The Experience of financial regulation in South Africa – Part Two –

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The State of Financial Markets in South Africa

at the end of 1994, there were 14 exchanges throughout the continent. This was Cairo (Egypt), Casablanca (Morocco), Tunis (Tunisia) in North Africa; Abidjan (Côte d’Ivoire), Accra (Ghana), and Lagos (Nigeria) in West Africa and Nairobi (Kenya) in East Africa. In South Africa, they were Windhoeck (Namibia), Gaborone (Botswana), Johannesburg (South Africa), Port Louis (Mauritius), Lusaka (Zambia), Harare (Zimbabwe) and Mbabane (Swaziland). In 2005, most other countries in southern Africa developed its own shares and exchange rates. They are Maputo (Mozambique), Dar-Es-Salam (Tanzania) and Luanda (Angola).

With the exception of the Johannesburg Stock Exchange, and on a different level, Zimbabwe Stock Exchange and Namibia Stock Exchange, are too low compared to the developed markets in Europe and North America, and also to other emerging markets in Asia and Latin America in these markets. At the end of 1994, 1,150 listed companies in African markets put together. The market value of listed companies amounted to $ 240 billion for South Africa, and about $ 25 billion, other African countries

In the countries examined, the stock markets are particularly small in comparison to its economy -. With the ratio of market value to GDP averaged 17.3 percent. The limited supply of securities in the market and the prevailing buy and hold attitude of most investors have also contributed to low turnover and turnover rate. Turnover is poor with less than 10 percent of the market traded annually on most exchanges. Low capitalization, low trading volumes and sales would suggest the embryonic nature of most stock markets in the region.

We have gathered considerable information about the current state of the financial markets in Africa in general, and because of the limited time frame, it was not possible to classify, analyze and coordinate them. The format of this article can not be allowed to take into account all the data. From the latest information, it becomes clear that the ongoing reforms in the financial sectors in the countries under study, a lot of progress has been achieved in terms of regulatory and institutional capacity building. We could expect more results with the promotion of open investment rules, allowing more flow in the area.

The Experience of financial regulation in South Africa

financial systems in African countries are characterized by high ownership leads oligopolistic market practices that create good access to credit for large companies but limited access smaller and growing companies. The regulatory framework must take into account all the specific characteristics of these systems, and at the same time keeping the overall approach means that each regulatory instrument.

financial system in South Africa is also known for a marked change them. Some systems, such as Mozambique, Angola and Tanzania were a long time, controlling government portfolio, which consists mainly of the central bank and very few commercial banks. Up to date, Angola has not developed money and capital markets, and informal money are used extensively. Other systems had mixed ownership comprising central public, domestic private and foreign private financial institutions. This can be divided into those with a rich variety of organizations, such as is found in South Africa, Mauritius and Zimbabwe, and others with limited variations of the institutes in Malawi, Zambia, Swaziland, etc.

Regulatory authorities in most of these countries have, over the years, adopted a strategy of financial sector intervention in the hope of promoting economic development. Interest rate controls, directed credit to priority sectors and guarantee bank loans at below market interest rates to finance their activities, later turned out to undermine the financial system in order to promote economic growth.

For example, low mortgage rates encouraged less productive investment and discouraged savers from holding domestic financial assets. Directed lending to priority sectors often led willful default on the belief that no court action could be taken against defaulters. In some cases, subsidized credit barely reached the intended beneficiaries of his.

There was also a tendency to concentrate on formal financial institutions in urban areas thereby making it difficult to provide loans to people in rural areas. In some countries, private sector borrowing was largely crowded out by the borrowing government. Small businesses often had great difficulty raising funds from formal financial institutions to finance companies. Finally, the tendency governments in the region to finance the public deficit through of liquidity led not only inflation but also in negative real interest rates on deposits. These factors had a negative impact on the financial sector. First, savers found it a little to invest in financial assets. Secondly, it generated capital flight between those unable or unwilling to invest in real properties thus limiting the resources had been made available for the financial services. Coupled with this was declining capital inflows to Africa since 1980.

