Friday, July 30, 2010

Zachaka chatha: RBM, Regional trends favour MSE as sole player


Malawi will join the Southern African Development Community (Sadc) region in having one stock market player in Malawi Stock Exchange, a development defended by Reserve Bank of Malawi (RBM) as not being counter-competitive.

This is in tandem with regional lines of operation, where most Sadc member states either have one stock exchange or are yet to establish one. Neighboring Zambia, for instance, has the Lusaka Stock Exchange.

A stock market is just one of the types of central bank licensed-places where property ownership changes hands in a country; the others include Foreign Exchange market, Bond market, Derivatives market and Commodities markets.

Investigations carried out this week revealed that most Sadc member states have either one stock market or are yet to institute one. The trend is the same in most countries of the world except for the United States of America and a handful of big economies, where research revealed the existence of regional stock markets in accordance with the scale of economic activity.

RBM Bank Secretary, Samuel Malitoni, acknowledged in a written questionnaire that chances were that Malawi could have only one stock market in pursuit of regional trends, and said the move could not be counter-competition or against values of a liberalized market.

“The fact is that most of the countries in the Sadc region and all over the world have one stock exchange. A country is not doomed if there is (only) one stock exchange,” said Malitoni, adding there was no need to establish another stock market since we already have one.

Malitoni said, to that end, the Central Bank’s role as a regulator would be to achieve three key objectives of regulation. These include protecting investors and shareholders; ensuring transparency, efficiency and fairness; and to reduce systematic risks.

In the Malawi scenario, RBM mandate revolves around licensing market players such as brokers, investment advisors and portfolio managers, supervising stock market activities, and providing guidelines on market conduct.

“Our expectations are that the Malawi Stock Exchange will remain a market where stocks or equity and other financial securities will be traded. The exchange will (also) be expected to move along with developments that are taking place on the global market,” he said.

According to Malitoni, moving along with global developments meant improving the country’s trading systems as well as offering a clearing and settlement mechanism currently unavailable on the local bourse, developments that translated into continued changes of systems in line with global trends.

He said the development of a stock exchange depended on a number of national developments, key among these being macro-economic conditions, while a number of factors including public awareness also influenced market outcomes.

Current indicators, such as oversubscription of Initial Public Offers- which is an offer of a company’s shares to the public for the first time- pointed to increases awareness about opportunities that exist on the stock market. Through MSE, companies have become aware of the opportunity to raise capital at a relatively lower cost than borrowing from commercial banks, he said.

The RBM Bank Secretary acknowledged, however, that there was room for improvement in terms of investor education, in order to sensitize investors on the benefits of growing their savings, and also to sensitize companies on the need to raise quick capital at the stock market.

MSE also needed to move with global trends as financial market activities evolved as the whole market developed.

A stock market is just one part of a capital market- a market for securities where companies and governments raise long term funds (capital) and where the securities are traded- and its existence dates back to 1988 when Malawi, with support from the International Monetary Fund, carried out a Structural Adjustment Programme (Sap) aimed at reforming the fiscal, monetary and structural roles of government in the economy.

The Sap led to a review and enactment of a revised RBM Act and the Banking Act in 1989 enabling the Ministry of Finance to relinquish its supervision powers over banks and other financial institutions to the Reserve Bank that the Central Bank’s mandate included the promotion and development of money and capital markets in the country.

Following the new powers granted to the bank, a new instrument named the Capital Market Development Act (CMDA) number 17 of 1990 was enacted. This inadvertently vested in the Central Bank oversight powers over the capital market, and paved way for the establishment of an organized stock exchange in 1994, which started operating under the only broker at the time- Stockbrokers Malawi Limited.

On April 1, 2000, the stock exchange got delinked from Stockbrokers Malawi as its secretariat and the MSE was born.

Malitoni said, while one of the key reasons for de-linking the exchange functions from Stockbrokers was the need to bring in competition at the market, the existence of one stock market as is commonplace worldwide could not be describing as frustrating market competition but rather enhancing it.

“Opportunities exist for those wishing to invest in the other types of markets,” he said.

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