dse product and service development plans product... · 2018-01-10 · dse product and service...

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DSE PRODUCT AND SERVICE DEVELOPMENT PLANS

Public Consultation

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BTA Consulting Limited Close House

84 Crouch Lane Borough Green

Kent TN15 8LU, UK

Telephone +44 (0) 1732 887 244 Facsimile +44 (0) 1732 887 243

In association with

Green Park House 15 Stratton Street, Mayfair

London W1J 8LQ, UK Tel: +44 20 8123 0318

Email: [email protected] Web: www.boseconsulting.com

Client: Dar-es-Salaam Stock Exchange

Programme: New Products and Services

Deliverable: BTA Draft Final Report


Glossary

Table 1 - Glossary

Term Definition

AML Anti-Money Laundering

API Application Programming Interface

BCL Bose Consulting Limited

BDC Bond Development Committee

BIS Bank for International Settlements

BOT CSD CSD-Registry at the Bank of Tanzania

BOT Bank of Tanzania

BTA BTA Consulting Limited

CLOB Central Limit Order Book

CEF Closed Ended Investment Funds

CH - CCP Clearing House - Central Counterparty

CMSA Capital Markets & Securities Authority

CMSL Capital Markets & Securities Law

CSD Central Securities Depository

DATS DSE Automated Trading System

DRs Depository Receipts

DSE Dar-es-Salaam Stock Exchange PLC

DSE ATS DSE’s Automated Trading System

DSE CSD CSD-Registry at the Dar es Salaam Stock Exchange

EMIR European Market Infrastructure Regulations

ETF Exchange Traded Funds

FMI Financial Markets Infrastructure

FX Foreign Exchange

GSS Government Securities System at the BOT

IOSCO International Organisation of Securities Commissions





Term Definition

KYC Know Your Customer

LDM Licensed Dealing Member

LGA Local Government Authority

MMO Mobile Money Operator

MOF Ministry of Finance

MSCI Morgan Stanley Capital International

NAV Net Asset Value

NCD Negotiable Certificates of Deposit

NOMADs Nominated Advisor

PFMI Principles for Financial Markets Infrastructure

QCP Qualified Competent Person

SLA Service Level Agreement

SME Small to Medium sized Enterprise

STP Straight Through Processing

TCRA Tanzania Communications Regulatory Authority

TMX Tanzania Mercantile Exchange

TRA Tanzania Revenue Authority

TZS Tanzanian Shillings





Contents

1 EXECUTIVE SUMMARY ................................................................................... 1 1.1 Introduction ............................................................................................................... 1 1.2 Background ............................................................................................................... 1

1.2.1 Critical Advocacy Goals .................................................................................... 2 1.3 Key Points ................................................................................................................. 3

1.3.1 Government commitment to a market culture .................................................... 3 1.3.2 Government Debt - crowding out effect ............................................................. 4 1.3.3 Big Focus on Primary Markets - the multiplier effect! ........................................... 6 1.3.4 Information Liquidity Information ............................................................... 7 1.3.5 LDMS ........................................................................................................... 12 1.3.6 Conclusion ................................................................................................... 14

2 PRODUCTS AND SERVICES DEVELOPMENTS ................................................ 15 2.1 Primary Market Developments.................................................................................... 15

2.1.1 Government bills .......................................................................................... 15 2.1.2 “Diaspora” bills and bonds ............................................................................. 16 2.1.3 Municipal bonds ............................................................................................ 17 2.1.4 Infrastructure Investments ............................................................................ 18 2.1.5 Investment Vehicles ...................................................................................... 19 2.1.6 REITS .......................................................................................................... 20 2.1.7 Exchange traded funds .................................................................................. 20 2.1.8 Closed Ended Investment Funds (CIFs) ........................................................... 22 2.1.9 Pre-EGM Funding .......................................................................................... 23 2.1.10 Negotiable Certificates of Deposits (NCD) ........................................................ 25 2.1.11 Depository Receipts (DR) ............................................................................... 26 2.1.12 Conclusion – primary markets ........................................................................ 28

2.2 Secondary Market Developments ................................................................................ 29 2.2.1 Trade reporting ............................................................................................ 29 2.2.2 Derivatives .................................................................................................. 29 2.2.3 Liquidity enhancements ................................................................................. 32 2.2.4 Conclusions on secondary market products ...................................................... 32

2.3 Other Product Developments ..................................................................................... 32 2.3.1 Listing Rule Improvements ............................................................................. 32 2.3.2 Market Information – Research ....................................................................... 33 2.3.3 Issuer Profiling ............................................................................................. 33 2.3.4 Development of LDMS.................................................................................... 34 2.3.5 CSD and registry services .............................................................................. 34

2.4 Legal Requirements .................................................................................................. 35 2.5 Taxation .................................................................................................................. 35 2.6 Conclusions and Next Steps ....................................................................................... 36

2.6.1 How will this be implemented? ....................................................................... 37 2.6.2 National Policy Committee (NPC) .................................................................... 37

3 APPENDIX 1 - DSE Product List ................................................................... 39

Tables

Table 1 - Glossary .......................................................................................................................... 2





Figures

Figure 1 - Exchange Objectives ........................................................................................................ 3 Figure 2 - Definition of Liquidity ....................................................................................................... 9 Figure 3 - Benchmark Fee Comparison ............................................................................................. 11 Figure 4 - 2016 Order Book Turnover - % of total Turnover ............................................................... 11 Figure 5 - Equity Volume & Turnover by intermediary ........................................................................ 13 Figure 6 - Finance for SMEs ............................................................................................................ 23 Figure 7 - Private Equity as a source of IPOs (UK - source FCA) .......................................................... 24 Figure 8 - Proposed Taxation Incentives ........................................................................................... 36 Figure 9 - Vision for Central Market Infrastructure ............................................................................. 36 Figure 10 - Proposed Program Governance ....................................................................................... 37

ACKNOWLEDGEMENT The DSE and BTA Consulting would like to thank all stakeholders for their valuable time and input without which this report could not have been completed. The DSE looks forward to working with stakeholders to implement the proposals and creating a much wealthier marketplace.

FEEDBACK AND FOCUS PROJECTS

The DSE will be very interesting in receiving feedback from stakeholders on any aspect of the proposals contained in this report - please feel free email or contact:

Mr Ibrahim Mshindo

Email: [email protected]

Telephone: +255 756 391 897

The DSE would welcome working with Government and the private sector to create market efficiencies and identifying pilot issuers for a range of products contained in this report:

• Real Estate Investment Trusts (REITs)

• Exchange Traded Funds (ETFs)

• Infrastructure Investments

• Municipal Bonds

• Negotiable Certificates of Deposit (NCDs)

• Listing of Mining Companies

• A new common clearing house / CCP

Capital Market Product and Service Development

www.dse.co.tz www.btaconsulting.co.uk 1

1 EXECUTIVE SUMMARY

1.1 INTRODUCTION The DSE has just completed a critically important study to create significant added dynamism, vibrancy and wealth for Tanzanian capital markets:

• by helping stakeholders of the capital markets to improve the utilisation of existing products and services; and

• creating supply and demand for many new exciting products and services.

1.2 BACKGROUND

The DSE has also almost doubled its profit after posting TZS 694.68mn in quarter one of 2017. This is a significant turnaround from 5 years ago demonstrating significant future potential.

The DSE and CMSA have achieved a lot in the last 5 years. The focus now is to significantly enhance the products and services offered, supporting Government and private sector plans for industrialisation, infrastructure and entrepreneurial development of the economy. If successful, the DSE will enable issuers to lower their cost of capital, creating more competition and providing a broader range of investment opportunities. The DSE is dedicating resources for capacity building to deliver this programme given the potential benefits. Stakeholders should consider factoring these exciting developments into their strategic plans to take advantage of this significant opportunity.

It is widely recognised that when an economy combines a strong and well capitalised banking and brokerage industry with efficient transparent capital markets, significant national and individual economic benefits accrue, mobilising savings and investment into productive capacity.

To get to this stage, Tanzania needs to create more diverse funding sources, enhance access to capital, increase the levels of equity financing (risk taking), implement tools to improve the profiling of issuers and secure much needed liquidity in the secondary markets. All these features combine to make the total financial system more competitive and help to deliver the Government's financial inclusion goals. Collectively, these measures improve the transmission of monetary policy to the real economy, benefitting society as a whole. Tanzania has not yet achieved these ideals - indeed, even developed markets continually tune or overhaul their financial systems to make them more competitive and efficient to continually lower the cost of capital. In order for Tanzania's economy to keep pace with its vast population expansion, it needs to fully transition to a market economy based on strong legal frameworks for property and securities ownership rights. The product development included in this report will only succeed if this transition is made.

There are many new proposals contained in this report. There may be some resistance to some, but this will be largely due to human instinct that new experiences tend to gently nudge the comfort zone and require changes to existing business models. The enhancements are all proven growth tools in other markets across the globe.



1.2.1 CRITICAL ADVOCACY GOALS

Implementing the spirit and the letter of this study will make a material difference to Tanzania. However, implementing the products and services in this plan is dependent on the Government implement critical advocacy measures to empower the markets:

1. Competitive Market Culture: Gaining agreement with Government that national policy should promote the capital markets as the most important engine that fuels and finances economic development rather than relying heavily on the public sector. The level of finance raised through the exchange based markets is negligible compared to public debt borrowing;

2. Crowding Out: Lowering Government interest rates to consistent single digit yields, as close as possible to inflation, to make other financing sources viable. The Government's very high interest rates raise the cost of capital across the country;

3. Taxation incentives: Introducing comprehensive taxation incentives for issuers and investors in capital market products. Although counter-intuitive, including incentives in the tax legislation of Tanzanian will raise total tax revenues;

4. Strong Intermediaries: Developing competitive, financially and technically robust intermediaries, including banks is crucial for success. Capital markets depend upon deep risk taking and innovative intermediation and only have limited growth potential on a pure agency model; and

5. Robust Legal Frameworks: Improving the Capital Markets, Securities, Company and Insolvency Laws to make them consistent with international standards is also essential in order to secure property rights and provide a robust framework for the capital markets to operate within. Updates to the legal framework will become a continuous norm.