A viable financial markets can serve to make the financial system more competitive and efficient. Without the stock markets, companies need to rely on internal finance through retained earnings. Large and well companies, especially local branches of multinationals are in a privileged position because they can make investments from retained earnings and bank credit while new indigenous companies do not have access to capital. Without being examined in the market, big companies bigger

Availability of reliable information would help investors to compare the performance and long-term business prospects. company to make better investment and policy decisions; and provide better statistics for economic policy makers. While efficient stock markets force companies to compete on equal terms for investors’ funds, they can be blamed for favoring larger companies, suffering from high volatility, and focus on short-term financial return rather than long-term economic return.

In various countries where domestic bond markets exist, these are usually the dominant government funding Treasury crowds out the private sector needs to fixed rate financing. With minor exceptions, the international markets fixed rate bonds have been closed to African companies. Thus, the development of an active market for the shares could provide an alternative to the banking system.

Development of financial markets could help to strengthen corporate bank and an efficient and competitive financial system. The capital structure of the South African countries where there are no viable stock markets are generally characterized by heavy reliance on internal finance and bank borrowings which tend to raise the debt / equity ratio. The under capitalizations companies with high debt / equity ratios tend to lower the viability and solvency of both companies and the banking sector especially in the economic downturn.

Case studies in countries in South Africa

In all the countries under study, both historical background, how the financial development and the importance of financial market structure and operations have a significant impact the nature of the regulatory environment. However, there are some countries which targets financial capital controls were the basis for the development of modern regulatory system. Mauritius and Botswana are examples, along with South Africa and Zimbabwe, has developed some of the most developed and diversified financial systems in Africa. There is no doubt that economic and financial conditions in the economies of South Africa have played an important role in shaping the legal framework for the financial market’s.

1. Financial Markets in Botswana

informal stock market was established in 1989, managed and operated by a private brokerage firm (Stockbrokers Botswana Limited). In 1995, a formal stock exchange established under the Botswana Stock Exchange Act. The BSE out remarkably well in terms of the level of funding, the value of the shares and return the shares. The BSE contributed to the promotion of Botswana as a destination for foreign.

In 2004, the number of domestic companies listed on the 18 foreign companies were 7, and two in the venture capital market. The Bank of Botswana introduced their own paper his BoBCs, since 1991, for liquidity management and there is a growing secondary market for the instruments. In 1999, the Central Bank introduced other instruments, which Repos (Re-purchase agreements) and national savings certificates with the aim of developing local money market and encourage savings. In 1998, the International Financial Services Centre (IFSC) was established to promote world quality financial services.

2. Financial Markets Mauritius

The Government of Mauritius has decided in priority to modernize and upgrade financial Mauritius and recently took measures to strengthen the financial sector and to further integrate it with both the domestic economy and international financial markets .

Thanks to a well-developed network of commercial domestic banks, offshore banks, non-financial corporations and financial institutions, the financial system is one of the most vibrant in South Africa.

The Stock Exchange of Mauritius (SEM) started its operations in 1989, with only five listed companies. In 2004, more than 44 companies on the list, and a range of activities has expanded, state-of-the art technology is used in communication.

In September 2001, the settlement cycle in which reduced from five to three days, to comply with the major international stock markets. The short settlement cycle has since helped to improve liquidity and turnover in the market in which investors can sell their securities three business days after purchase, thereby reducing the risks and to better integration of international markets with strict international standards.

3. Financial Markets in Mozambique

In 1978, all private banks operating in Mozambique were nationalized and merged into two state entities, Banco de Moçambique (Central Bank) and Banco Popular de Desenvolvimento (BPD ). Following the adoption of new economic policy in 1992, the government implemented an economic reform program, including financial reform. Foreign banks were allowed to invest in Mozambique, regulatory and commercial Bank of BDM were separated. Banco de Moçambique expected operation Central Bank, Banco Comercial de Moçambique BCM led the commercial banking system.

The financial sector liberalization policy allowed new institutions. Apart from the operating Standard Bank, new banks licensed since 1992, or for the liquidation of existing institutions are Banco Internacional de Moçambique, Banco Comercial de investiture Mentor Banco de Fomento, Banco Austral, African Banking Corporation ABC, BMI, UCB, ICB Novo Banco, etc. There are also investment banks, leasing companies and credit unions. This increase in financial and non-financial institutions resulted in the development of effective financial sector.

