Zimbabwe Stock Exchange Developments: Imara Conference,  28 May 2014

Alban D Chirume

Outline ZSE Vision  Update on the major projects of the ZSE Protection of minorities Recent regulatory actions by the ZSE ZSE Business Development Initiatives ZSE Regional Strategy ZSE International Strategy

ZSE Vision, Mission Statement and ValuesVision The premier African stock exchange, with a best of breed trading 

platform with a relevant suite of capital raising securities products.

Mission Statement Zimbabwe Stock Exchange exists to mobilise long term capital and to 

provide an efficient and reliable securities market.

Values Reliability ‐ Delivery on promises Integrity ‐ Beyond reproach in all dealings Quality ‐ Diligence, rigour and excellence Customer Service ‐ Passion for service Innovation ‐ Seeking a better way

Updates on the major projects 

The ZSE is undergoing a transformation which will result in: a company  owned by shareholders under a new legal framework  new procedures and processes new branding and location of the Stock Exchange possibility of listing on its own board

What are the major projects? The major projects are:

Demutualisation Automated Trading System Revision of Listings Requirements Establishment of Second Tier Board Establishment of a regulated platform for trading of bonds

Framework of the Demutualisation ProcessMain Parties The Ministry of Finance Members of the Zimbabwe Stock Exchange

Securities and Exchange Commission of Zimbabwe The Zimbabwe Stock Exchange

Demutualisation progressThree draft reports were produced, namely:1.  The Business Review2.  Valuation Report3.  The Demutualisation Plan

In addition, the following work has been done Engagement of legal advisors for the project; and Determination of shareholding

There is meeting of minds in terms of the ownership of  the ZSE between Government and Stockbrokers

Impact of Demutualisation  Redefining the structure of the management process of the 

ZSE

• An independent board to replace the Committee of the Exchange as a way to separate ownership from management Current Interim Board was ushered in by SI 100 of 2010.

• Removal of conflicted members in decision making and create  an appropriate skills set on the board 

• ZSE will be like any other corporate and must abide by the applicable Code on Corporate Governance.

Automated Trading System (“ATS”)The ATS process involves: Choosing of Consultant to “hand‐hold” ZSE in the complete project

Stakeholder consultation Drafting of Request for Proposals (RFP) Selection of the Vendor Purchasing Software and Hardware Installation User Acceptance Testing and going live

Current status of ATS1. Request for Proposals has been  produced On 19 September, 2013 Request For Interest publicised2. Selection of Consultant completed: CDS Company of Mauritius winning bidder3. Raising finance The finance was raised4. Initial training of ZSE Staff The  Operations Executive and ICT Officer  went to Mauritius to 

familiarise themselves with an  automated environment.5. Selection of vendor Infotech Financial Technologies selected as the vendor and 

contract has been signed

Timing of ATS

Our wish is to “go live”  beginning  of Q4 of 2014. Critical Processes

Need to interface with Chengetedzai Close  Coupling versus  Loose Coupling Close Coupling will provide better protection through immediate/simultaneous movement of cash and securities

Impact of ATS on the ZSE’s stakeholders Change from Open Outcry system to an automated environment

Longer trading hours Transparency in trades Acceptance of  a dematerialised environment by the investors and issuers alike.

Digital notices , warnings etc. of listed companies being placed on trading platform

ATS will be used as an effective surveillance tool

Second Tier Market Dovetails with the spirit of ZIMASSET – SMEs now considered the new economy

Initial consultations with SMEs undertaken Further consultations with institutions  related to SMEs Listings requirements crafted Targeting Second Quarter of 2014 The second tier market is a major beneficiary of the revision of the Listings Rules.

Working on establishing a Revolving Fund to assist issuers with IPO costs

Revision of Listings Requirements Formed a Working Party to lead the process

First level consultations undertaken in June, 2013

First Draft circulated into the market for comments for a period of 30 calendar days on 11 March 2014.

Second draft done.  Final consultations before drafting and approvals, through the ZSE board and SECZ.

Establishment of a Debt Market Still in its infancy stage An active OTC market is already in existence for bonds  ZSE is targeting listing:

Government Stocks Quasi Government Stocks (Local Utilities) Corporate bonds

ZSE is engaging policymakers for incentives to enable foreign investors to: be allowed to invest more than 35% of a primary  issue participate in the secondary market.

Draft listing requirements completed

Needs of the foreign investor from the ZSEProtection of investors: measured through the creation of laws which: 

Effectively define related‐party transactions; 

Promote clear and efficient disclosure requirements; 

Involve shareholders in major decisions of the company; and 

Set accountability standards for company insiders.

Needs of the foreign investor from the ZSE

Minority shareholders: have no representation on the board and are not privy to timely information about the company;

have limited information on which to base their investment decisions

It is imperative for the ZSE to take an active role in being the first line of defence for the minority shareholders through several reforms.