Until these issues are addressed, policy makers are not enabling the DSE and stakeholders to fully meet the core objectives of an exchange as shown in Figure 1 overleaf.



Figure 1 - Exchange Objectives

1.3 KEY POINTS

In H1 2017, issuers were expecting that investors would invest TZS 2.7 trillion in Government debt and Telecoms IPOs accounting for almost 3% of Tanzanian 2016 GDP.

1.3.1 GOVERNMENT COMMITMENT TO A MARKET CULTURE

The Government does need to provide the DSE and its stakeholders with policy reforms to promote a market culture across the country. A market culture includes enabling supply and demand for capital to meet efficiently and cost effectively, in competitive markets for different products, establishing a fair price with the minimum of friction / barriers, supported by robust legal frameworks which ensure ownership is properly recognised in law. Today the cost of capital is Tanzania is simply too high and the legal framework for securing property rights for securities are not in line with international standards.

The Government is however making significant positive steps through its intervention in the Telecoms and Mining sectors to meet its "financial inclusion" targets. However, Government is simultaneously pursuing the issuance of Government debt at high interest rates to finance the Government's budget. The two policies are in conflict. The Government Debt strategy "crowds out" the supply and demand for equity in Tanzania. Consequently, Tanzania does not have the absorptive capacity for the listings proposed. In H1 2017, issuers were expecting that investors would invest TZS 2.7 trillion in Government debt and Telecoms IPOs. This would represent almost 3% of Tanzanian 2016 GDP. This has not succeeded as demonstrated by the under subscription of the Vodacom offer.



KEY POINTS CONTINUED

There are at least 6 key market reasons that need to be resolved during the immediate evolution of the market:

1. The limited banking liquidity is absorbed by the Government Bond market. The state is financing the current industrialisation and infrastructure development, via pension funds and Government bonds rather than issuing a portion of private debt or equity issues on the DSE for industrialisation / infrastructure projects in order to promote an equity culture.

2. The low GDP per capita (below $865 per capita, 2015). TZS 2.7 trillion represents 2 weeks savings of the adult population of Tanzania assuming they can save 100% of their average income, which is clearly not possible. If all adults could save 10% and they could invest wholly in the available IPOs then institutions would need to find TZS 2.43 trillion in H1 2017 which has not been achieved in the history of Tanzania's capital markets.

3. The low savings ratios in the country caused by low GDP / capita and high levels of cash in the informal economy (estimated at 70%+) which increases poverty rates.

4. Tanzanian banks do not invest in equity. They have no requirement as they generate their profit targets through investing in Government and private debt.

5. Venture capital and private equity is largely missing in Tanzania.

6. The lack of innovation to address the apparent lack of absorptive capacity of the market e.g. using behavioural economics tools such as discount and incentive structures to change the apparent face value of a security. The recent Vodacom offer had no such benefits built in which is a particular gap given Vodacom itself has in excess of 10 mn retail customers. Furthermore, the tax system does not encourage investment in equity issues.

It is crucial to resolve these issues for the success of the markets and for long-term economic development.

BTA is not aware of any economy that can boast emerging or developed capital market status with double digit Government debt interest rates.

1.3.2 GOVERNMENT DEBT - CROWDING OUT EFFECT

Based on the above experience, it is important to understand how the Government is crowding out the rest of the capital markets through its current approach to the Government Debt issuance:

1. Government runs a weekly auction attracting the majority of available savings and institutional investment into the primary Government debt market. It absorbs the majority of available liquidity by offering very high interest rates. While this continues, any large-scale equity issuance will be difficult. There are important implications for the remaining telco and impending mining listings.




The IMF and World Bank report assumes market forces will lower Government interest rates, but there is no benchmark data to demonstrate such an assertion. There are no incentives in the current model to lower interest rates.

2. Government offers higher guaranteed returns: Why should Tanzanian citizens with a low GDP / capita (US $ 865 - 2015) risk their limited disposable income in the equity markets with an unknown yield, when they can buy Government Bonds with a guaranteed 15% return?

3. In an economy with 15% guaranteed risk-free returns, an equity offering needs to provide a dividend investment ratio of 20%, which is difficult for Tanzanian businesses to sustain from post-tax profits.

4. The current Government debt market in Tanzania has a low penetration in the retail sector and probably zero penetration in the informal market. Financial inclusion and education could be achieved by implementing the proposed M-Akiba Savings Bills and Bonds.

5. Banks and pension funds do not need to work hard to achieve their profit goals - they can just continue bidding high for the auction. This means there is very limited R&D in banks to develop other aspects of the capital markets.

6. The Government securities market is not fully internationalised, meaning there is limited competition and the existing oligopolistic market can prevail.

In sum, high interest rates are the biggest barrier to Tanzania’s capital markets resulting in two major negative side effects:

• raising the cost of capital for the private sector and preventing the private sector from raising capital;

• Government is raising debt and taxes to repay existing debt rather than using the majority of tax revenues to maximise economic development.

Unfortunately, the recent October 2016 IMF and World Bank study did not address these crucial local issues. The IMF and World Bank report assumes market forces will solve the problem, but there is no benchmark data to demonstrate such an assertion. The report overlooks the fact that the market is oligopolistic. This means auction participants will always collectively bid high at each auction.

It is not in the interests of market participants to materially lower interest rates from 15% to say 5% (inflation +1). In summary we believe the key focus for the BoT / Government should be the following:

1. Create benchmarks and a reliable yield curve.

2. Lower interest rates by changing the auction methodology and setting monetary policy targets to achieve single digit interest rates. This would mean designing a specific auction model suitable for Tanzania, potentially combining carefully selected components of auction models from other markets with features that are based on behavioural economics. The latter would include incentives and obligations on auction participants to lower interest rates. Incentives can include




tariffs, membership criteria, tax, secondary market activity and many others.

3. Significantly improve the CMS Law (especially Part VIII dealing with post trade and securities ownership) to create certainty and finality of legal title.

4. Merge the BoT & DSE CSD creating post trade efficiencies.

5. Increase capitalisation requirements for LDMs which may lead to tie-ups with banks and/or banks becoming LDMs creating a joined-up development of all capital markets.

6. Introduce a pre- and post-trade transparency regime for fixed income securities as described in this report.

7. Undertake a pilot project for Central Counterparty (CCP) to lower counterparty risk and enhance liquidity.

To resolve these issues, it is recommended the Government adopts a goal to achieve Frontier Market Status by 2020. Such a goal will require policy, legal and infrastructure improvements thereby driving the change required in the market and within a specified timescale. The benefits of such a reclassification would be significant international investment supported by local dynamism and maintaining a competitive position with peer markets such as Kenya.

The DSE revenue multiplier - secondary market fees are almost 3x the level of the primary market, but brokers enjoy a multiplier of 14

1.3.3 BIG FOCUS ON PRIMARY MARKETS - THE MULTIPLIER EFFECT!

While the Government is driving down the cost of its debt, the DSE needs to focus on developing the primary markets of the Tanzanian capital markets, especially as the market is largely a buy and hold market. Without an active primary market, there are less "sell on" activities such as secondary markets, information, broking etc.

Primary markets create significant multipliers for all stakeholders. For the DSE, based on 2015/16 financial data there is a 2.9 times multiple. This means for every TZ Shilling earned in equity listing / IPO processing fees, there is a multiple of almost TZS 3 shillings earned in secondary trading, information and post trade fees. This is the cash cow and it also creates financial benefits for LDMs on an even bigger scale - the ratio is TZS 14.

There are two important messages from this analysis:




1. Additional primary market products are required. Today, the DSE offers 5 primary market products1 and this study proposes an additional 11 variants2. The study also proposes significant enhancements to existing products.

2. The broker community is gaining critical mass while the DSE continues to subsidise many services used by LDMs. A multiplier of 14 is healthy for a pure secondary market commission business. It means the average broker in 2016 earned TZS 1 Bn (USD 468k) from secondary trading. Given these incomes are supplemented increasingly by advisory services, at such income levels, LDMs can increasingly afford to develop the market much more, thereby investing in their future. There is now less of a case to subsidise brokers as this is holding the market back from true competition.

Some brokers are less profitable than others but it is important that the CMSA/DSE do not develop the market at the pace of the slowest broker's development. A more competitive brokerage market is important for overall capital market development.

1.3.4 INFORMATION LIQUIDITY INFORMATION

Liquidity on the DSE is low. Very low. Turnover was only TZS 421 Bn in 2016. We are aware that the DSE is very pleased with how it has developed the market since 2012 when turnover was approximately TZS 50 Bn, but in global terms liquidity is low. Given the high dependency on foreign investors (70%+) the absolute size of the market needs developing.

89% of total turnover is concentrated in 4 securities - TBL (45%), NMB (17.29%), TCC (16.94%), CRDB (9.85%)

One major reason for low liquidity is regulatory. The current regulations do not mandate and enforce all price sensitive information is available simultaneously and immediately in the public market. This is due on the one hand, to an omission of the term public Central Limit Order Book (CLOB) in the regulations and DSE Rules. The regulations and rules do not mandate the immediate use of the CLOB as soon as an LDM receives an order. In addition, not all issuers disclose price sensitive information on a timely basis to the market in line with the DSE listing rules. Information is therefore not publicly available (it is viewed as a private asset).