In October 1999, the Mozambique market (Bolsa de Valores de Moçambique BVM) was inaugurated. Regulatory Agency, the Central Bank BDM and its activities are still limited. With technical support Johannesburg JSE market and the Lisbon Stock Exchange, plans are underway to develop an international financial center, including a state-of-the art information technology systems.

4. Financial Markets in Namibia

Namibian Stock Exchange NSX depends on the Stock Exchange Control Act of 1985. Changes to legislation recently adopted in order to bring national legislation in line with international standards.

The NSX was established in October 1992 and is the most technologically advanced Bourses in Africa, and also one of the few self-regulated markets in South Africa. Namibian Stock Exchange Association, an independent authority, companies, depositary license to operate the NSX. It approved the registration of applications, licenses stockbrokers and operates trading, clearing and settlement of stock exchange. Since 1998, NSX has used the most technologically advanced management tools available in Europe, which allows better control and accurate customer protection.

5. Financial Markets in South Africa

The South African Financial Markets system is the most sophisticated and complex with vibrant Johannesburg Securities Exchange (JSE) Bond dissemination of South Africa (Besa) and in South African Futures Exchange (Safex).

The Johannesburg Stock Exchange JSE was established in November 1887. Currently, it depends on the stock exchanges Control Act of 1985 [breyttárið1998og2001]. The JSE is the largest exchange in Africa and has a market value of more than 10 times that of all other African markets combined. The JSE provides technical assistance and skills, skills and information on the following exchange in the region, Namibia, Mozambique, Mauritius, Tanzania and others in Africa (Nigeria, Ghana, Egypt, Uganda and Kenya). Since 1999, the JSE common listing its stock markets in Botswana, Malawi, Namibia, Zambia and Zimbabwe.

The Besa was licensed in May 1996 under the financial Control Act of 1989 [breyttárið1998] and Safex was founded in 2001 as a Derivatives Market and the agricultural division of the JSE.

In June 1996, the JSE introduced a fully automated electronic trading system known as the Johannesburg Equities Trading (JET) and since May 2002, is to use the Stock Exchange Trading System (set).

6. Financial Markets in Swaziland

The Swaziland Stock Market (SSX) was established in 1990 to promote local investment. In 2002, five companies listed. The SSX has developed new requirements for registration in accordance with new international standards. A new security bill has been approved in 2002, and should be in force now. It will allow licenses and monitors all markets, operations and participants.

7. Financial Markets in Tanzania

The Dar-Es-Salaam Stock Exchange (DSE) was taken in September 1996 under the Capital Markets and Securities from 1994 its not begin until April 1998 listing of the first company. In October 2002, foreign companies allowed to operate in DSE. Regulatory Agency of the financial markets and the Securities Authority (CMSA). Plans are underway to help ensure increased funds from international markets.

8. Financial Markets in Zambia

The Lusaka Stock Exchange (Luse) was founded in February 1994 and the 1993 Act. It is regulated by the Securities and brokerage Commission (SEC). Its operation was boosted by the successful issue of Zambian Breweries, which raised the US $ 8.5 million to refinance a loan secured for the acquisition of Northern Breweries in 1998. Most listings were the result of the privatization of the country.

A Commodity Exchange, the Agricultural Credit Exchange was also established in 1994, the initiative Zambia National Farmers Union, after the liberalization of prices of agricultural commodities. Exchange provides centralized trading facilities for buyers and sellers of goods and inputs. It also provides updated price and some market information for both local and international market.

9. Financial Markets in Zimbabwe

The Zimbabwe Stock Exchange ZSE is one of the oldest and most vibrant stock exchanges in Africa. It was founded in 1890, but had occasional business since 1946. In 2002 it had 76 companies. The ZSE operates the stock exchanges act, which is adjusted to take account of new technical requirements and to align its content with international standards (improving security trading, transparency, Central Depository system, etc.).

The ZSE is open to foreign investors, who can buy up to 40 percent of the equity of the listed company, one investor can buy up to 10 percent of the shares offered. Foreign investors can invest in local money market up to a maximum of 25 percent of the primary issuance of government bonds and equities, and one investor can acquire up to 5 percent. Foreign investors are not allowed to buy from the secondary market. These investments qualify for the 100 percent dividend and interest return

Financial Markets Regulation in South Africa :. Which way ahead?

