Hiran Mendis, the Chief Executive Officer of the Botswana Stock Exchange (BSE) outlined his road map which will aid the local bourse to top charts against its peers at Investment Forum on Thursday.
The ambitious plan, which is also embraced by BSE chairman, Rozai Desai, will involve the establishment of Central Depository System (CDS), automation, the rolling of new products and an aggressive campaign that will see market layers being profitable.
“The realization of (BSE) potential depends on one’s vision. We have challenges,” he said, adding that for the exchange to compete against others in Africa, there is a need to improve the infrastructure and to increase the listings.
“If you can make the business of trading simple it would increase appetite to invest,” he said.
The central depository system is an electronic system which enables the sale and transfer of shares to be done over the computer and have real time transfers. It is aimed at cutting out some of the cumbersome and long paper work activities which involve transfer secretaries.
Under the current system when one buys shares he has to approach a stockbroker and wait for some days before he or she gets a share certificate from the transfer secretaries. The present system is risky and is prone to be contaminated by some fraudulent share certificates, insider trading and some transfer cancellations.
The BSE took a deliberate decision some years ago to try to enhance its image in an attempt to attract more local and international investors.
“We think that the CDS will be up and running by the end of the year and thereafter it will be followed by automation. We would like people to be able to buy shares over the internet,” he added.
He said one of the benefits which will come as a result of the introduction of CDS will make broking business more profitable and efficient.
Mendis also bemoaned the lack of liquidity in the market as buyers are more bent on holding on shares rather than selling. He said as a result of that, the market growth is stunt compared to its competitors in Africa.
“The market capitalization is growing on price but not on volume. It is more illiquid compared to other African exchanges,” he said.
Last year the BSE grew by 74 percent on price value but recorded three percent on volume while it is expected to slide to 2.6 percent this year. But on value it has gone up by more than 50 percent since the beginning of the year.
Compared to the regional market, the Namibia Stock Exchange grew by 5.4 percent and the JSE shot up 37 percent last year.
“We have to increase the listings but we cannot do that because the Botswana private sector is still small. Foreign investors are hardly taped because they do not have the infrastructure,” he said.
He said some of the things that need to be tackled without delay include promoting corporate governance among the market players but warned that the rule does not need to be too strict.
“Our rules tend to be merit based as against disclosure based,” he said, adding that “BSE is weak on corporate governance.”
Some of the measures that he said he would see through include putting in place a plan that would make broking business profitable and increase products that are offered on the exchange.
“We need to ensure that brokers are profitable and they should move being only equity dealers to more products. Brokers can not remain equity brokers forever; they would not be profitable,” he added.
He said one of the products which they will roll-out once the infrastructure was in place is the Exchange of Trade Funds (ETF). But establishment of Special Purpose Vehicle for the trading of ETF will need the approval of the Bank of Botswana under the Collective Investment Undertaking. The process takes no less than six months to be approved by the bank.