1 The 5 primary market products are: Government securities Bonds, Corporate securities Bonds, Equities Main Board, Equities EGM, Listing of Foreign Securities 2 The l1 variants are: Government securities : Bills, M-Akiba Bills and Bonds, Listing of "Diaspora" Bills and Bonds, Government / corporate: Municipal Bonds, Infrastructure Investments, REITs, ETFs in fixed income securities. Exchange Traded Funds, Closed Ended Investment Funds, Securities issued through feeder services - crowd funding and private equity, Negotiable Certificates of Deposits, Listing of Depository Receipts




A consumer would never buy from a vegetable market stall if there was nothing on display.

At current interest rates bonds are naturally a buy and hold to maturity investment

Pre-trade transparency in the bond markets is even poorer

While there is poor pre-trade transparency, there is no information in the market about potential supply or demand. When issuers do not provide quarterly information, there is also no information to stimulate supply and demand. At the exchange, the regulatory gaps lead to a lot of orders not entering the market or remain in the order book, unmatched.

Information creates liquidity and there are significant proposals in this project to develop the information structure of the DSE market. This will require regulatory change and enforcement to fix the current information gaps and weaknesses. It is recommended that there is no compromise in information fairness. Information should not benefit a few at the expense of all.

1.3.4.1 What is causing poor liquidity in the Bond Markets?

Liquidity in the bond markets is very thin. This is an indirect effect of the crowding out effect described earlier. We suspect that most sellers of bonds are only selling when they need cash flow. Therefore, there is a lack of supply in the secondary market.

There are many competitive barriers to the DSE providing a liquid debt market and none of them are easy to overcome:

• The fundamentals of the investment - if the reasons for investing in a debt IPO are right, then unless something fundamentally changes at the issuer (e.g. a downgrade in the credit rating), then there is no need to participate in the secondary market. Bonds are a buy and hold to maturity investment especially when interest rates are high

• The lack of a regulatory level playing field between Bloomberg's unregulated price formation / liquidity discovery services and the DSE's regulated service. Also, Bloomberg's service which is used by the banks offers tremendous added value and functionality including access to a global community

• The intermediaries and advisors are gatekeepers to supply and demand in both the primary and secondary markets

• Where there is a secondary market, there is a lack of a proper best execution benchmark in the secondary market. There is no Government Bond yield curve in Tanzania and any trading that does occur is OTC, so supply and demand are hidden.

Based on these barriers, regulations should be created for the DSE to offer a trade reporting service in the institutional market (in all Government securities and derivatives). The CMSA should also push forward with the M-Akiba Bills and Bonds product, which includes an innovative secondary market investor protection features compared to the Kenyan M-Akiba model.




1.3.4.2 What is causing poor liquidity in the Equity Markets?

Even though equity trading is the most active component of the DSE's current product set, many of the key success factors for developing liquidity are missing. Figure 2 below defines these, but measuring these liquidity components assumes there is a CLOB.

At this stage of development of the Tanzanian markets, it is better to have a "concentration rule" with a regulatory requirement for immediate order submission of all orders to the DSE's Central Limit Order Book. This is how the "tiger economies" of Asia have succeeded in building their successful capital markets.

Figure 2 - Definition of Liquidity

Examining each of these components in Figure 2, identifies solutions to the liquidity issue in Tanzania.

(1) The trading time - latency is not possible to measure at the DSE given, as mentioned earlier, there are no regulations to ensure immediacy of order entry. The execution latency goals should be micro-seconds or seconds but in Tanzania, due to LDM processes, it can be minutes, hours or days. LDMs take advantage of the regulatory gap for immediate order entry and operate business models seeking to execute both sides of each order. This is contrary to client needs for immediacy and best execution and creates opportunities for market abuse and front running by LDMs. LDMs in Tanzania are allowed too many choices on how they can fill an order (cross internally, cross against a temporary dealer position, OTC, place on the order book). Investors will be a lot happier by stripping away many options to make the market fair. If all normal size orders were submitted immediately to the public CLOB and executed using the CLOB trading algorithm (priority - price, time and house) then dealers could not front run their clients.

22

The components – Value Proposition4 / 5 dimensions of financial market liquidity

(1) Trading time – latency

(2) Tightness – spread (difference between the bid and offer)

(3) Depth – volumes at the spread

(4) Resiliency – price recovery after a large volume trade (can a security be bought or sold without affecting the price)

(5) Best execution considerations (headline price and all explicit and implicit costs)

Monopolistic and competitive

markets

Competitive markets




Kenya is 45% less costly

The few exceptions to immediate order submission that should be permitted are pre-arranged trades, mid point orders3.

The consequence of the lack of a regulatory requirement for immediacy is the DATS trading screen is dull. It is not changing second by second. By contrast, if all orders were exposed to the market in real time, brokers would find they generate higher execution rates and will not need to execute both sides of every order. Also, if brokers are found to have the intent of market abuse, commit front running or conduct other forms of market abuse, they should be penalties including compensation to investors for loss of profits as well as suffering a temporary suspension.

(2) Tightness of spread - Spreads are very wide at the DSE due to high tick sizes and expensive transaction fees. Wide spreads limit liquidity eliminating the possibility for day trading:

• The average cost of the spread (the so called implicit cost) on the DSE is 168 BPS, (1.68%) based on the current tick size tables and the sample data used in this study. This is very high - we have benchmarked this data against a sample of other African markets and it is only higher in Ghana;

• As for trade-related fees ("explicit costs"), Tanzania's fees are expensive compared to Kenya, South Africa, Morocco and Egypt. It should be understood that markets with high transaction fees will never be able to develop market making, liquidity provider and day trading mechanisms which are a valuable contribution to price formation and market structure.

• The DSE fee model is very much a first-generation fee model - flat and anti-competitive. It contains no incentives to expose liquidity. BTA recommends brokerage fees are made competitive as the industry no longer needs a prop in terms of fixed commissions. In the calendar year 2016, the average gross income per LDM (excluding any advisory fees and dealing income) was TZS 1 Bn (USD 468k) while the total income for all LDMs is TZS 11.3 Bn (USD 5.3mn).

3 The most simplified version of Mid-Point Orders are hidden and pegged to the current best bid and offer price providing guaranteed price improvement upon execution. Mid-Point Orders can rest in the central limit order book, enabling them to interact with all other orders, both lit and dark, maximising the chance of execution.




64% of the 2016 equity market volume was organised through pre-arranged trades

Figure 3 - Benchmark Fee Comparison

(3) Depth and Resilience - Taking the above into consideration, it is not surprising the order book depth is very low. Depth is especially constrained by the lack of immediacy of order entry, the prevalence of pre-arranged trades (which accounted for 64% of trade value in 2016) and the high expense to volatility ratio. As a result of poor depth, the resiliency of the order book is poor, even though the average value of an order book trade in 2016 was USD 4,800. There were only 15,000 trades in the order book in 2016 and 8 securities did not trade at all. Consequently, it is not surprising that 64% of the volume was organised through pre-arranged trades. There are only 4 relatively liquid securities as shown overleaf.

Figure 4 - 2016 Order Book Turnover - % of total Turnover

venue currency

8,417value fee fee

USDEgypt EGP 157,623 18.91 1.01

Ghana GHS 32,151 160.75 42.09

Kenya KES 875,413 2,100.99 20.20

Morocco MAD 84,484 84.48 8.42

Nigeria NGN 2,672,092 8,020.28 25.26

South Africa ZAR 113,668 6.25 0.46

Tanzania TZS 18,788,150 82,667.86 37.04

Zambia ZMW 83,115 207.79 21.04

benchmark trade value (USD)equities

local currency

trading fees

% of total turnover ISIN Rank

% of total turnover ISIN

17.87% TBL 1 0.00% MUCOBA6.12% CRDB 2 0.00% YETU3.64% TCC 3 0.00% TTP2.39% DSE 4 0.00% ACA2.37% NMB 5 0.00% EABL2.06% SWIS 6 0.00% JHL1.01% TPCC 7 0.00% KA0.33% TOL 8 0.00% KCB0.29% TCCL 9 0.00% NMG0.10% MKCB 10 0.00% PAL0.07% DCB 11 0.00% USL0.01% MBP 120.01% MCB 130.01% SWALA 14

36.3% Total




"Buy and hold" investment is a symptom not a cause.

The LDM community needs to be regulated to execute orders on the central DSE market and not have an economic need to filter orders before they reach the DSE.

The DSE is often said to be a "buy and hold" market but based on the above data, this is a symptom of investor behaviour, and not a cause. Some investors are reacting to insufficient visible profitable opportunities to trade. Referring to the fundamental objectives in Figure 1 on page 3, the order book does not meet the "public good" requirements and liquidity is not maximised at the lowest cost per transaction.

What has been extremely surprising from this study, is the DSE mobile service has totally failed to create liquidity. It has contributed to achieving financial inclusion goals. 250,000 investors have been created via the service but only 5,300 shares (TZS 2.7mn) have been traded across the mobile service representing 0.00064% of total annual turnover expressed in TZS.

This product needs to be re-launched as a proper e-commerce platform, using 100% Straight Through Processing (STP) standards. The secondary market product is actually not accessible to upcountry investors due to the KYC and manual intervention requirements and the lack of brokerage coverage outside Dar es Salaam. The product is too expensive, slow (settlement is T+3), it is too difficult to use and has too much manual intervention. Potentially, it could be used to access all DSE products, the impending M-Akiba Savings Bills and Bonds and furthermore used to launch tax efficient investment savings accounts

In summary, the current trading DATS and Mobile models at the DSE have significant potential for improvement. Almost all of the proposals in this report have been proven in other markets and are therefore strongly recommended.

1.3.5 LDMS

Throughout the history of Tanzania's capital markets, the LDM community have been helped considerably by the CMSA and DSE, but now it is recommended that LDMs become financially self sufficient and technically robust, competitive and innovative.