What the ZSE is doing to protect investors?AUTOMATION PROJECT the ATS is a surveillance tool to improve transparency,reduce market manipulation and in conjunction with theCSD, monitor directors’ trading.

DEMUTUALISATION leading by example in terms of corporategovernance

What the ZSE is doing to protect investors?LISTINGS REQUIREMENTS PROJECT

introduction of quarterly reporting

mandatory analysts’ briefings for all companies tocomplement low shareholder activism efforts.

registration of professional advisors in transactions tomake advisors accountable.

limited periods for suspension and judicial management

What the ZSE is doing to protect investors?LISTINGS REQUIREMENTS PROJECT

issuance of detailed cautionary statements

disclosure of directors’ trading to promote disclosure and curbinsider trading

expanding bracket of individuals prohibited from trading during aclosed period in order to promote disclosure and curb insidertrading

enforcement through penalties and fines.

compliance with a Code on Corporate Governance

What the ZSE is doing to protect investors? Cont…INVESTOR AWARENESS targeted at universities improves financial literacy and financial inclusion

REVISION OF COMPANIES ACT approached to provide input by the Law DevelopmentCommission which is spearheading the project.

the Companies Act is out dated and may have loopholes thatwill result in exploitation of minorities in its current form

issues of High Court Schemes of Arrangement prejudicingminorities will be dealt with

lobby for reduction of compliance costs to protect shareholdervalue

What the ZSE is doing to protect investors?

ENHANCED ROLE OF THE FINANCIAL REPORTING MONITORINGPANEL restoring confidence in financial markets through disclosures to protect

investors company insiders being accountable through the production of credible

financials

ENHANCING THE VISIBILITY OF ZSE Attending shareholders’ meetings of issuers Holding regular meetings with management of issuers Tour of operations Attending to queries raised by shareholders Responding to questions by reporters

What the ZSE is doing to protect investors

New products ‐ regulating previouslyunregulated entities through listing onthe alternative exchange (ZEEM)

Listings Rules less stringent to lower costswhilst also protecting investors in thefollowing areas: Lock up periodsDirectors’ trainingContinuing obligations

Regulatory actions in 2013:A.  DELISTINGS Delisting is not necessarily indicative of the economy, ZSE’s strategy to rationalise the board for the benefit of the investing public. 

REASONS  NUMBER

Judicial Management 2

Continuing Obligations 5

Schemes of Arrangement 3

Voluntary 3

TOTAL 13 * since 2012

Regulatory actions in 2013B. Republication of results As part of the ZSE’s review process of financials through the Financial Reporting Monitoring Panel, an issuer was directed to republish its financial statements.

C. ZSE has issued public notices companies that have been directed to republish results Misrepresented reasons for suspension Have published notices for shareholders’ meetings before approval of requisite circulars

Require companies to disclose reasons for late publication of results.

Regulatory Function in 2013

Going forward

Fines and penalties Exploring  establishment of a “Default Board” Public  announcements on non compliance

ZSE Business Development Initiatives Starting January 2014, ZSE set up a Business Development Department solely dedicated to issuers’ services and product development

Issuer services strategies include actively sourcing for new listings 

Retention of quality issuers Development of new products: working with other stakeholders who are experts in their respective fields in the development of new products

Search for new issuers ZSE carrying out sectorial researches for each industry ZSE approaching potential issuers  Working with corporate financiers and securities dealers

Our thrust is listing quality securities  Lessons from Egypt‐ it is important to look for quality new listings so as to avoid delistings

Lessons from JSE and NSE‐ dedicated business development teams to scout for new listings.

Retention of issuers “You are at the centre of everything we do”

meeting CEOs of issuers, site visits to understand the business models attending shareholders’ meetings Assisting issuers in lobbying for incentives from policymakers

Actively searching for  ways to reduce costs of listing Enhancing visibility of ZSE issuers through the ZSE Data Portal

Indigenisation and Empowerment There is need to interact with the Minister  to encourage ZSE listing as part of indigenisation. Educating parliamentarians on capital markets

Companies where there is a waiver of  Indigenisation requirements because of say, branding  should list. 

Encourage companies which have over‐the‐counter share trading  to list.

ZSE work in SMEs  supports indigenisation

ZSE Regional Strategy Acceptance that liquidity pools are critical, hence the need for interconnectivity of systems

Harmonisation of (i) Listings requirements(ii) settlements and clearance

Importance of  being party to strategy formulation for the region.

Collaboration with other Exchanges for dual listings 

International Strategy International Road Shows

In the second half we plan to visit Europe Presentations to International Investors

World Congress of Exchanges  in Doha (2014) Africa Investor Awards in New York (Sep, 2013) IMARA Investor’s Conference (2014)

Hosting International Capital Players

Working towards registration for WFE 

Why  the Zimbabwe Stock Exchange Only exchange in Africa which trades in USD –

limited currency risk.

Building a robust regulatory framework – paying close attention to protection of investors.

Transforming to international levels of trading and settlement.

YOU ARE AT THE CENTRE OF EVERYTHING WE DO