from West to East: growing demand for Africa’s resources from the high growth, highly populated Asian countries.  Successful implementation of structural adjustment programmes and deep- seated reforms in some African countries. (Rwanda, Burundi, Kenya, Mauritius, etc)  Emerging middle-class with higher living standards and more money to invest.  Growth in the developed world looks anaemic at best. More and more international investors are looking for superior returns outside of the traditional markets [Africa’s growth for the next 3 years : 4.8 %, 5.1 %, 5.3 %].  Private Equity as well as dedicated Africa funds to invest on Africa’s Stock Exchanges have been on the rise and will gain increased momentum in the coming years.

OVERCOMING EXISTING CHALLENGES AND SETTING THE SCENE FOR A VIBRANT CAPITAL MARKETS SPACE IN AFRICA  Working on increasing the number of local investors from the current 1% to at least 10% of the population.  Reaching out to the rest of the world and improving the availability of updated market statistics. Aggressively putting African stock markets on the radar screen of international investors. ProductsParticipantsPlayersPartnerships  Active stimulation of the four P’s that characterise the Exchange space.  Diversifying the products base.  Slashing transaction fees.  Innovating by introducing turnaround trading.

 Bringing the good companies to list on African Exchanges.  Successful African companies should contribute to the growth of local capital markets and local economies, instead of systematically supporting the growth of the larger well-established markets.  Sensitising listed companies about their role as public companies and improving the quality and frequency of their reporting.  Linking up our stock markets through technology so as to increase the intra- regional investment flows and broaden the availability of tradable scrips on our Exchanges.  Ensuring that quarterly reporting becomes the standard. OVERCOMING EXISTING CHALLENGES AND SETTING THE SCENE FOR A VIBRANT CAPITAL MARKETS SPACE IN AFRICA

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