In 2012, BTA recommended that banks are invited to become full service LDMs. While most banks are absent, the LDM community can be described as a very polarised structure with 1 large LDM, 1 medium sized LDM and the rest being small as shown overleaf in Figure 5.

Cells in GREEN are ranked high, while in RED are ranked low:




Figure 5 - Equity Volume & Turnover by intermediary

Only two of the LDMs have partnered with third parties4. Partnership facilitate low cost customer acquisition and distribution channels. The lack of bank involvement encourages banks to focus more on debt capital markets rather than other investment products. Today, the LDM service to the DSE is almost entirely agency based and too narrowly focused on the pre-arranged marketplace, but even then, LDMs are only averaging 0.8 of a trade per month per LDM. Stakeholders propose market making will help, but it is impossible to implement market making under current structures and liquidity levels.

In common with most young markets, the solution to this issue is via regulatory reform. The CMSA will need to impose new standards including higher capital requirements such that the LDMs can act as principal and be financially responsible for trades of their clients in the event of default which will then enable LDMs to offer:

• market making services provided there are clear regulatory obligations and incentives;

• ETFs and other covered products; and

• research.

In addition, to these additional obligations, the CMSA should make the LDM market competitive from a fee viewpoint. The larger brokers are already discounting fees implying the fixed fee model is no longer applicable. Indeed, it can be clearly seen that fixed commissions are stifling innovation. LDMs are a critical channel to the market and at present the channel is not working sufficiently well.

4 Solomon Stockbrokers have partnered with CRDB bank in an Agency arrangement and also Tanzania Securities has partnered with MNO (Tanzania Posts Corporation) in a similar arrangement

% Rank % Rank % Rank % Rank % RankBROKERBroker1 7% 4 6% 3 4% 4 3% 4 4.6% 3Broker2 9% 3 6% 4 3% 6 1% 8 3.4% 4Broker3 2% 6 3% 5 1% 10 0% 11 1.8% 8Broker5 64% 1 61% 1 65% 1 68% 1 64.8% 1Broker6 1% 8 1% 11 4% 5 3% 5 1.7% 9Broker7 2% 7 2% 7 1% 7 2% 7 1.9% 7Broker8 10% 2 2% 8 9% 3 2% 6 2.3% 6Broker9 4% 5 12% 2 12% 2 16% 2 13.8% 2Broker10 1% 9 3% 6 0% 12 0% 12 1.5% 10Broker11 0% 13 0% 13 1% 9 0% 10 0.2% 12Broker12 0% 12 0% 12 0% 13 0% 13 0.1% 13Custodian1 0% 11 2% 10 0% 11 1% 9 1.3% 11Custodian2 0% 10 2% 9 1% 8 3% 3 2.8% 5Grand Total 100% 100% 100% 100% 100.0%

TOTALSELLS BUYS

VOLUME TURNOVER VOLUME TURNOVER TURNOVER




1.3.6 CONCLUSION

Having explained some of the key barriers to the exiting marketplace and how they need to be addressed, the following section describes the exciting new product and service development proposals.



2 PRODUCTS AND SERVICES DEVELOPMENTS

2.1 PRIMARY MARKET DEVELOPMENTS

This section summarises the product and service developments that have been designed for the capital markets of Tanzania. The proposals will widen the revenue generating opportunities for intermediaries, and provide healthy choices for issuers and investors, lowering the cost of capital for issuers and diversifying investment returns for investors. Collectively, new businesses, business extensions and new business models will be created. There are significant relevant proposals to help Tanzania to finance its large-scale industrialisation and infrastructure developments, whilst also enable corporates to tap alternative sources of capital and collectively to lower the cost of capital.

The proposed developments are shown below. The DSE has extensive material on each of the product and is happy to discuss the requirements and opportunities for any given product, with interested stakeholders. To avoid this document being too long, only a short description of each development is provided here.

2.1.1 GOVERNMENT BILLS

Government bills are short term loans made to Government, issued at a discount and redeemed at par. Currently, the duration of these instruments in Tanzania are:

35 days;

91 days;

182 days;

364 days.

Currently, Government Bills are not listed on the DSE and the proposal is to list them alongside the Bonds. This will enable the M-Akiba Savings Bills and Bonds to be traded, which will widen financial inclusion and enable any Tanzanian citizen, including the financially disadvantaged, to protect their wealth. Investors will be confident about entering this market if they know they can sell their securities through a unique trading model on the DSE if they require cash before the redemption date.

To enable Bills to be listed on the DSE no legal changes are required in legal framework directly relevant to Government securities listing of T-Bills. However, to avoid any doubt, it is recommended that:

• the CMSA does include in the Gazette that T-Bills are included in the definition of securities; and

• in the new CMSL, T-Bills are included in the definition of securities.

Once listed, the product will become tradeable through its existing mechanism, and the M-Akiba Savings Bills and Bonds will be tradeable using the innovative mechanism proposed under a separate study.



2.1.2 “DIASPORA” BILLS AND BONDS

Diaspora Bills and Bonds are bonds issued by the Government of Tanzania to selected non-resident Tanzanian communities or foreigners resident in Tanzania.

Once the infrastructure for M-Akiba Savings Bills and Bonds is in place, it will be possible to create a focused set of bills and bonds targeted at non-resident Tanzanians. Without the M-Akiba infrastructure it is very hard to target the relevant communities. Diaspora Bills and Bonds will attract wealth back to Tanzania to help finance the large scale industrialisation.

A "Diaspora" can be broadly described as communities of individuals no longer in their homeland. In this example it consists of two categories of individuals:

• Tanzanian passport holders living outside Tanzania; and

• former Tanzanian passport holders living outside Tanzania.

In a modern world, the definition could also include foreigners resident in Tanzania. Creating Diaspora bills/bonds targets individuals who may have a particular bias or interest towards helping the economic growth of Tanzania.

This product would require some changes and would therefore require a separate pilot design project which would lead to the listing of Diaspora Bills or Bonds. Changes would be required in the following areas:

• Allowing non-residents from any jurisdiction to apply for Government securities. Opening this door would help to migrate Tanzania’s restrictions on foreigners one step closer to being a totally free market;

• Adopting “distance KYC / AML” procedures;

• The operationalisation of the M-Akiba savings infrastructure extended to be available outside Tanzania including potentially:

Reduce the withholding tax to 5% as proposed in the Taxation template;

Interface with other payment gateways given the Tanzanian Diaspora will need access using other payment services other than Tanzanian mobile wallets.

A Corporate version of this product could also be created using the DSE Mobile infrastructure modified for the point above and using the issuance and trading methodology defined in the Negotiable Certificates of Deposits (NCDs) template.



2.1.3 MUNICIPAL BONDS

Municipal Bonds are issued by local municipalities and listed on the DSE, to raise capital with the aim to attract investors (local or institutional) to facilitate the financing of local infrastructure. Municipal Bonds will need to be guaranteed by Government.

Municipalities in Tanzania are financed via the Government Budget which is bundled into the high cost of Government Bills and Bonds as discussed earlier in this report. Currently, municipalities are not allowed to borrow directly and their governance is not ring-fenced. Consequently, the municipalities do not optimise their use, allocation and cost of capital. This inevitably has a knock-on effect for their fulfilment of their responsibilities.

To help Government resolve these issues, the DSE is proposing to offer municipalities the chance to raise capital via Municipal Bonds. These are a variant of the bonds issued by a specific type of issuer - a city corporation which aims to attract investors (local or institutional) to facilitate the financing of local infrastructure. The city corporation or local authorities, will issue the bonds which are available for private individuals or legal persons to invest via an IPO and trade on the secondary market on the DSE. Like all bonds the municipal bonds are issued for:

• a specific period;

• with a fixed or floating interest rate paid in regular intervals that have to be outlined in the prospectus; and

• where the nominal value of the purchased bonds is repaid at maturity or at default date.

Municipal bonds are issued by the local municipalities, states, cities, and other Governmental entities which are given a specific legal personality for the purposes of the bond issuance and service operation e.g. via a Special Purpose Vehicle (SPV) created. Private sector style corporate governance would be required including the adoption of IFRS, and a Government guarantee against default. Both of these changes would be beneficial as they would bring greater accountability to the municipalities while introducing a requirement to specified goals within time periods. In practical terms, if the municipal bond was for example raised for a specified component of infrastructure, e.g. a bridge, a school, hospital, adopting this route for financing will give greater probability that the infrastructure will be created and operational within specified time periods, and then run more efficiently.

The legal reform to make this possible is specified within the detailed analysis conducted in this study.



2.1.4 INFRASTRUCTURE INVESTMENTS

What is infrastructure?

The OECD uses a simple and general definition for infrastructure as the system of public works in a country, state or region, including roads, utility lines and public buildings. The OECD splits such infrastructure into 2 categories (economic infrastructure and social infrastructure):

Economic infrastructure

• transport (e.g. toll roads, airports, seaport, tunnels, bridges, metro, rail systems)

• utilities (e.g. water supply, sewage system, energy distribution networks, power plants, pipelines, gas storage)

• communication (e.g. TV/ telephone transmitters, towers, satellites, cable networks)

• renewable energy

Social infrastructure

• education facilities

• health (hospitals and health care centres)

• security (e.g. prisons, police, military stations)

• others (e.g. parks).

The Government's policies to industrialise and develop the infrastructure of Tanzania is excellent. However, the financing of such infrastructure requires Government to raise public debt as well as requiring pension funds to invest in such projects. Discussions with stakeholders from pension funds stated that their investments are currently direct investments (for the most part), but not ring-fenced into segregated corporate entities with dedicated corporate governance and specialist investment regulations.

