Open and competitive markets have created new opportunities for market participants for trading between different markets, thereby increasing liquidity and contributing to optimal use of existing network capacities.
In many regions, mainly the East Africa, this has resulted in severe congestion between different markets since existing network capacities are insufficient to satisfy the entire demand from the market.
Experience has also shown that many economies are too small to allow for sufficient competition to develop.
However, such obstacles may be overcome by merging markets into a single regional market.
Scope is thereby reduced for companies to gain market power and the compounded market can support a larger number of players.
This is being demonstrated by the successful establishment of the East African Capital Market Infrastructure (CMI) to link the four markets across within the region come the second part of this year 2021, trading at the Rwanda Stock Exchange (RSE) is expected to become fully automated.
Currently, only the Central Depository System (CSD) is operational where owners of shares and bonds have their accounts already automated. At the moment, it takes two working days for one’s shares to be transferred to his or her names in an electronic format unlike before where it used to take up to three months to transfer stock ownership due to a tedious manual process.
This automation will not only make Rwanda Stock Exchange more efficient but also better in terms of attracting new investors to the market.
It is also an a facilitator of regional integration and helps to optimize operation of the overall system by removing boundary issues and allowing optimization of integrated production, market operations and trading.
Over time, focus has therefore shifted towards the integration of neighboring markets or, eventually, the creation of regional markets.
This trend has been observed in Europe, the U.S. and other regions world-wide.
East African Capital Market experts are helping stakeholders to understand the different concepts and assess the resulting opportunities, risks and requirements in the new environment of linking the markets using technology as an enabler.
Development towards regional markets varies both in the degree of integration and the concepts or instruments being used like cross listing of companies across the region.
Moreover, it is necessary to consider different market models and legal and regulatory issues as well as organizational, technical and procedural aspects.
Successful regional integration therefore requires a wide range of conceptual analysis and activities such as choice of integration models in technology like the one being used the East African markets of linking all the Automatic Trading Systems (ATS) and the Central Securities Depositories (CSD in the EAC region.
The overall objective is to allow a seamless movement of securities and payments between the different EAC Capital Markets compatible at the regional level.
This project is fully backed by a whole set of regional capital market directives that have been created by the EAC partner states to allow smooth flow of investments into the region through the various stock exchanges.
The economic performance in the East African Community (EAC) countries is projected at 1% in 2021 from 6.2% recorded in 2020, following a projected slowdown in all member countries compared to the previous year, with expected recessions in Uganda and Burundi.
The projected deceleration in growth is mainly due to the weak external demand and disruptions to supply chains and domestic production.
Activity in tourist dependent countries is expected to contract sharply in response to severe disruptions in travel and tourism activities.
The East African Community (EAC) has four operational stock exchanges; the NSE, RSE, DSE, USE in Kenya, Rwanda, Tanzania and Uganda respectively.
A total of 110 companies are listed on the four exchanges; 62 on the NSE, 10 on the RSE, 21 on the DSE and 18 on the USE.
By mid of 2011, the four EAC stock exchanges commanded a combined equity market capitalization of US$ 22 billion for which NSE accounted for 55% with a market capitalization of US$ 12billion,” according to data from the EAC portal.
The Author of the Article is Mr. Robert Twagira, Head of Operations and Technology at Rwanda Stock Exchange with more than 10 years of experience in investment, Capital Markets and Technology.