Sunday, June 14, 2009


Work it harder, make it better,

Do it faster, Make us stronger

Kanye West

The Rwanda Stock Exchange (RSE) is the newest stock exchange in East Africa. The regulator and operator of the exchange is the Capital Market Advisory Council (CMAC). So far transactions on the exchange have been limited so that extensive substantive rules have been unnecessary. Officials are now looking around for rules that will help develop a robust regulatory structure. The question is what will guide this search for appropriate rules?

There is a limited universe of possible legal families to choose from. There are Common law, Romanistic, Germanic, People’s Republic of China, and the list goes on. Or things could be simplified in to Common law or Civil law families. This makes sense for East Africa due to its colonial past but it is incredibly simplistic. The Republic of Rwanda gained its independence from Belgium in 1962. Most of its laws have a tradition of civil law and customary law. However, law reform in the 1990’s created a hybrid of civil and common law. It is the fact of a legal hybrid that I find fascinating.

I see legal hybrids throughout East African financial services law. It is not just a civil-common law hybrids. There is a combination of something else that I have no better word for than African law. It is law with a different focus. Under African law, securities regulation is a continuum. Not all rules are intended to do the same things. How rules function will depend on the context in which they work. The context can be the historical development of the exchange, the economic history of the country as well as the sophistication of the public in financial matters. Certainly, all of the usual things, such as banking and legal infrastructure, play their part in the effectiveness of rules. They might even play a part in choice of rules. Ultimately, no matter what, the rules have got to be fit for purpose.

Exchanges serve various functions, as do the rules that govern them. Exchanges raise money by selling debt or equity. They can sell to the public in general or the world at large. The purpose of the rules may be to regulate the issuance of the securities and debt. Rules can help raise investor confidence in a market making it more credible. The RSE is in an excellent position to choose rules that achieve the most positive goals. It is also in a position to avoid others mistakes.

Currently, the RSE is looking at other East African exchanges for examples of rules that work. Rules from the Nairobi Stock Exchange (NSE) are under consideration. As discussed in this blog already, Muzungu on Africa 5 May 2009, Nairobi has had its share of difficulties. These problems were primarily in the area of broker regulation. This is all well-known in the region. Additionally, the director of the Rwanda CMAC is a former head of the NSE, Mr. Robert Mathu. He knows the NSE rules and how well they work. Moreover, rules are meaningless if they are not enforced. It could very well be that Nairobi has excellent rules that could serve as the standard for any exchange in the region. Without an authoritative enforcement regime these rules cannot prevent fraud on the market or malfeasance by brokers. That may point to a problematic exchange culture.* A problematic exchange culture could make rules toothless or could prevent effective rules from being adopted.

The East African Community hopes to create a regional exchange. For the most part, the NSE is the cornerstone of that collaborative effort. The NSE has the largest market capitalisation and it is electronic. It's rules may serve as the standard for the regional exchange. Before that happens some critical analysis of their effectiveness needs to occur. In the meantime, the RSE should pick and choose the rules as it likes and sees fit, for the purpose the new bourse can put them to. For certain, when it is all over there will be some new legal hybrids regulating securities in East Africa.


K. Zweigert & H. Kötz, An Introduction to Comparative Law (Clarenden, Oxford, 1998)

*I do not like using the C word. (corruption) I find it to be a lightening rod and the West gets lost in this word. Of course, it does exist and not only on the continent of Africa.

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