It is assumed that the investment to date by pension funds is debt, but it could equally be equity, or co-ownership of real-estate assets. Such a financing model exposes the pension funds to long-term levels of underfunding through the following:

debt repayment risks;

guarantor risks e.g. Government reneging on a guarantee;

cost overruns;

project failure;

lack of clarity of accounting especially arising from the use of public finance accounting as opposed to IFRS;

unclear corporate governance over the investment and operation of the infrastructure;

legal and ownership issues;

environmental risks; as well as

regulatory and political challenges.

Infrastructure investments are a growing phenomena globally as public-private initiatives and the listed variety offer improved chance of economic success, provided they are properly regulated. The OECD estimates that the annual infrastructure requirements for electricity transmission and distribution, road and rail transport, telecommunication and water is likely to average 3.5% of world GDP, i.e. about US$ 2tr pa. This amounts to a sum of over US$ 50tr until 2030. The figures get even higher if other infrastructure sectors are added.

In 2016/17, the Government has budgeted shillings 5.47 trillion equivalent to 25.4 percent of the total budget excluding public debt service for infrastructure projects. Tanzania is spending significant sums, above the OECD benchmarks.

This project has included the creation of infrastructure investment products (debt / equity) to enable the CMSA/DSE to support the Government objectives through the creation of listed investment products to support the same industrialisation and infrastructure development goals, but with the added advantage of lowering the total borrowing requirement for Government while benefiting from the additional corporate governance and ring-fencing that would be driven by listing requirements.



INFRASTRUCTURE INVESTMENTS (CONTINUED)

From the pension funds' viewpoints, infrastructure projects have the potential to match long-term pension assets and provide investment diversification into real assets. Subject to the nature of the actual investments, the pension funds may also be supporting sustainability, environmental and social goals which is important in a modern context. From the Government's viewpoint, subject to the design of regulations for infrastructure securities, the product will lower Government borrowing in absolute terms and it will certainly help to reduce the risk of re-financing through Government debt.

The OECD states that Infrastructure Assets typically show one or more of the following economic characteristics to make them attractive investments:

• high barriers to entry;

• economies of scale (e.g. high fixed, low variable costs);

• inelastic demand for services (giving pricing power in certain economic circumstances);

• low operating cost and high target operating margins;

• long duration (e.g. concessions of 25 years, leases up to 99 years).

The above assumes strong regulation, enforcement of regulation, and private sector corporate governance. None of those assumptions apply to unlisted infrastructure investments in Tanzania. Of course, the investment risks depend upon the specific assets but currently, the largest investments in Tanzania are outside the scope of thorough accounting and due diligence.

2.1.5 INVESTMENT VEHICLES

The proposals arising from this project create supplementary listing requirements and a process to work closely with the Government to create public / private entities listed on the exchange to deliver and operate public infrastructure, with the Government acting possibly as guarantor, potentially as customer but definitely as regulator through various regulatory arms (Pension Regulator, CMSA, BoT). The infrastructure investment can be:

• Via the primary markets (to finance the start-up of a school, toll bridge, or other project) in a Special Purpose Vehicle

• Via the secondary market, where a Special Purpose Vehicle created for the infrastructure operates the infrastructure

The investments can be single/multi-asset, single / multi-sector. The actual entities which become listed would become part of the DSE's equity and bond segments while infrastructure property would be a part of a new real estate category. These types of companies would also support the development of index and ETF products given the nature of the assets and cash flows. There have been African infrastructure companies tracked by international index providers since 2007.



2.1.6 REITS

What is a REIT?

A Real Estate Investment Trust (REIT) is a type of Collective Investment Scheme dedicated to the financing and ownership of property. The following types of REITs exist:

• Equity REITs which generate income through the collection of rent on, and from sales of, the properties they own for the long-term;

• Mortgage REITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.

• Social REITs created for social housing including urban regeneration, involving the removal of slums and introduction of the socially disadvantaged to equity based housing (partial or full equity ownership).

REITs were included in the 2012 DSE strategy but unfortunately, Tanzania has not succeeded in creating a listed REIT.

A REIT is a tax efficient trust company if the tax proposals contained in this study are adopted by Government. A REIT derives most of its income from renting out real estate e.g. offices, factories, residential units or a mixture. According to REIT Regulations 2011, a REIT is defined as “unit trust scheme that invests or proposes to invest primarily in income-generating real estate”. In those jurisdictions where REITs are successful, e.g. the UK, USA etc, REITs are tax efficient vehicles designed specifically within scope of the local tax legislation. In the UK for example, a property company must comply with the legislation to qualify as a REIT and thereby obtain the tax benefits. In some cases, REITs will be exempt from corporation tax and capital gains tax, but it is required to distribute high levels of profits to investors to qualify for such exemptions, who are taxed at their marginal rate of tax. REITs were introduced into the UK legislation in order to enable investors to be exposed to property assets via a listed entity, harmonising tax structures. In Tanzania, such a model would reduce the “double tax” on real estate income.

REITs have a major benefit for economies, financing the creation of real estate, growing the tax base of the country, the job market, the business community and creating many social benefits by placing the supply and demand for property and property financing together. Debt finance and public finance are not as efficient, where the full REIT structure is implemented.

2.1.7 EXCHANGE TRADED FUNDS

What is an ETF?

A passive ETF is a listed fund that invests in underlying securities and seeks to replicate a particular published index in its own right as an instrument.

ETFs are in fact shares, but they have some features of an open-ended fund, continuously offering new fund shares, with a requirement to buy back, at prices based on the Net Asset Value.

It is proposed that the DSE introduces Exchange Traded Funds (ETF) and out of the many varieties, launches with a passive ETF. A passive ETF is a listed fund that invests in underlying securities and seeks to replicate a particular published index in its own right as an instrument. There is almost no latitude in the investment strategy of an index-tracking ETF as it is defined by an index (some latitude exists for fixed income ETFs and where specific indices are constructed for a set of securities, not necessarily from the same market).

ETFs are in fact shares, but they have some features of an open-ended fund, continuously offering new fund shares, with a requirement to buy back, at prices based on the Net Asset Value. ETFs are bought / sold through brokers with dividends on the underlying securities are either paid out to investors, or re-invested in the fund.

ETFs can be created in Tanzania from three main sources:

• Government securities locally, but the illiquid secondary markets would cause tracking errors for ETFs;

• Local corporate securities (corporate bonds, equities)

• Foreign securities.



Exchange Traded Funds (continued)

Once a structure is created, the model can then be replicated for commodity based ETFs.

ETFs were in the 2012 DSE strategy but have not been able to be implemented so far. This new product development strategy will aim to work with stakeholders to remove the barriers shown below but currently, this product is hampered by both domestic and cross border barriers. The local barriers include:

• lack of local market depth, immediacy of visibility of liquidity;

• low absolute levels of liquidity;

• lack of risk taking and market making by intermediaries. ETFs rely on a market maker to launch and support the product. The current broker based LDMs have insufficient capital, while the bank based LDMs only use the DSE for trade reporting of Government securities trading. ETFs are not order driven products - they are totally dependent upon market making;

• lack of expertise locally - there has been no specific training on ETFs for intermediaries but it should be noted that some of the local banks have exposure to ETFs via their parent companies in South Africa, Nigeria or UK

• lack of development of any customised indices suitable for the benchmarking of any ETFs;

• lack of resources focused on delivering this product.

Given the above issues, the natural reaction is to try to plug the liquidity related gaps with a mixture of local and foreign securities as has been achieved in Kenya and South Africa, but there again, there are barriers:

• lack of standards - Tanzania has not achieved Frontier Market status which reduces the attractiveness of the market to foreign ETF providers.

• the current foreign exchange restrictions would limit the possibilities of a DSE listed ETF based on foreign securities to EAC securities.

Some of the above barriers should start to change with the advent of Telco and Mining companies listing on the DSE and the implementation of the recommendations of the Government securities template. In addition, since 2012 there are more foreign ETFs investing in African securities including in Frontier Markets (although Tanzania is not a Frontier Market) including a recent South African ETF which includes TBL and CRDB in the product. However, all the gaps need to be resolved to launch a successful ETF, which means there are significant opportunities for ambitious stakeholders.



2.1.8 CLOSED ENDED INVESTMENT FUNDS (CIFS)

A Closed-Ended Fund (CEF) is a publicly traded limited liability investment company, established under the Companies Act 2002 with a fixed number of shares in issue, authorised by the CMSA which raises a fixed amount of capital through an initial public offering (IPO) and where the fund manager oversees the investments in the assets proposed in the prospectus.

The primary objectives of a CIF are to invest and manage its assets (including pooled funds contributed by holders of listed securities):

• in property of any description described in the prospectus;

• with a view to spreading investment risk.

A listed CEF has the advantage that it is totally trackable with liquidity published through the DSE's information services. The CEF is tradeable on the exchange at the current tradeable price, whereas an unlisted CEF is only traded at the end of day NAV. For this reason of investor protection, the CMSA should prohibit unlisted CEFs as experience in other emerging markets shows that fund managers of such funds direct their clients to such funds at the expense of the market to earn higher fees.

A closed-ended investment fund must, at all times, invest and manage its assets in a way that is consistent with its objective of spreading investment risk and in accordance with its published investment policy. The published investment policy should be sufficiently precise and clear to enable an investor to assess the investment opportunity and identify how the objective of risk spreading is to be achieved. It should also enable investors to assess the significance of proposed changes of the investment policy, some of which may require their consent.

The CEF will be able to use derivatives for risk management purposes in the future, once derivatives are live on the DSE. A CEF should be able to issue and list more than one share class, an investor can invest in different classes of shares in the same fund.

The CEF may trade at a premium or discount based on a range of factors:

• demand for the expected yield being offered;

• relative historic performance to the underlying securities and peer funds;

• credit quality of the portfolio manager; and

• investor perception and confidence in the portfolio manager.

