14, 2020 / 06:00 AM / By Proshare
Research / Header Image Credit: EcoGraphics
Creating an integrated and competitively linked network of African securities exchanges requires paying close attention to various matters. They include harmonizing regulations and listing requirements and developing a more technologically sophisticated platform that would improve the flow of financial information and help develop appropriate skills for managing complex financial operations.
In addition, the following may be necessary:
To capital market integration, there must be a substantial degree of economic integration and complementarity between the economies of African countries, whereby the economies provide a wide variety of investment opportunities and portfolio diversification prospects to investors. Another dimension of complementarity would ensure that the public sector is complimented adequately by the private sector. At present, the large size of the public sector in African economies tends to crowd out the private sector, thus making only so much available for investment in the continent's companies.
Regulation & Harmonising listing requirements
As African Capital markets embark on integration, African exchanges should see to it that they have a common listing, membership, trading, disclosure, and reporting standards, as well as C&S and accounting systems. They must create intelligent integrated trading and C&S systems that enable speedy execution and transparent transactions, as well as a single information system. Likewise, a single set of accounting rules based on the International Financial Reporting Standards (IFRS) should be proposed to promote market transparency, price discovery, decrease hidden market inefficiencies, and facilitate fair and equitable trading.
Since the denomination of securities in any single country's currency, rather than a unified "African currency," creates a significant impediment of transparency to regional market integration, the adoption of a single currency would provide greater market pricing transparency. For example, the Eurozone markets managed to achieve more significant consolidation through its common currency than non-Eurozone countries.
Embracing Technological Advancement
African exchanges must endeavour to employ new technology and take advantage latest financial innovations that are generating continued interest in the African region from global portfolio investors. This demands the establishment of solid capital market regulations and monitoring that improve information disclosure and openness among participating exchanges. The establishment of investor compensation funds, the introduction of new index series, and the formation of credible continent-wide credit rating services are also critical steps toward market improvement.
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