On the 22nd January 2016 the Central bank of Lesotho will launch the Maseru Securities Market (MSM). This is in essence a stock exchange which will provide companies with an alternative source of capital upon listing with it and provide the public diversified investment opportunities together with a secondary market to trade the acquired financial securities (assets).
A stock exchange is a platform where stock brokers come together either virtually or physically to buy or sell stocks (also called shares) bonds and other securities. Stock exchanges may also provide facilities for new issues and redemption of securities and other financial instruments and capital events including the payment of interest and dividends. Securities traded in the stock exchange include stocks/shares issued by companies, unit trusts, derivatives, pooled investment products, bonds etc.
To be able to trade a stock the issuing company must be listed with the relevant stock exchange. There are rules and regulations that companies must meet before they are admitted and regarded as listed on the exchange. Trading of securities/stocks usually happens at a central location where prices are revealed for market fairness and transparency as well as establishing trading statistics for all securities traded. For newly established, small and growing markets, trading takes place physically at a physical trading platform through the process commonly known as public outcry but bigger and well developed exchanges have moved to conduct trading electronically thus allowing increased speed and reduced cost of transactions. Launching of the Maseru Securities Market will provide this central location enabling Basotho to invest in listed companies and an onwards trading in the secondary market. This facility will be housed at the Central Bank of Lesotho until such a time when the private sector is ready to take it forward and can operate as an independent entity.
Processes to develop the MSM formally started with the development and adoption of a national document called Financial Sector Development Strategy. This document was formally adopted by the Government of Lesotho in 2013 paving the way for establishment of MSM. Financial Markets in Lesotho have been developed in phases. The first phase focused on money markets development (treasury bills) in 2008 by increasing the frequency of auctions and increasing the number of tenors. This was followed by introduction of Government bonds in 2010 and the last phase is development of corporate bonds and equities market. Maseru Securities Market (MSM) is meant to partly respond to development of equities and corporate bonds market while also addressing illiquidity problem of Government bonds.
During the development phase of MSM the following activities were undertaken; firstly sensitization of the public on what a stock exchange is, its operations and benefits. Public financial literacy is one of important pillars for the success of this initiative. The ability of the public to understand and use knowledge and skills to manage financial resources effectively for financial well-being is very important. A large part of our population is still not very well versed with money handling and investment skills and therefore remains excluded from the formal financial services.
Secondly the legal and regulatory framework was developed. This market was established by law in 2014 through the publication of Capital Markets Regulations of 2014. These regulations and other regulatory instruments provide for the operation of a market that is fair, orderly, secure, and transparent. It provides for investor protection and the licensing of all market players. The fundamental objective of establishing this platform is to enable trading of financial securities in a secure environment that enhances investor confidence while on the other hand not too strict to suffocate market development. The MSM is a registered legal entity, and, in common with international practice, a philosophy of self-regulation by the markets is practiced and shall be applied to the MSM. Thirdly the institutional framework was put in place. This simply means establishing the MSM as a legally registered institution with operating agents being stock brokers who act as intermediaries between buyers and sellers. Commercial Banks have been identified and tipped as settlement agencies for this market while the Central Bank will continue to act as clearing agent through the use of its Central Securities Depository.
Lastly the physical infrastructure was put in place. This mainly entailed upgrading of the Central Securities Depository system (CSD) of the Central Bank. The CSD is a computer based system that facilitates the holding of securities such as shares, bonds and money market investments in electronic accounts as opposed to paper certificates. The CSD also caters for the transfer of securities between beneficial owners via a book entry, and for the settlement of transactions made on organized exchanges. In the past this system used to handle only government securities. It has now been updated to handle both government and corporate securities. The system is also able to settle corporate securities accounts and permit secondary market transactions. This system will further be complimented with an electronic trading system when the securities market is operating at full capacity and trading in large volumes this is anticipated to happen as soon as the volumes warrant the acquisition of such a system.