The Botswana Stock Exchange (BSE) is gearing itself up to introducing securitized products aimed at improving the level of liquidity in the market and helping interested institutions to turn cash much faster.
The bourse’s head of product management, Thapelo Tsheole, said at the Botswana Financial Sector conference on Tuesday that new development is expected to stimulate liquidity in the jaded P 29 billion.
“Our market is still illiquid and we are still trading the traditional instruments being equities and bonds,” he said, “We intend to offer more than equity products including securities products.”
The move is expected to benefit monied institutions, such as banks, as they will be able to turn their under valued assets into tradable market instruments. The new development, which is expected to be championed by the establishment of a Special Purpose Vehicle (SPV), will have key advantages, such as the efficient use of capital, increase liquidity and also act as a credit risk hedge.
The banks will be able to raise cash from debts that have been cleared by credit rating agencies to ensure that bad debts are not offloaded on potential investors.
“We are in the process of revamping the (BSE) regulations in order to accommodate some of these things. We have a more in-depth look into securities.
The exchange is also working on long term plans of being a regional player where it will have instruments from other southern African countries being traded on the BSE after the planned automation.
BSE is presently working on plans of automation and the central depository clearance system, which will ensure that trade is transparent and settlement procedures are quick. That is expected to lure investors to the Botswana market, which is largely dominated by local institutional investors. The move also comes at a time when the BSE is looking into prospects of turning into a private company in an attempt to be independent from government. However, it is believed that the most likely scenario will be that the BSE will be a joint venture between government and a private company.
“We are looking at the possibility of having an exchange traded funds which will entail the trading of foreign stocks and bonds from other countries being traded,” he said.
Exchange trade funds is a complicated concept entailing the identification or establishment of a company or a fund manager operating independently on its counter but trading foreign stocks or bonds in a single basket rather than having a huge number of companies listing independently on the bourse.
The combined dividends arising from that single basket will accrue to investors. The new development is likely to usher in the rush to form new companies in the form of credit rating agencies and exchange trade funds to take advantage of the modernization of the exchange.