A CEF shares should be held in the CSD. The CSD may or may not provide a service to provide custody and management of all the investments. This may be undertaken by the Fund Manager. If held in the CSD, the CSD will need to undertake all the NAV calculations and mark to market of the underlying assets.

The Fund Manager does not issue or redeem shares in the fund like an open-ended fund. The shareholders of the Closed Ended Investment Fund do not have shareholder rights in the underlying assets which are owned by the Fund.



2.1.9 PRE-EGM FUNDING

Tanzania needs a full range of capital raising options in its commercial ecosystem. Figure 6 below shows the source of potential finance for SMEs.

Figure 6 - Finance for SMEs

In Tanzania SME finance is 99% friends and family, graduating to debt finance from banks. There is less than 1% risk based equity finance. There are other gaps in Tanzania compared to many other markets. We have included a comparison of Tanzania with developed markets as Tanzanian SMEs have the chance to list on London’s AIM market or other markets abroad so it is important to be realistic about the gaps. The structural gaps in the finance for SMEs are as follows:

• no local venture capital or other forms of private equity - there are foreign VCs which select specific companies in Africa for investment potential;

• almost no bank equity investment. Tanzanian banks mean there is no process for banks to grow companies and achieve an exit multiplier as they are almost 100% focus on debt rather than equity;

• no crowd funding;

• minimal debt or grant funding direct to SMEs from Government or Donors.

The gaps described above mean there is no feeder to the EGM. Unless the DSE / CMSA works with Government to fix these gaps, the EGM will always have a slow start. It will have the Korean problem where the Korean Exchange has measured that it takes at least 12 years before a company is potentially ready for the Korean equivalent of an EGM type listing.

The importance of private equity as a reliable source of IPOs in the UK markets can be seen below:

Friends, Familites & Private

Placement

Local Co-operative &

Micro Finance

Bank Debt /Government

Funds

Other Private Equity Options

Listing – EGM MIMS

1 2 3Venture Capital

or Crowd Funding

4 5 6

Potential stages of capital raising

Re-financing at each stage



PRE-EGM FUNDING (Continued)

Figure 7 - Private Equity as a source of IPOs (UK - source FCA)

Specific actions for the DSE: Crowd funding

Given the gap in the market and given the stakeholders’ consultation did not identify any potential entrants to the venture capital market, the DSE could create its own pre-EGM crowd funding market. Such a market would minimise the entry requirements. It would have to decide on the model and there are many options but the broad choices are:

• a "business angels" network of high net worth individuals for entrepreneurial start-ups; or

• a full crowd funding service open to any investor including retail.

If the scale can be achieved with a business angels network that may be the best next step for the DSE as it would require less regulation. Equally, the presence of 24 million mobile SIMS means that a more retail offering could be seriously considered if the minimum subscription was kept low. In Europe, business angel networks are unregulated as the theory is that high net worth individuals are able to decide on their own investment strategies and do not need the guidance of a professional advisor. If retail investment is allowed, then some minimal regulation would be necessary.

On the issuance side, the pre-EGM crowd funding would require:

• A short offering document (maybe up to 10 pages) using a DSE template;

• Compliance check by a DSE Committee;

• Simple quarterly reporting requirements - abbreviated accounts and cash flow to encourage financial reporting;

• IFRS - Tanzanian GAAP;



PRE-EGM FUNDING (Continued)

• Minimal corporate governance standards;

• Choice of fund raising options:

Donations

Peer to peer lending

Equity - crowd funding

and other funding options.

• Provision of a limited registry service by the DSE.

The issues on this segment would only be accessible to high net worth individuals and selected legal persons as investors. There would not be a public limit order book open to any investor given the high-risk nature of the investments.

A number of markets have started to implement such solutions – in Europe this includes Poland, Spain and Croatia.

2.1.10 NEGOTIABLE CERTIFICATES OF DEPOSITS (NCD)

What is an NCD?

An NCD is a DSE listed immobilised security representing an investor's deposit with a bank, co-operative or credit society. The deposit is issued by the financial institution and the balances are registered to each depositor (Investor), held in electronic book-entry form in the DSE CSD.

The NCD is a short-dated instrument, up to 365 days in duration and enables the issuer to extend its client base and lower its cost of capital.

An NCD is an important addition to the short-term debt products from the DSE. It will help banks or equivalent institutions to attract new customers and change its cost of capital.

The NCD raises money in a similar way to how banks raise funds from time or fixed deposits, with the added dimension that the product is listed on the DSE. The key attributes of the security are as follows:

1. The NCD is targeted at institutional and retail investors. The investors purchase the security to secure the interest rate defined in the product description (a simple mini prospectus);

2. The NCD is a separate ISIN (security) for each interest rate band defined in the mini-prospectus.

3. The investor can subscribe to the NCD in the primary market through two channels:

directly to the Issuer via their branch network; or

via the DSE Mobile network.

4. Large investors will need to subscribe directly to the Issuer and may negotiate the price in the primary market i.e. the issuer can agree a different price for different subscription amounts in the primary market, subject to the terms laid down in the mini-prospectus;

5. The NCD accrues interest at the rate specified, with interest payable on the dates specified in the product description;

6. The subscribed amount is returned to the depositor (Investor) on the maturity date organised by the registrar of the NCD;



NEGOTIABLE CERTIFICATES OF DEPOSITS (continued)

7. The term of the NCD is between 7 days and 365 days as specified in the product description.

8. The NCD is tradable in the DSE's transparent secondary market giving the investor choice - i.e. the investor can redeem early receiving the original deposit amount plus accrued interest (less an early redemption discount). They can use such funds for their cash flow needs or allowing the investor the chance to re-invest in other higher interest rate products, if they are available.

9. The secondary market is via the DSE ATS. On the ATS existing LDMs will be able to trade and the Issuer will also act as a market maker. The Issuer can act as a market maker either:

through an existing LDM; or

they can become a member in their own right through a new limited purpose Licensed Dealer (LD) as defined in the CMSL with full access to the DSE ATS and CSD for the purposes of only their NCDs.

An NCD product would be regulated by the CMSA. In order to launch the product on the DSE, a minor change is required to the legal definition of a security under the Capital Markets and Securities Act (Law) 1994 and 2010 (hereinafter CMSL) to include (negotiable) certificates of deposit. Once this change is made it gives CMSA the regulatory authority over the product listing, issuance, trading, settlement and custody. The CMSA is already empowered under the CMSL 2010 to add other instrument types to the definition of securities, and therefore this is a minor changed achieved through the Gazette. For the purposes of evaluating the listing and the continuing obligations for the issuer, the CMSA will liaise with the BoT during the admission period and while the NCD is listed on the exchange to assess creditworthiness.

2.1.11 DEPOSITORY RECEIPTS (DR)

What are DRs?

DRs are a security representing ownership of another specified underlying security in companies already issued in another country. DRs are issued by a depository representing underlying shares of an issuer company placed with the depository or its nominated custodian, in accordance with the terms of the DR prospectus e.g. 1 DR unit for 1 underlying security. The depository is the agent of the issuer and acts as a bridge between the DR holders and the issuer.

Currently there are 7 securities from UK and Kenya issuers which are dual listed between the DSE and foreign markets but there is no trading on the DSE. These companies are listed on the DSE by way of an "Introduction" but no securities are issued locally in Tanzania. 6 are with the Nairobi Stock Exchange and 1 with the London Stock Exchange.

• ACA – ACACIA Mining PLC – London Stock Exchange

• EABL – East African Breweries Limited – Nairobi Securities Exchange

• JHL – Jubilee Holdings Limited – Nairobi Securities Exchange

• KA – Kenya Airways Limited – Nairobi Securities Exchange

• KCB – Kenya Commercial Bank Limited – Nairobi Securities Exchange



DEPOSITORY RECEIPTS (continued)

• NMG – Nation Media Group – Nairobi Securities Exchange

• USL – Uchumi SuperMarket Limited – Nairobi Securities Exchange

There is clearly an addressable market for Tanzanian investors to invest in the above securities. There will be strong brand recognition in each of the above securities. However, the current market structure does not allow the issuer and investor to meet. This is an example of supply / demand market failure.

It is proposed to resolve this market failure, the DSE needs to create Rules and infrastructure to support the development of a new instrument known as a Depository Receipt which is currently absent from the Tanzanian market. This will facilitate trading in securities where the foreign listing is the primary (only) listing.

There are many benefits for Issuers, Intermediaries and Investors:

• For the Issuer

The objectives of an Issuer undertaking a secondary issue (using DRs) for Tanzania issuers would be to:

lower the cost of capital;

improve the profitability of the issuer especially by matching TZS denominated assets and liabilities;

create additional liquidity for dual listed securities, matching supply and demand;

improve sales and profits by taking advantage of "investomer" opportunities (cross selling between shareholders and customers).

• Intermediaries

The objectives a secondary issue (using DRs) for Tanzanian Issuers, for the intermediary communities would be to:

create trading / hedging / arbitrage opportunities for banks and LDMs between the local and original foreign market;

create an additional supply of local securities which can be sold and traded locally, without requiring the

ISSUER’S AGENT BRIDGESFOREIGN AND LOCAL MARKET

DR ISSUED TO BRIDGE TWO MARKETS

ISSUER’S PRIMARY LISTING ON EXCHANGE

SECONDARY ISSUEVIA A PROSPECUS

FOREIGN MARKET

DAR-ES-SALAAMSTOCK EXCHANGE

SECURITIES HELD INNATIONAL CSD DSE CSD



DEPOSITORY RECEIPTS (continued)

issuer to undertake an IPO;

create additional liquidity for dual listed securities, matching supply and demand;

• Investors

To provide additional investment and trading opportunities to investors, especially in companies with a strong brand recognition locally.

