Thursday, July 18, 2024

BSE needs to do more on governance and investor protection

Botswana Stock Exchange needs to do more to tighten up its governance rules and protect investors, who in the instance of Botswana tend to be mainly institutional investors like  pension funds. Pension Funds have become a milking cow. That is not limited to just them. Even retail investors have been defrauded mainly as a result of their blind optimism when it comes to investment. BSE should do more to ensure that before listing, there is sufficient information provided in the prospectus. Unlike in many countries, Botswana has not had a level of interest in investment vehicles like say dotcom, bitcoin and other cryptocurrencies.

Such optimism often brings with it a debate on the efficiencies of existing regulatory framework. In short, as a country, we still have a long way to go when it comes to investor safeguarding and investor protection. The laws governing investor protection under the BSE are not clear enough. The BSE policing and enforcement frameworks are themselves suspect. And as such they do little to boost investor confidence. There is need for capital markets reform. Typically, too many of the BSE listed companies remain at the behest of founders even as they would have sold away significant stakes. What is needed are strong regulatory watchdogs with investor protection arms. Even better, the regulatory watchdogs should be split into retail and institutional investors. BSE has to host in its infrastructure platforms where investors can easily reach these companies. Again this is important because many of these companies are managed by founders and or powerful executives that really do not care so much about the views or concerns of investors.

The situation is especially urgent in an instance where there are still several companies  head-quartered offshore that have floated very minimal equity in the BSE. That is especially the case for a good number of commercial banks. On almost all spheres, there is very little data available to the public in Botswana. The situation is worse when it comes the stock exchange and investments in general. There is for example very little education on investment. And worse, investor activism is none existent. The regulatory framework is itself too weak. And in most instances there are suspicions of possible collusion between stock exchange authorities – and this will apply to the board members – as well as  some listed companies executives.

Certainly there are too many grey areas that open opportunities to undermine corporate governance and indeed compliance, that is itself not rigorous to start with. The scale of governance problems is certainly greater. And it should be confronted head-on. BSE is growing fast, at least as shown by the number of listings over the recent past. So too should be the depth of its regulatory framework. Disclosure and transparency remain insufficient. We should not forget that companies come to the stock exchange primarily to raise money.

Many of the people behind these companies would love to raise money, but they detest losing control and especially detest scrutiny that comes with listing. If they could help it, they could get the money from listing but still keep shareholding in those companies and also the privacy. So they cut new corners to get the money and still keep control. A decision by the Board of Choppies Limited a few years back to suspend a CEO, followed by BSE to stop the stock from trading and now a high profile court case by Choppies Limited against auditors should be sufficient enough to highlight the fact that there are issues that need resolving at BSE. There is need for capital markets reform. And there is by all accounts a likelihood that the auditors might countersue or that some of the investors might sue for lost money. In all these the BSE has remained silent.

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