The major issues in financial regulation lies in the fact that the legal and institutional framework in most countries is still insufficient to support modern financial processes. Examples of inadequacy are outdated jurisdiction leads to poor enforcement. The following subjects are very interesting opportunities for further research.

A coherent and comprehensive legal framework required by a proactive approach in order to use contracts defining the rights and obligations of all intervention operators. Such a framework should encourage discipline and timely implementation of the agreements, fostering responsible and prudent behavior on both sides of the business. Prudent and efficient financial services can not work without reliable information on borrowers, and some legislation on accounting and auditing standards, which also ensures honesty on the part of financial institutions, likewise for the financial markets of the country to develop and operate efficiently, legislation should fully incorporate rules business, savings, information, acquisition and integration.

Because of the role of financial institutions and markets in the development of a healthy financial system, additional legislation is normally required for the operation to support law firms. These are precautions, especially for banks and similar financial institutions, which are an important part of the money, creating money and intermediate between savings and investment. Corporate law is an example of the kind of legislation that is needed. It applies not only business enterprises but also protects the interests of the company’s stakeholders. Thus, the public disclosure of its activities should be required of business managers in relevant parts of the Companies Act. Such information, particularly concerning finance and accounting, should also be mandatory to be established and documented by the auditors.

prudential rules cover such issues as a condition for entry (registration), the capital adequacy ratio and standard, asset diversification, limits on loans to individuals, the permissible range of activities, classification of assets and loans, grant portfolio and implementing powers, separate accounts, auditing and disclosure standards adapted to the needs of banks to ensure the timely availability of accurate financial information and transparency. The aim is to increase the safety and health of the financial system.

There is a real need for relevant for markets that require not only favorable policies but also the legal and institutional infrastructure to support their operations, prevent abuse and protect investors. Investor confidence is critical to the development of markets. Brokers, underwriters and other intermediaries operating in these markets, following the prescribed professional ethics embodied in legislation applicable to such institutions as finance and insurance, mutual funds and pension funds.

An another important issue is the independence of the regulatory authority, the number and the possibility to establish self-regulatory agency. All these factors should be taken into account the objectives and principles defined by the government, and also needs a special development in the financial system.

A major challenge for the financial market in South Africa is to coordinate the National Financial Regulation and compliance with international standards, including the SADC standards and international standards set by international organizations such as the International Securities (IOSCO), International Accounting Standards Committee (IASC), the Basel Committee on Banking Supervision (BCBS) and the obligations resulting from the WTO Agreement on Financial Services (GATS). This key international instruments are beginning to be implemented and individual states have to keep updating their financial regulations and upgrade the technical skills of their staff in charge of business regulation and supervision.

references

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-Dougall, H. [1970], markets and institutions, Second Edition, New Jersey, Prentice Hall;

-Furness, E. L. [1972] Presentation of Financial Economics, Heinenmann, London.

-Smith, P.F. [1971], economics, financial institutions and markets, Illinois, Irwin;

-Peltier, F. [1997] Marchés Financiers et droit commun, Banque Editeur, Paris;

-Kolb W. R, and Rodriguez J .r. [1996], financial institutions and markets, 2nd Edition, Blackwell Publishers;

-Mattout, JP [1996] Droit Bancaire International, Banque Editeur, 2e Edition, Paris;

-Schmidt RH and wrinkle A. [1999] Building Financial institutions in developing countries, Working Paper Series, Finance and Development, no. 45, JW Goethe University Frankfurt am Main,

-Falkena H. Bamber R. Llewellyn D. and T. Store [2001], the Financial Regulation in South Africa, the SA Financial Sector Forum, 2nd edition, Rivonia;

-Mishkin, FS [2004], The Economics Money, banking and financial markets, Seventh Edition, Addison-Wesley, Boston, MA

-Fanelli`J.M. and Medhora R. [1998] Financial Reform in developing countries, IDRC Mac Millan Press Ltd, Hampshire;

-Banco de Mozambique [2005], Annual Report, May 2005.

-SADC [2004], The official SADC Trade, Industry and Investment Review, 8th Edition, SADC Secretariat in Gaborone,

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