2.1.12 CONCLUSION – PRIMARY MARKETS

This completes the overview of what is proposed for the capital markets of Tanzania in the primary markets. As can be seen, a large of choice of products, designed for different scenarios and issuer types, but all aimed to at two key goals:

• lowering the cost of capital in Tanzania;

• reducing the Government borrowing requirement and making the DSE an additional engine of economic development.

We now summarise the proposed secondary market product developments.



2.2 SECONDARY MARKET DEVELOPMENTS

The DSE’s secondary market infrastructure will continue to evolve to provide a trading, clearing, settlement, depository and registry platform with the associated market information collection and dissemination for all the products described in the “Primary Market” developments above. Most importantly, to make the secondary market infrastructure achieve the liquidity and public good requirements defined in Figure 1 on page 3, the international best practice recommendations around transparency and immediacy described in section 1.3.4 on page 7 need to be implemented. In addition, the secondary market will benefit from the following developments.

2.2.1 TRADE REPORTING The secondary market for Government securities is influenced by among other factors OTC transactions in related products (currency, interest rate derivatives, and credit default swaps) which are currently organised by banks with domestic and foreign counterparties. There is no visibility to these transactions which adds to the uncertainty of the inter-bank credit market, and in turn, lowering liquidity and raising the cost of capital.

In 2008, the G20 recommended that all such transactions are reported to a “Trade Repository” and also, standardised products cleared through a Central Counterparty (CCP). At this stage in the development of the Tanzanian capital market, it is recommended that the “Trade Reporting” recommendation is implemented. Trade Reporting services are offered by many mature market exchanges or their clearing houses and therefore it is recommended this approach is adopted in Tanzania. If the infrastructure is in-sourced from an existing repository, it would be standards based, inexpensive, with a short time to market especially for international participants to comply.

2.2.2 DERIVATIVES

This project has investigated which derivative products can be launched in Tanzania. A derivative contract is a financial instrument that is a claim on another financial instrument or underlying asset. Derivatives can be used to speculate on price changes of an underlying asset to gain profit or they can be used to hedge an existing long or short position on the underlying asset against the price changes to reduce risk. Futures contracts and options contracts are types of derivative contracts.

Derivatives offer the capital markets many benefits, sharing the benefits of underlying securities/assets more widely with Tanzanian citizens. Specific benefits include:

• Improved quality and depth of the Tanzanian capital markets including potentially the creation of a large number of retail and institutional investors.

• Derivatives gives the possibility to benefit from price movements with a small amount of investment compared to holding the underlying itself.

• Derivatives support and provide an efficient tool for risk management via hedging strategies of underlying equities portfolios in the futures markets.



DERIVATIVES (continued)

SSFs are futures contracts on specific individual securities.

SIFs would be a useful product for the Tanzanian market for domestic and institutional investors and especially for collective investment schemes with large portfolios of assets. SIFs enable hedging and the minimisation of portfolios risk instead of selling securities in the cash markets.

• Derivatives attract foreign investors and long-term investors like collective investment schemes to invest more in equities over longer terms with providing efficient hedging mechanism to their portfolios and an efficient and easier way to buy and sell the whole market with appropriate blue-chip stocks and index contracts.

• The prices on the derivatives markets provide future reference prices to investors in the underlying enabling them to make their long-term investment decisions and create better investment strategies.

• Derivative markets increase the overall transaction volumes and the liquidity of cash markets with new arbitrage opportunities between cash and derivatives markets.

The following specific products have been identified as the entry level products for Tanzania. The DSE has been provided with specific contract descriptions.

• Single Stock Futures (SSFs) - based on 2016 liquidity, the top 4 candidate securities upon which SIFs could be created would be TBL, CRDB, TCC and NMB.

“Futures Contract” or “Future” means a Contract imposing an obligation to trade the underlying asset at a price agreed on trade day for physical or cash-settlement on a pre-defined date in the future.

A futures contract on an equity represents the right and obligation to buy or to sell the underlying equity with the quantity of that particular equity written in the contract specifications listed by the Exchange.

An SSF contract can be designed as a physical delivery future contract or a cash-settled future contract by the DSE.

No money and underlying securities change hands between the buyer (long position holder or purchaser) and the seller (short position holder or seller) on trade day when the contract is made. Only at the maturity of the future contract, the long party delivers money to short party and the short party delivers the underlying asset to the long party according to the terms and conditions written in the future contract specifications which are defined at the beginning by the Exchange and Clearing House.

• Stock Index Futures (SIFs) –

SIFs are cash settled instruments. That is, there is no delivery of the underlying stocks. There is no way to corner the cash markets with equity index futures.

The contracts are marked to market daily. It means that there will be daily settlement of daily profit and loss. Thus, mitigate the settlement risk of long term contracts, thereby mitigating the default risk.



DERIVATIVES (continued)

Warrants are financial instruments, that give the holder the right, but not the obligation, to buy ('call' warrant) or to sell ('put' warrant) an underlying asset at a specified price (the 'strike' price or 'exercise' price ) on or before a predetermined date where delivery or cash settlement exercises such right. The holder of a warrant does not buy the underlying security itself, but the right to buy or sell such underlying security, against the payment on the exercise date.

On the last trading day, the futures price is set equal to the spot index level and there is a final mark to market cash flow.

An index is a number that is computed in order to measure the value of a portfolio of stocks. When constructing a stock market index, three issues are of interest:

which stocks are in the index?

how each stock is weighted?

how the average market cap is computed?

• Covered warrants

It may be possible to confuse covered warrants with ordinary equity or corporate warrants. They are entirely different financial instruments. The former covered warrants are issued by independent third-party financial institutions (banks or LDMs), whereas the latter are issued by the original share-issuing company. Covered warrants should only be allowed on listed securities (including securities listed on foreign markets without a cross-listing on the DSE).

Warrants are included in the class of structured products, which carry the qualities of a securitised option. Warrants are written on a financial product (e.g. a security or a commodity) or an indicator (e.g. index). Such financial products, are called “underlying instruments”.

Warrants are similar to options with regard to the rights inherent at the financial instrument but there are two important key aspects that differentiates warrants from options:

• Covered Warrants are issued by financial institutions (named as “intermediary warrants”). They are NOT issued by the underlying corporate issuer.

• In mature markets, warrants are traded over the counter and on exchange.

Each warrant, entitles each relevant security holder to receive from the issuer (which is not the company issuing the underlying security) payment (per unit) of the redemption amount. This shall always be equal to or greater than zero. In the event the redemption amount will be less than zero, it is deemed to be zero. The obligation of the issuer falls due on the predetermined final valuation date. This date is moved forwards or backwards pursuant to any exceptional events, such as market disruption such as total systems outage or a major market failure, if any.



2.2.3 LIQUIDITY ENHANCEMENTS

Across most secondary market products offered on the market, it is also proposed to introduce:

• Market making

• Short selling

• Securities lending and borrowing

However, one must be realistic. These features will only be possible provided there are significant improvements to liquidity and the regulations surrounding these products are implemented. Increasing the regulatory capital of LDMs is also crucial.

2.2.4 CONCLUSIONS ON SECONDARY MARKET PRODUCTS

The secondary markets can become significantly more active and vibrant, provided all of the recommendations are implemented. Many of the features will require the stakeholders to identify new business models for making profits, based on higher volume – lower margin business.

We now summarise some of the other product developments proposed that will have external stakeholder relevance.

2.3 OTHER PRODUCT DEVELOPMENTS

2.3.1 LISTING RULE IMPROVEMENTS

The detailed report includes an explanation of how and why a series of barriers to listing need to be addressed, mainly based on international standards. These include:

• creating a CMSA prospectus approval Service Level Agreement (SLA) to complete the review within specified periods of time based on the type of listing

• automated application processes

• prospectus templates

• consistent allotment policies

• improved regulatory frameworks

• automation of announcements from listed companies in order that the price sensitive information is created in a and standardised format and is made available on the DSE website quickly.

In addition, the DSE will create special rules to support the disclosure requirements and investor protection for certain types of companies / issuers e.g. NCDs as discussed earlier, mining companies and others.

For the EGM companies there is also a proposal to introduce a Financial Sustainability disclosures to improve the quality of going concern evaluations and investor protection and to pre-empt re-financing requirements.



OTHER PRODUCT DEVELOPMENTS (CONTINUED)

A Financial Sustainability forecast, will provide additional disclosures to the Board and other stakeholders (e.g. key shareholders, VCs, investors etc). Financial Sustainability defines, under specific assumptions, how long the business will exist before it runs out of cash. For those business that are cashflow positive, it also highlights important investment and acquisition potential. The financial sustainability report is an additional report that can be created from core data and assumptions that are used to build the conventional balance sheet, profit and loss and cash flow forecasting.

This forecast will highlight many important features of the financial viability of the business and how to resolve any shortfall.

2.3.2 MARKET INFORMATION – RESEARCH

There is a notable gap in the Tanzania capital market. Economic research and research relating to issuers does not seem to be available from LDMs or Sponsors.

As a part of the process of making the industry evolve to the next stage, research needs to become a mandatory regulatory requirement for LDMs and Sponsors. Having established the mandatory requirement, there remains the issue on how the obligation can be delivered. While LDMs have the choice not to cover one or more companies, and provide general economic research this will always remain a void and the market will suffer.

One option is each LDM or Sponsor employs one or more Chartered Financial Analyst (CFA) or equivalent. However, the LDM or intermediary industry may decide, that they each cannot afford the full cost of a qualified Chartered Financial Analyst. The other option is the DSE employs the individual(s) and re-charges the costs (plus a margin) of such services to the LDMs and Banks. The DSE would then ensure research is completed for all issuers, even cross listed issuers, improving the case profiling of their clients. This would ensure the obligation is achieved at a shared cost. A number of exchanges undertake research on behalf of companies that are not covered by the members e.g. Singapore, Malaysia, London.

