Monday, October 26, 2009

Zim Exchange

It does seem absurd to talk about, given that the ‘unity’ government is on the verge of collapse, but what will be the structure of the new securities regulation governing the Zimbabwe Stock Exchange?

Rather than focus on the negative, I think we should all just embrace Zim as representative of every relationship in our lives that perhaps involved a domineering figure or some dysfunctional union where other people were for it but you were sceptical of its success in the long run. This is in line with the way I see France as someone’s former lover who was once young and urbane but is now just old-in an endearing way.

On the other hand, the stock exchange of Zim is like the one thing you did right in the particular relationship…it made money and might just make more…AND it has this fabulous electronic board that displays the ticker and all the quotes. Seriously, often in times of turmoil, the best medicine is to contemplate the minutia.

The Zimbabwe Stock Exchange (ZSE) is currently governed by the Securities Commission. The Securities Commission came in to being through the Securities Act [Chapter 24:25] (Act No. 17 of 2004). It has had some difficulty gaining respect. In March of 2009, after the ZSE re-opened, the Commission attempted to have a meeting to inform brokers of the role of the Commission in securities regulation. It was poorly attended. This indicated more about habit and tradition perhaps than any intention to snub the new regulator. there is little information on what has hapenned with the regulator since.

By August of 2009, reported that the ZSE was going to de-mutualise and trade as a company on the ZSE. This is permissible under the Securities Act.

I just wonder why a Securities Commission structure was chosen to govern the exchange as opposed to a Financial Services Authority (FSA) type of regulation as in the UK-where one regulator governs all financial related industries…? The single securities regulator is very American in style-such as the Securities and Exchange Commission (SEC) in the US. It is a popular structure and can streamline governance since the Commission will be singualr in focus.

De-mutualisation will introduce a new way of regulating. The Commission would regulate the exchange under securities law, but the exchange would be a company and will have a Board that is responsible for the exchange as a company. The will be Corporate Governance issues. All de-mutualised exchanges continue to have a public function. They are symbolic and some can continue to be self-regulatory organisations (SRO’s) even after de-mutualisation. They are responsible for continued market surveillance and broker regulation-how this will take place can differ. A separate organisation can be established such as Financial Industry Regulatory Authority (FINRA) in the US.

Often in emerging economies, de-mutualisation can simply mean that the exchange wants to be competitive within the world of exchanges. De-mutualisation is therefore not significant in a regulatory sense, rather it is an economic move.

In Zim, it is difficult to know why things are done. It is most likely seen as a way to compensate for the lack of funding and resources. Understanding, why things are done may assist in predicting how regulation will work or not under the regulatory regime.

Excitingly, things happen without an answer to the question WHY in Zim. We will continue to monitor the regulatory developments and try to determine is some sense can be made. Regardless, the exchange will most likely de-mutualise and regulation is most likely of little concern to the authorities. It will however need to be sorted in order for the exchange to be competitive in a global way. So, we will continue to monitor the news, even if it is quite focused on bad men and big men, for news of exchanges, and try to determine how the ZSE will be regulated moving forward-despite the nagging political problems.

End Notes

The Herald, 17 March 2009, Business Section pg 5. 14 August 2009, Zimbabwe:Government to End ZSZE Monoply

Jennifer Elliot, IMF Working Paper, Demutualisation of Securities Exchanges: a Regulatory Perspective, WP/02/119, September 18, 2002.

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