2.3.3 ISSUER PROFILING

As explained earlier, there is insufficient timely information about issuers in the public domain. To resolve this situation the DSE plans the following improvements:

• Automate issuer announcements through a standard upload facility using template announcements. In the medium term, this would migrate to the implementation of XBRL as a standard model for all listed companies submitting financial data. This will allow information to be machine readable and would be available to the global marketplace instantaneously. Such a development would show case Tanzanian issuers globally which is extremely important given Tanzania is a net importer of capital




• The DSE will also development better investor relations services including advanced statistical analysis of issuer data and development of the profile of issuers through the DSE website and social media. The profiling will make a big difference for a company choosing a listing versus private financing alternatives (e.g. bank debt, etc).

• Enforcing compliance requirements for quarterly information disclosures (improvement of Rule 38) with warnings and fines for late disclosure

• Real time data feeds to a broader range of market data vendors including internet companies. The aim of the DSE will be to improve the commercialisation of data.

2.3.4 DEVELOPMENT OF LDMS

A new paradigm of intermediation is required in Tanzania. It is critical that LDMs become more competitive and effective channels to the market. LDMs need to be required to raise their regulatory capital so they can enhance their participation in the market, providing services that depend upon on capital e.g. market making, underwriting of covered products such as covered warrants, derivatives and issuance of ETFs. Tanzania really needs the banks more involved in the market.

To create a new paradigm in intermediation in Tanzania a number of changes will require the support of CMSA:

• Clearer order handling requirements to achieve immediate order entry for the majority of orders

• Increased regulatory responsibilities around research

• Liability for all client activity

• Tariff liberalisation

• Higher capital requirements

• Better websites, market research and product development

2.3.5 CSD AND REGISTRY SERVICES

There is a long list of additional CSD and Registry services that the DSE can implement to enable issuers and investors to obtain much higher values from their relationships with the capital markets:

• Compliance with PFMI-IOSCO standards;

• Legal certainty of ownership of securities;

• Legal certainty for enforcement of contract especially in a default;




• Settlement finality;

• DvP against central bank money;

• Embedding new concepts into the law (e.g. CCP clearing, dematerialisation etc).

• Additional registry services.

The DSE will provide further details of each development as they are created and implemented.

2.4 LEGAL REQUIREMENTS

In sum there is a lack of legal certainty - the market needs to develop to a new level to achieve Frontier Market status.

When compared to international standards, there are significant gaps, inconsistencies and overlaps in the capital markets legal, regulatory and rule frameworks. The CMSA and DSE have been developing their legal infrastructure, but in parallel international standards have developed significantly since the 2008 financial crisis. Europe for example, has totally overhauled its entire legal and regulatory framework. Tanzania needs more dedicated legal resources at the CMSA and DSE, ideally including international experience to resolve historic gaps, overlaps and inconsistencies and to implement the required standards for each product. Each product design includes a summary of the legal, regulatory and rule change requirements.

2.5 TAXATION

Introducing a series of well planned tax incentives that enhance supply and demand will certainly increase tax collection and benefit issuers and investors.

Successful markets require tax incentives to stimulate them. Tanzania actually has quite a few good incentives, given it is a pre-Frontier Market. The detailed report contains an extensive description of benchmark incentives from other markets covering a range of topics from tax exempt investment products, mining incentives, REITs and many other developments.

The overall proposal is based on the assumption that taxation incentives change behaviour and increase total tax revenues (especially through indirect taxes e.g. employment, sales tax etc). This is backed up by evidence from other markets shows that the introduction of comprehensive incentives seriously stimulates demand and helps to channel savings and institutional investment into productive capacity. From the Government's viewpoint incentives also raises total tax revenues as publicly traded issuers typically implement higher standards of corporate governance and out perform their private sector peers in terms of revenues, profits and employment. Using incentives to attract more issuers into the public markets brings more components of the economy from the informal to the formal economy.

It is possible that the recommendations in this paper will be counter-intuitive to the Government of Tanzania. The suggestions are based on a "conservative style of Government" approach where tax is viewed to be price elastic i.e. the lower the rate the higher the consumption of the goods and services that attract the tax, whereas Governments of a more socialist orientation view consumption as price inelastic i.e. it assumes that consumption will not change irrespective of the rate of tax. It may be obvious but it is worth saying that tax changes the net return from a financial product and therefore will affect demand.



TAXATION (CONTINUED) One of the most crucial developments would be the introduction of an imputation system for tax for income arising from listed securities. In addition, a comprehensive set of taxation incentives as structured around the following schematic would be optimal. This is at the centre of the proposals shown below.

Figure 8 - Proposed Taxation Incentives

2.6 CONCLUSIONS AND NEXT STEPS

The scale of development contained in this report is significant which will be extremely beneficial for the DSE and Tanzanian stakeholders

The potential from this project is enormous and the benefits will last decades providing significant financial advantage to all stakeholders and communities. The benefits are therefore huge, including a significant chance to lower poverty. It will be easy for the DSE to continue to operate the existing market and be supply driven. Such an approach will not make a material difference to the economy. The DSE is keen to implement this product development strategy. Once everything is implemented in this project the central market infrastructure in Tanzania may look very different, more along the following lines:

Figure 9 - Vision for Central Market Infrastructure

Comprehensive potential tax proposals to make capital markets more attractive

Pre-admission: Admission (flotation):

Ongoing Admision:

A B CLiquidation

(insolvency)

D

Re-organisation relief

Roll-over relief of re-invested

gains

Capital gains exemption Loss Relief

Investment Relief

Reduced income tax on

dividends

Inve

sto

r B

en

efi

tsC

om

pa

ny

B

en

efi

ts

1

12

Enhanced deduction for admission costs (for R & D companies)

2

3 31

Imputation System

1

• Numbers define the priorities

Capital gains offsets

1

3

Tanzania Financial Market Infrastructure (FMI) futureCash, Derivative & Commodity Markets

Cash Markets DVP & Collateral

DSE ATSEquities, Govt & Corp

Bonds, Financial Derivatives

Central Counterparty / Clearing House(Routing, Novation, Margining, Netting,

Risk Management, SSIs/Enrichment)

Merged CSD(Corporate & Government Securities)

Clearing, Risk Management &

Routing

FinalSettlement,

Depository & Registry

OTC

BoT RTGS(TZS Settlement)

CMSA Automated Surveillance

BoT Systemic Risk Management

Registries to Issuers / Foreign

CSDs

Issuers, Intermediaries,

InvestorsForeign CSDs,Warehouses

Commercial Banks(FX Settlement)

Derivatives DVP & Collateral

1

2

3 4

5

6

Listing, Trading, Matching & Admission

Pre-Trade Risk & Local Controls

Pre-Trade Risk & Local Controls

TMX ATSCommodity & Commodity

Derivatives

Commodity Warehouses



CONCLUSIONS AND NEXT STEPS (CONTINUED)

2.6.1 HOW WILL THIS BE IMPLEMENTED?

The deliverables include a comprehensive plan for all the new products and service enhancements with the aim to implement all the changes over a 4 year period. The plan is extensive and will require a lot of supplementary resources from all stakeholders. Given the overall scale of resourcing, the following programme governance is proposed.

Figure 10 - Proposed Program Governance

2.6.2 NATIONAL POLICY COMMITTEE (NPC)

The NPC’s is formed of senior representatives from key stakeholder institutions including:

• DSE

• CMSA

• BOT

• MOF

• SSRA

• Broker’s Association

• Institute of Bankers

• Other relevant institutes from time to time e.g. Directors, Legal, Accounting



CONCLUSIONS AND NEXT STEPS (CONTINUED)

There should be two main aims of the NPC:

• to address major policy issues that will directly affect the implementation of the DSE product development program, which are outlined in this report; and

• to agree to the timeplan for each product implementation and their related national advocacy requirements.

It is actually critical that Tanzania adopts some Anglo-Saxon time management culture, perhaps using this project as a means of achieving change within a specified timescale. The NPC will receive progress / issues report from the DSE Executive as well as relevant briefing papers to allow policy decision making.

The NPC should have a secretariat member that coordinates the distribution of documents to and from the NPC and ensure that policy matters are tracked and addressed in a timely manner. It should hold meetings monthly at the beginning of the project and once success is being created, quarterly.

The DSE is looking forward to an exciting programme working closely with all stakeholders to create the next chapter in the history of the DSE and the capital markets of Tanzania characterised by vibrancy, dynamism and wealth creation.

Please feel free to contact the DSE with any questions or for further details.



3 APPENDIX 1 - DSE PRODUCT LIST

This is a list of existing and future products. Supporting this report are detailed descriptions and forensic multi-disciplinary analysis for each product shown below.

Primary markets

Listing of Government Securities

Listing of Municipal Bonds

Listing of Infrastructure Investments

Listing of Corporate Securities - Equities

Listing of Corporate Securities - Enterprise Growth Market

Listing of Corporate Securities - Mining Companies

Listing of Corporate Securities - Negotiable Certificates of Deposit (NCDs)

Listing of Corporate Securities - Bonds

Listing of Foreign Corporate Securities

Listing of Funds - Real Estate Investment Trusts (REITs)

Listing of Funds - Closed Ended Investment Funds

Listing of Funds - Exchange Traded Funds (ETFs)

SECONDARY MARKETS

Secondary Markets - Equity Trading

Secondary Markets - Government Securities Trading and Trade Reporting

Secondary Markets - Corporate Debt Trading

Secondary Markets - Micro-Savings Products

Secondary Markets - Trading of Foreign Companies

LDMs

Licensed Dealing Members (LDMs) Services

Market Information

Market Information



CSD & Registry

CSD & Registry Services

Derivatives

Derivatives - Stock Index Futures (SIFs)

Derivatives - Single Stock Futures (SSFs)

Derivatives - Warrants

dse product and service development plans product... · 2018-01-10 · dse product and service...

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